Loans

3 Months Ended

Mar. 31, 2023

Receivables [Abstract]

Loans

Note 4 - Loans

The following table summarizes the composition of our loan portfolio. Total loans are recorded net of deferred loan fees and costs, which totaled $2.0 million and $1.9 million as of March 31, 2023 and December 31, 2022, respectively. 

	March 31,		December 31,
(Dollars in thousands)	2023		2022
Commercial, financial and agricultural	$	73,898	$	72,409
Real estate:
Construction		84,442		91,223
Mortgage-residential		68,983		65,759
Mortgage-commercial		722,603		709,218
Consumer:
Home equity		29,524		28,723
Other		13,270		13,525
Total loans, net of deferred loan fees and costs	$	992,720	$	980,857

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of March 31, 2023:

	Term Loans by year of Origination
($ in thousands)	2019		2020		2021		2022		2023		Prior		Revolving		Revolving Converted to Term		Total
Commercial, Financial & Agriculture
Pass	$	1,954	$	1,893		26,328		12,852		2,334		10,505		17,900		—		73,766
Special Mention		—		—		62		—		—		25		—		—		87
Substandard		—		20		25		—		—		—		—		—		45
Total Commercial, Financial & Agriculture		1,954		1,913		26,415		12,852		2,334		10,530		17,900		—		73,898
Current period gross write-offs		—		—		—		—		—		—		—		—		—
Real estate Construction
Pass		8,543		12,629		17,328		32,263		4,896		212		8,571		—		84,442
Total Real estate Construction		8,543		12,629		17,328		32,263		4,896		212		8,571		—		84,442
Current period gross write-offs		—		—		—		—		—		—		—		—		—
Real estate Mortgage-residential
Pass		2,670		11,323		7,023		31,311		5,965		9,366		365		497		68,520
Special Mention		—		28		—		—		—		403		—		—		431
Substandard		—		—		—		—		—		32		—		—		32
Total Real estate Mortgage-residential		2,670		11,351		7,023		31,311		5,965		9,801		365		497		68,983
Current period gross write-offs		—		—		—		—		—		—		—		—		—
Real estate Mortgage-commercial
Pass		49,718		93,745		136,731		194,651		13,548		217,917		12,117		—		718,427
Special Mention		—		—		—		—		—		23		—		—		23
Substandard		—		—		—		—		—		4,153		—		—		4,153
Total Real estate Mortgage-commercial		49,718		93,745		136,731		194,651		13,548		222,093		12,117		—		722,603
Current period gross write-offs		—		—		—		—		—		—		—		—		—
Consumer - Home Equity
Pass		—		—		—		—		—		—		28,364		—		28,364
Special Mention		—		—		—		—		—		—		88		—		88
Substandard		—		—		—		—		—		—		1,072		—		1,072
Total Consumer - Home Equity		—		—		—		—		—		—		29,524		—		29,524
Current period gross write-offs		—		—		—		—		—		—		—		—		—
Consumer - Other
Pass		484		726		892		3,154		669		965		6,362		—		13,252
Special Mention		—		10		—		—		—		8		—		—		18
Substandard		—		—		—		—		—		—		—		—		—
Total Consumer - Other		484		736		892		3,154		669		973		6,362		—		13,270
Current period gross write-offs		—		—		—		—		—		—		2		—		2

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered as pass rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is shown in the table below as of December 31, 2022. As of December 31, 2022, no loans were classified as doubtful.

(Dollars in thousands)
December 31, 2022	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	72,333	$	47	$	29	$	—	$	72,409
Real estate:		—		—		—
Construction		91,223		—		—		—		91,223
Mortgage – residential		65,505		220		34		—		65,759
Mortgage – commercial		704,357		80		4,781		—		709,218
Consumer:		—		—		—
Home Equity		27,531		117		1,075		—		28,723
Other		13,269		93		163		—		13,525
Total	$	974,218	$	557	$	6,082	$	—	$	980,857

The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the three months ended March 31, 2023 under CECL methodology:

($ in thousands)	Commercial			Real Estate Construction			Real Estate Mortgage Residential		Real Estate Mortgage Commercial			Consumer Home Equity			Consumer Other			Unallocated			Total Loans
Balance at December 31, 2022	$	849		$	75		$	723	$	8,569		$	314		$	170		$	636		$	11,336
Adjustment to allowance for adoption of ASU 2016-13		193			1,075			32		(883	)		166			39			(636	)		(14	)
Charge-offs		—			—			—		—			—			(9	)		—			(9	)
Recoveries		2			—			—		11			3			4			—			20
Provision for credit losses		(48	)		(70	)		35		230			(59	)		(1	)		—			87
Balance at March 31, 2023	$	996		$	1,080		$	790	$	7,927		$	424		$	203			—		$	11,420

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology. The following tables are disclosures related to the allowance for the three months ended March 31, 2022.

							Real estate			Real estate			Consumer
				Real estate			Mortgage			Mortgage			Home			Consumer
(Dollars in thousands)	Commercial			Construction			Residential			Commercial			equity			Other			Unallocated			Total
March 31, 2022
Allowance for loan losses:
Beginning balance December 31, 2021	$	853		$	113		$	560		$	8,570		$	333		$	126		$	624		$	11,179
Charge-offs		—			—			—			—			—			(14	)		—			(14	)
Recoveries		11			—			—			6			3			3			—			23
Provisions		(15	)		(22	)		(47	)		(68	)		(5	)		35			(3	)		(125	)
Ending balance March 31, 2022	$	849		$	91		$	513		$	8,508		$	331		$	150		$	621		$	11,063

(Dollars in thousands)	Commercial		Real estate Construction		Real estate Mortgage Residential		Real estate Mortgage Commercial		Consumer Home equity		Consumer Other		Unallocated		Total
December 31, 2022 Loans receivable:
Ending balance—total	$	72,409	$	91,223	$	65,759	$	709,218	$	28,723	$	13,525	$	—	$	980,857
Ending balances:
Individually evaluated for impairment		29		—		34		4,752		168		—		—		4,983
Collectively evaluated for impairment		72,380		91,223		65,725		704,466		28,555		13,525		—		975,874

The following tables are by loan category and present March 31, 2022, and December 31, 2022 loans individually evaluated and considered impaired under FASB ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing TDRs.

The following table presents information related to the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the three months ended March 31, 2022.

	Three months ended
	Average		Interest
(Dollars in thousands)	Recorded		Income
March 31, 2022	Investment		Recognized
With no allowance recorded:
Commercial	$	—	$	—
Real estate:
Construction		—		—
Mortgage-residential		42		1
Mortgage-commercial		1,737		46
Consumer:
Home Equity		—		—
Other		—		—
With an allowance recorded:
Commercial		—		—
Real estate:
Construction		—		—
Mortgage-residential		—		—
Mortgage-commercial		—		—
Consumer:
Home Equity		—		—
Other		—		—
Total:
Commercial		—		—
Real estate:
Construction		—		—
Mortgage-residential		42		1
Mortgage-commercial		1,737		46
Consumer:
Home Equity		—		—
Other		—		—
	$	1,779	$	47

The following table presents loans individually evaluated for impairment by class of loans, excluding PCI loans, as of December 31, 2022

			Unpaid
(Dollars in thousands)	Recorded		Principal		Related
December 31, 2022	Investment		Balance		Allowance
With no allowance recorded:
Commercial	$	29	$	29	$	—
Real estate:
Construction		—		—		—
Mortgage-residential		34		51		—
Mortgage-commercial		4,752		5,260		—
Consumer:
Home Equity		168		168		—
Other		—		—		—
With an allowance recorded:
Commercial		—		—		—
Real estate:
Construction		—		—		—
Mortgage-residential		—		—		—
Mortgage-commercial		—		—		—
Consumer:
Home Equity		—		—		—
Other		—		—		—
Total:
Commercial		29		29		—
Real estate:
Construction		—		—		—
Mortgage-residential		34		51		—
Mortgage-commercial		4,752		5,260		—
Consumer:
Home Equity		168		168		—
Other		—		—		—
	$	4,983	$	5,508	$	—

Loan modifications for borrowers that are in financial distress that are still accruing and included in impaired loans at March 31, 2023 and December 31, 2022 amounted to $85 thousand and $88 thousand, respectively.

There were no additional loan modifications for borrowers in financial distress for the three months ended March 31, 2023.

The following tables are by loan category and present loans past due and on non-accrual status as of March 31, 2023 and December 31, 2022:  

					Greater than
(Dollars in thousands)	30-59 Days		60-89 Days		90 Days and				Total
March 31, 2023	Past Due		Past Due		Accruing		Non-accrual		Past Due		Current		Total Loans
Commercial	$	11	$	—	$	—	$	45	$	56	$	73,842	$	73,898
Real estate:
Construction		—		—		—		—		—		84,442		84,442
Mortgage-residential		—		—		—		32		32		68,951		68,983
Mortgage-commercial		63		—		—		4,044		4,107		718,496		722,603
Consumer:
Home equity		—		—		—		4		4		29,520		29,524
Other		9		—		—		—		9		13,261		13,270
	$	83	$	—	$	—	$	4,125	$	4,208	$	988,512	$	992,720
					Greater than
(Dollars in thousands)	30-59 Days		60-89 Days		90 Days and				Total
December 31, 2022	Past Due		Past Due		Accruing		Non-accrual		Past Due		Current		Total Loans
Commercial	$	87	$	—	$	—	$	29	$	116	$	72,293	$	72,409
Real estate:
Construction		—		—		—		—		—		91,223		91,223
Mortgage-residential		327		—		—		34		361		65,398		65,759
Mortgage-commercial		46		8		—		4,664		4,718		704,500		709,218
Consumer:
Home equity		—		—		—		168		168		28,555		28,723
Other		96		—		2		—		98		13,427		13,525
	$	556	$	8	$	2	$	4,895	$	5,461	$	975,396	$	980,857

The following table is a summary of the Company’s non-accrual loans by major categories for the periods indicated:

	CECL						Incurred Loss
	March 31, 2023						December 31, 2022
($ in thousands)	Non-accrual Loans with No Allowance		Non-accrual Loans with an Allowance		Total Non-accrual Loans		Non-accrual Loans
Commercial, Financial & Agriculture	$	—		45		45		29
Real Estate Construction		—		—		—		—
Real Estate Mortgage Residential		—		32		32		34
Real Estate Mortgage Commercial		3,882		162		4,044		4,664
Consumer Home Equity		—		4		4		168
Consumer Other		—		—		—		—
Total Loans	$	3,882	$	243	$	4,125	$	4,895

The Company recognized $85.5 thousand of interest income on non-accrual loans during the three months ended March 31, 2023.

For the three months ended March 31, 2023 less than $1 thousand of accrued interest was written off by reversing interest income.

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty.

The following table details the amortized cost of collateral dependent loans:

($ in thousands)	For the Three Months Ended March 31, 2023
Commercial	$	45
Real Estate:
Mortgage - Residential		32
Mortgage - Commercial		4,044
Consumer:
Home Equity		4
Total Loans	$	4,125

Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e. commitment cannot be cancelled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $382 thousand at March 31, 2023 is separately classified on the balance sheet within Other Liabilities.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2023

($ in thousands)	Total Allowance for Credit Losses - Unfunded Commitments
Balance, December 31, 2022		—
Adjustment to allowance for unfunded commitments for adoption of ASU 2016-13		398
Provision for (release of) unfunded commitments		(16	)
Balance, March 31, 2023	$	382