Loans, net, and allowance for loan losses | 5. Loans, net , The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2021 and December 31, 2020 are summarized as follows. Net deferred loan costs were March 31, 2021 December 31, 2020 Commercial $ 327,191 $ 359,080 Real estate: Construction 78,277 73,402 Commercial 489,652 502,495 Residential 190,857 197,596 Consumer 5,847 6,666 Total $ 1,091,824 $ 1,139,239 The Company participated in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), Paycheck Protection Program (“PPP”), a multi-billion dollar specialized low-interest PPP loans totaled $251,810, net of unearned fees of $5,075 as of December 31, 2020. The Company is utilizing the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) to meet the funding needs of its borrowers of PPP loans. The change in the allowance for loan losses account by major loan classifications for the three months ended March 31, 2021 and 2020 is summarized as follows: Real Estate March 31, 2021 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Beginning Balance, January 1, 2021 $ 1,705 $ 1,117 $ 6,494 $ 2,427 $ 142 $ 315 $ 12,200 Charge-offs (9 ) (37 ) (48 ) (94 ) Recoveries 1 2 31 34 Provisions (303 ) 54 298 (193 ) 2 $ 142 Ending balance $ 1,393 $ 1,134 $ 6,793 $ 2,236 $ 127 $ 457 $ 12,140 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 The allocation of the allowance for loan losses and related loans by classifications of loans at March 31, 2021 and December 31, 2020 is summarized as follows: Real Estate March 31, 2021 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Ending balance $ 1,393 $ 1,134 $ 6,793 $ 2,236 $ 127 $ 457 $ 12,140 Ending balance: individually evaluated for impairment 724 724 Ending balance: collectively evaluated for impairment 1,393 1,134 6,069 2,236 127 457 11,416 Ending balance: purchased credit impaired loans $ $ $ $ $ $ $ Loans receivable: Ending balance $ 327,191 $ 78,277 $ 489,652 $ 190,857 $ 5,847 $ $ 1,091,824 Ending balance: individually evaluated for impairment 1,677 970 6,546 2,386 11,579 Ending balance: collectively evaluated for impairment 325,514 77,307 482,768 188,317 5,847 1,079,753 Ending balance: purchased credit impaired loans $ $ $ 338 $ 154 $ $ $ 492 Real Estate December 31, 2020 Commercial Construction Commercial Residential Consumer Unallocated Total Allowance for loan losses: Ending balance $ 1,705 $ 1,117 $ 6,494 $ 2,427 $ 142 $ 315 $ 12,200 Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment 1,705 1,117 6,494 2,427 142 315 12,200 Ending balance: purchased credit impaired loans $ $ $ $ $ $ $ Loans receivable: Ending balance $ 359,080 $ 73,402 $ 502,495 $ 197,596 $ 6,666 $ $ 1,139,239 Ending balance: individually evaluated for impairment 1,565 6,444 2,494 10,503 Ending balance: collectively evaluated for impairment 357,515 73,402 495,674 194,939 6,666 1,128,196 Ending balance: purchased credit impaired loans $ $ $ 377 $ 163 $ $ $ 540 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. Non-homogeneous • 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. Homogeneous loans not meeting the criteria above are considered pass rated loans and evaluated based on delinquency performance. The following tables present the major classifications 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, 2021 and December 31, 2020: March 31, 2021 Pass Special Substandard Doubtful Total Commercial $ 322,223 $ 2,957 $ 2,011 $ $ 327,191 Real estate: Construction 68,818 129 9,330 78,277 Commercial 435,173 26,608 27,871 489,652 Residential 185,630 1,136 4,091 190,857 Consumer 5,847 5,847 Total $ 1,017,691 $ 30,830 $ 43,303 $ $ 1,091,824 December 31, 2020 Pass Special Substandard Doubtful Total Commercial $ 353,758 $ 3,147 $ 2,175 $ $ 359,080 Real estate: Construction 63,838 1,817 7,747 73,402 Commercial 451,190 29,180 22,125 502,495 Residential 191,775 2,670 3,151 197,596 Consumer 6,666 6,666 Total $ 1,067,227 $ 36,814 $ 35,198 $ $ 1,139,239 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, 2021 and December 31, 2020. Purchase credit impaired (“PCI”) loans are excluded from the aging and nonaccrual loan schedules. Accrual Loans March 31, 2021 30-59 Days 60-89 Days 90 or More Total Past Current Nonaccrual Total Loans Commercial $ 34 $ 21 $ $ 55 $ 326,325 $ 811 $ 327,191 Real estate: Construction 34 34 77,272 971 78,277 Commercial 252 252 489,033 29 489,314 Residential 881 21 161 1,063 188,623 1,017 190,703 Consumer 14 6 4 24 5,823 5,847 Total $ 1,215 $ 48 $ 165 $ 1,428 $ 1,087,076 $ 2,828 $ 1,091,332 Purchased credit impaired loans 492 Total Loans $ 1,091,824 Accrual Loans December 31, 2020 30-59 Days 60-89 Days 90 or More Total Past Current Nonaccrual Total Loans Commercial $ 64 $ 1 $ $ 65 $ 358,496 $ 519 $ 359,080 Real estate: Construction 73,402 73,402 Commercial 1,238 4,063 5,301 496,785 32 502,118 Residential 2,125 2,993 146 5,264 191,299 870 197,433 Consumer 22 20 10 52 6,614 6,666 Total $ 3,449 $ 7,077 $ 156 $ 10,682 $ 1,126,596 $ 1,421 $ 1,138,699 Purchased credit impaired loans 540 Total Loans $ 1,139,239 The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2021 and 2020, and as of and for the year ended, December 31, 2020, by major loan classification: This Quarter March 31, 2021 Recorded Unpaid Related Average Interest With no related allowance: Commercial $ 1,677 $ 1,787 $ 1,621 $ 41 Real estate: Construction 970 970 485 Commercial 914 914 3,868 34 Residential 2,540 2,670 2,599 33 Consumer Total 6,101 6,341 8,573 108 With an allowance recorded: Commercial Real estate: Construction Commercial 5,970 5,970 $ 724 2,985 48 Residential Consumer Total 5,970 5,970 724 2,985 48 Commercial 1,677 1,787 1,621 41 Real estate: Construction 970 970 485 Commercial 6,884 6,884 724 6,853 82 Residential 2,540 2,670 2,599 33 Consumer Total $ 12,071 $ 12,311 $ 724 $ 11,558 $ 156 Recorded Unpaid Related For the Year Ended December 31, 2020 Average Interest With no related allowance: Commercial $ 1,565 $ 1,675 $ 1,356 $ 416 Real estate: Construction Commercial 6,821 6,821 4,392 311 Residential 2,657 2,787 2,493 146 Consumer Total 11,043 11,283 8,241 873 With an allowance recorded: Commercial 561 Real estate: Construction Commercial 391 65 Residential Consumer Total 952 65 Commercial 1,565 1,675 1,917 416 Real estate: Construction Commercial 6,821 6,821 4,783 376 Residential 2,657 2,787 2,493 146 Consumer Total $ 11,043 $ 11,283 $ 9,193 $ 938 March 31, 2020 Recorded Unpaid Related This Quarter 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 For the three months ended March 31, interest income related to impaired loans, would have been $28 in 2021 and $21 in 2020 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 $9,960 at March 31, 2021, $9,985 at December 31, 2020 and $2,680 at March 31, 2020. There were no loans modified as troubled debt restructures during the three During the three months ended March 31, 2021, there were no one The Company is a party to financial instruments with off-balance Distribution of off-balance March 31, December 31, Unused portion of lines of credit $ 100,153 $ 92,848 Construction loans 14,906 24,751 Commitments to extend credit 5,740 10,275 Deposit overdraft protection 17,909 18,117 Standby and performance letters of credit 7,313 6,577 Total $ 146,021 $ 152,568 The Company’s exposure to credit loss in the event of nonperformance by the other party to the off-balance sheet financial instruments is represented by the contractual amounts of those instruments. The Company follows the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. We record a valuation allowance for off-balance sheet credit losses, if deemed necessary, separately as a liability. The valuation allowance amounted to 93 off-balance |