Loans, net and allowance for loan losses | 5. Loans, net and allowance for loan losses: The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2020 and December 31, 2019 are summarized as follows. Net deferred loan costs were $885 and $1,129 at March 31, 2020 and December 31, 2019. March 31, December 31, Commercial $ 121,128 $ 118,658 Real estate: Construction 72,580 61,831 Commercial 476,573 455,901 Residential 209,749 207,354 Consumer 7,419 8,365 Total $ 887,449 $ 852,109 The change in the allowance for loan losses account by major loan classifications for the three months ended March 31, 2020 and 2019 is summarized as follows: Real Estate March 31, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, January 1, 2020 $ 1,953 $ 473 $ 3,115 $ 1,820 $ 155 $ 7,516 Charge-offs (899 ) (95 ) (130 ) (1,124 ) Recoveries 2 1 56 59 Provisions 615 222 896 (107 ) 71 $ 103 1,800 Ending balance $ 1,671 $ 695 $ 3,917 $ 1,713 $ 152 $ 103 $ 8,251 Real Estate March 31, 2019 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, January 1, 2019 $ 1,162 $ 404 $ 3,298 $ 1,286 $ 50 $ 148 $ 6,348 Charge-offs (376 ) (144 ) (520 ) Recoveries 5 1 1 68 75 Provisions 232 (123 ) 160 279 183 (148 ) 583 Ending balance $ 1,023 $ 281 $ 3,459 $ 1,566 $ 157 $ $ 6,486 The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2020 and December 31, 2019 is summarized as follows: Real Estate March 31, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Ending balance $ 1,671 $ 695 $ 3,917 $ 1,713 $ 152 $ 103 $ 8,251 Ending balance: individually evaluated for impairment 29 87 116 Ending balance: collectively evaluated for impairment 1,642 695 3,830 1,713 152 103 8,135 Ending balance: purchased credit impaired loans $ $ $ $ $ $ $ Loans receivable: Ending balance $ 121,128 $ 72,580 $ 476,573 $ 209,749 $ 7,419 $ $ 887,449 Ending balance: individually evaluated for impairment 1,218 1,405 2,062 4,685 Ending balance: collectively evaluated for impairment 119,909 72,580 473,656 207,456 7,419 881,020 Ending balance: purchased credit impaired loans $ 1 $ $ 1,512 $ 231 $ $ $ 1,744 Real Estate December 31, 2019 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Ending balance $ 1,953 $ 473 $ 3,115 $ 1,820 $ 155 $ $ 7,516 Ending balance: individually evaluated for impairment 712 218 930 Ending balance: collectively evaluated for impairment 1,241 473 2,897 1,820 155 6,586 Ending balance: purchased credit impaired loans $ $ $ $ $ $ $ Loans receivable: Ending balance $ 118,658 $ 61,831 $ 455,901 $ 207,354 $ 8,365 $ $ 852,109 Ending balance: individually evaluated for impairment 2,260 1,224 2,085 5,569 Ending balance: collectively evaluated for impairment 116,390 61,831 453,156 205,026 8,365 844,768 Ending balance: purchased credit impaired loans $ 8 $ $ 1,521 $ 243 $ $ $ 1,772 The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows: • Pass—A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss or designated as Special Mention. • Special Mention—A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification. • Substandard—A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. • Doubtful—A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. • Loss—A loan classified as Loss is considered uncollectible and of such little value that its continuance as a bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future. The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at March 31, 2020 and December 31, 2019: March 31, 2020 Pass Special Substandard Doubtful Total Commercial $ 111,111 $ 5,964 $ 4,053 $ $ 121,128 Real estate: Construction 71,454 1,126 72,580 Commercial 453,374 8,430 14,769 476,573 Residential 205,926 1,418 2,405 209,749 Consumer 7,419 7,419 Total $ 849,284 $ 16,938 $ 21,227 $ $ 887,449 December 31, 2019 Pass Special Substandard Doubtful Total Commercial $ 109,190 $ 5,992 $ 3,476 $ $ 118,658 Real estate: Construction 61,678 153 61,831 Commercial 430,771 9,271 15,859 455,901 Residential 203,381 1,437 2,536 207,354 Consumer 8,365 8,365 Total $ 813,385 $ 16,853 $ 21,871 $ $ 852,109 The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans as of March 31, 2020 and December 31, 2019. Purchase credit impaired (“PCI”) loans are excluded from the aging and nonaccrual loan schedules. Accrual Loans March 31, 2020 30-59 Days 60-89 Days 90 or More Total Past Current Nonaccrual Total Loans Commercial $ 385 $ 15 $ 23 $ 423 $ 119,917 $ 787 $ 121,127 Real estate: Construction 584 978 1,562 71,018 72,580 Commercial 9,577 1,361 10,938 463,481 642 475,061 Residential 5,062 137 652 5,851 203,048 619 209,518 Consumer 65 17 16 98 7,321 7,419 Total $ 15,673 $ 2,508 $ 691 $ 18,872 $ 864,785 $ 2,048 $ 885,705 Purchased credit impaired loans 1,744 Total Loans $ 887,449 Accrual Loans December 31, 2019 30-59 Days 60-89 Days 90 or More Total Past Current Nonaccrual Total Loans Commercial $ 137 $ $ $ 137 $ 117,354 $ 1,159 $ 118,650 Real estate: Construction 9 9 61,822 61,831 Commercial 147 147 453,774 459 454,380 Residential 3,402 820 18 4,240 202,202 669 207,111 Consumer 84 14 27 125 8,240 8,365 Total $ 3,779 $ 834 $ 45 $ 4,658 $ 843,392 $ 2,287 $ 850,337 Purchased credit impaired loans 1,772 Total Loans $ 852,109 The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2020 and 2019, and as of and for the year ended, December 31, 2019 by major loan classification: This Quarter March 31, 2020 Recorded Unpaid Related Average Interest With no related allowance: Commercial $ 1,098 $ 1,208 $ 873 $ 68 Real estate: Construction Commercial 2,550 2,550 2,837 47 Residential 2,292 2,422 2,345 25 Consumer Total 5,940 6,180 6,055 140 With an allowance recorded: Commercial 121 121 $ 29 653 Real estate: Construction Commercial 367 367 87 513 4 Residential 45 Consumer Total 488 488 116 1,211 4 Commercial 1,219 1,329 29 1,526 68 Real estate: Construction Commercial 2,917 2,917 87 3,350 51 Residential 2,292 2,422 2,390 25 Consumer Total $ 6,428 $ 6,668 $ 116 $ 7,266 $ 144 Recorded Unpaid Related For the Year Ended December 31, 2019 Average Interest With no related allowance: Commercial $ 1,147 $ 1,257 $ 648 $ 660 Real estate: Construction Commercial 1,963 1,963 3,124 1,456 Residential 2,329 2,467 2,397 173 Consumer Total 5,439 5,687 6,169 2,289 With an allowance recorded: Commercial 1,121 1,121 $ 712 685 Real estate: Construction Commercial 782 936 218 658 17 Residential 91 Consumer Total 1,903 2,057 930 1,434 17 Commercial 2,268 2,378 712 1,333 660 Real estate: Construction Commercial 2,745 2,899 218 3,782 1,473 Residential 2,329 2,467 2,488 173 Consumer Total $ 7,342 $ 7,744 $ 930 $ 7,603 $ 2,306 This Quarter March 31, 2019 Recorded Unpaid Related Average Interest With no related allowance: Commercial $ 189 $ 189 $ 169 $ 23 Real estate: Construction 85 85 43 Commercial 4,257 4,257 4,271 100 Residential 2,217 2,217 2,342 91 Consumer Total 6,748 6,748 6,825 214 With an allowance recorded: Commercial 841 841 $ 77 1,045 Real estate: Construction Commercial 371 371 91 453 4 Residential 180 318 55 181 1 Consumer Total 1,392 1,530 223 1,679 5 Commercial 1,030 1,030 77 1,214 23 Real estate: Construction 85 85 43 Commercial 4,628 4,628 91 4,724 104 Residential 2,397 2,535 55 2,523 92 Consumer Total $ 8,140 $ 8,278 $ 223 $ 8,504 $ 219 For the three months ended March 31, interest income related to impaired loans, would have been $21 in 2020 and $60 in 2019 had the loans been current and the terms of the loans not been modified. Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories: • Rate Modification—A modification in which the interest rate is changed to a below market rate. • Term Modification—A modification in which the maturity date, timing of payments or frequency of payments is changed. • Interest Only Modification—A modification in which the loan is converted to interest only payments for a period of time. • Payment Modification—A modification in which the dollar amount of the payment is changed, other than an interest only modification described above. • Combination Modification—Any other type of modification, including the use of multiple categories above. Included in the commercial loan and commercial and residential real estate categories are troubled debt restructures that are classified as impaired. Troubled debt restructures totaled $2,680 at March 31, 2020, $2,701 at December 31, 2019 and $2,765 at March 31, 2019. There were no loans modified as troubled debt restructur es loan modified as a troubled debt restructure for the three months ended March 31, 2019. During the three months ended March 31, 2020, there was one default for a commercial real estate loan totaling $368 on loans restructured. During the three months ended March 31, 2019 there was one default on a restructured residential loan. The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, unused portions of lines of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk over and above the amount recognized in the consolidated balance sheets. Unused portions of off-balance sheet commitments at March 31, 2020, totaled $160,714 , $ in lines of credit, $32,263 in construction loans, $14,395 in commitments to extend credit, $23,745 in deposit overdraft protection and $4,515 in standby letters of credit. In comparison, unused portions of off-balance sheet commitments, at December 31, 2019, totaled $176,243, consisting of $81,665 in lines of credit, $41,168 in construction loans, $24,954 in commitments to extend credit, $23,730 in deposit overdraft protection and $4,726 in standby letters of credit. |