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 June 30, 2020 and December 31, 2019 are summarized as follows. Net deferred loan fees were $6,183 at June 30, 2020 and net deferred loan costs were $1,129 at December 31, 2019. June 30, 2020 December 31, 2019 Commercial $ 380,998 $ 118,658 Real estate: Construction 79,299 61,831 Commercial 494,642 455,901 Residential 203,752 207,354 Consumer 6,762 8,365 Total $ 1,165,453 $ 852,109 The Company participated in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), PPP, a multi-billion dollar specialized low-interest The change in the allowance for loan losses account by major loan classifications for the three and six months ended June 30, 2020 and 2019 is summarized as follows: Real Estate June 30, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, April 1, 2020 $ 1,671 $ 695 $ 3,917 $ 1,713 $ 152 $ 103 $ 8,251 Charge-offs (501 ) (2 ) (71 ) (574 ) Recoveries 7 2 1 37 47 Provisions 7 46 1,660 358 44 (103 ) 2,012 Ending balance $ 1,685 $ 741 $ 5,078 $ 2,070 $ 162 $ $ 9,736 Real Estate June 30, 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 ) (595 ) (2 ) (201 ) (1,697 ) Recoveries 9 2 1 93 105 Provisions 622 268 2,556 251 115 3,812 Ending balance $ 1,685 $ 741 $ 5,078 $ 2,070 $ 162 $ $ 9,736 Real Estate June 30, 2019 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, April 1, 2019 $ 1,023 $ 281 $ 3,459 $ 1,566 $ 157 $ $ 6,486 Charge-off (13 ) (20 ) (109 ) (142 ) Recoveries 6 1 2 31 40 Provisions 101 210 131 101 75 618 Ending balance $ 1,117 $ 491 $ 3,591 $ 1,649 $ 154 $ $ 7,002 Real Estate June 30, 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 (389 ) (20 ) (253 ) (662 ) Recoveries 11 2 3 99 115 Provisions 333 87 291 380 258 (148 ) 1,201 Ending balance $ 1,117 $ 491 $ 3,591 $ 1,649 $ 154 $ $ 7,002 The allocation of the allowance for loan losses and related loans by classifications of loans at June 30, 2020 and December 31, 2019 is summarized as follows: Real Estate June 30, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Ending balance $ 1,685 $ 741 $ 5,078 $ 2,070 $ 162 $ $ 9,736 Ending balance: individually evaluated for impairment 29 29 Ending balance: collectively evaluated for impairment 1,656 741 5,078 2,070 162 9,707 Ending balance: purchased credit impaired loans $ $ $ $ $ $ $ Loans receivable: Ending balance $ 380,998 $ 79,299 $ 494,642 $ 203,752 $ 6,762 $ $ 1,165,453 Ending balance: individually evaluated for impairment 2,180 7,761 2,568 12,509 Ending balance: collectively evaluated for impairment 378,818 79,299 485,484 201,004 6,762 1,151,367 Ending balance: purchased credit impaired loans $ $ $ 1,397 $ 180 $ $ $ 1,577 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 June 30, 2020 and December 31, 2019: June 30, 2020 Pass Special Mention Substandard Doubtful Total Commercial $ 369,429 $ 5,411 $ 6,158 $ $ 380,998 Real estate: Construction 78,153 1,146 79,299 Commercial 453,072 26,775 14,795 494,642 Residential 198,363 2,182 3,207 203,752 Consumer 6,762 6,762 Total $ 1,105,779 $ 35,514 $ 24,160 $ $ 1,165,453 December 31, 2019 Pass Special Mention 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 June 30, 2020 and December 31, 2019. Purchase credit impaired (“PCI”) loans are excluded from the aging and nonaccrual loan schedules. Accrual Loans June 30, 2020 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current Nonaccrual Loans Total Loans Commercial $ 77 $ 25 $ $ 102 $ 380,077 $ 819 $ 380,998 Real estate: Construction 79,299 79,299 Commercial 160 160 491,778 1,307 493,245 Residential 363 448 170 981 201,476 1,115 203,572 Consumer 33 21 13 67 6,695 6,762 Total $ 633 $ 494 $ 183 $ 1,310 $ 1,159,325 $ 3,241 $ 1,163,876 Purchased credit impaired loans 1,577 Total Loans $ 1,165,453 Accrual Loans Nonaccrual Loans Total Loans December 31, 2019 30-59 Days Past Due 60-89 Days Past Due 90 or More Days Past Due Total Past Due Current 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 and six months ended June 30, 2020 and 2019, and as of and for the year ended, December 31, 2019 by major loan classification: This Quarter Year-to-Date June 30, 2020 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance: Commercial $ 2,059 $ 2,169 $ $ 1,579 $ 132 $ 1,603 $ 200 Real estate: Construction Commercial 9,158 9,659 5,854 19 5,561 66 Residential 2,748 2,878 2,520 81 2,539 106 Consumer Total 13,965 14,706 9,953 232 9,703 372 With an allowance recorded: Commercial 121 121 29 121 621 Real estate: Construction Commercial 184 391 4 Residential Consumer Total 121 121 29 305 1,012 4 Commercial 2,180 2,290 29 1,700 132 2,224 200 Real estate: Construction Commercial 9,158 9,659 6,038 19 5,952 70 R 2,748 2,878 2,520 81 2,539 106 Consumer Total 14,086 $ 14,827 $ 29 $ 10,258 $ 232 $ 10,715 $ 376 Recorded Investment Unpaid Principal Balance Related Allowance For the Year Ended December 31, 2019 Average Recorded Investment Interest Income Recognized 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 Year-to-Date June 30, 2019 Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Interest Income Recognized Average Recorded Investment Interest Income Recognized With no related allowance: Commercial $ 125 $ 125 $ $ 157 $ 485 $ 163 $ 508 Real estate: Construction 43 43 Commercial 4,222 4,222 4,240 104 4,255 204 Residential 2,201 2,201 2,209 34 2,276 125 Consumer Total 6,548 6,548 6,649 623 6,737 837 With an allowance recorded: Commercial 774 774 103 808 926 Real estate: Construction Commercial 373 373 92 372 4 413 8 Residential 178 316 50 179 2 180 3 Consumer Total 1,325 1,463 245 1,359 6 1,519 11 Commercial 899 899 103 965 485 1,089 508 Real estate: Construction 43 43 Commercial 4,595 4,595 92 4,612 108 4,668 212 Residential 2,379 2,517 50 2,388 36 2,456 128 Consumer Total $ 7,873 $ 8,011 $ 245 $ 8,008 $ 629 $ 8,256 $ 848 For the three and six months ended June 30, interest income related to impaired loans, would have been $35 and $56 in 2020 and $25 and $85 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 $9,988 at June 30, 2020, $2,701 at December 31, 2019 and $2,753 at June 30, 2019. There were nine loans modified as troubled debt restructures during the second quarter of 2020 and nine loans modified during the six months ended June 30, 2020 totaling $7,817. There were no loans modified as troubled debt restructures during the second quarter of 2019 and one loan modified during the six months ended June 30, 2019. During the three months ended June 30, 2020, there were no defaults on loans restructured and one default on a restructured loan totaling $368 during the six months ended June 30, 2020. During the three months ended June 30, 2019, there were no defaults on loans restructured and one default on a restructured loan totaling $223 during the six months ended June 30, 2019. The Company is a party to financial instruments with off-balance Distribution of off-balance June 30, 2020 December 31, 2019 Unused portions of lines of credit $ 89,916 $ 81,665 Construction loans 28,764 41,168 Commitments to extend credit 20,841 24,954 Deposit overdraft protection 23,964 23,730 Standby and performance letters of credit 4,743 4,726 Total $ 168,228 $ 176,243 We record a valuation allowance for off-balance off-balance |