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 $869 and $908 at March 31, 2020 and December 31, 2019.


		March 31, 2020		December 31, 2019
Commercial	$	537,949	$	522,957
Real estate:
Commercial		1,082,124		1,011,423
Residential		307,215		301,378
Consumer		95,867		102,482
Total	$	2,023,155	$	1,938,240

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2020 and 2019 are summarized as follows:


			Real estate
March 31, 2020	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2020	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Charge-offs		(650)				(54)		(94)		(798)
Recoveries		267				10		30		307
Provisions		1,464		1,511		442		83		3,500
Ending balance	$	7,969	$	13,007	$	3,624	$	1,086	$	25,686

			Real estate
March 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2019	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Charge-offs		(77)		(6)		(159)		(132)		(374)
Recoveries		8				4		38		50
Provisions		508		344		143		55		1,050
Ending balance	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105

The Company's allowance for loan losses increased $3.0 million or 13.3% in the first quarter of 2020, due largely to the adjustment of qualitative factors in our allowance for loan losses methodology, which reflect current economic decline and expectation of increased credit losses due to COVID-19's adverse impact on economic and business operating conditions.

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		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	7,969	$	13,007	$	3,624	$	1,086	$	25,686
Ending balance: individually evaluated for impairment		764		270		192				1,226
Ending balance: collectively evaluated for impairment	$	7,205	$	12,737	$	3,432	$	1,086	$	24,460
Loans receivable:
Ending balance	$	537,949	$	1,082,124	$	307,215	$	95,867	$	2,023,155
Ending balance: individually evaluated for impairment		5,662		3,526		1,835		201		11,224
Ending balance: collectively evaluated for impairment	$	532,287	$	1,078,598	$	305,380	$	95,666	$	2,011,931



			Real estate
December 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	6,888	$	11,496	$	3,226	$	1,067	$	22,677
Ending balance: individually evaluated for impairment		363		279		135				777
Ending balance: collectively evaluated for impairment	$	6,525	$	11,217	$	3,091	$	1,067	$	21,900
Loans receivable:
Ending balance	$	522,957	$	1,011,423	$	301,378	$	102,482	$	1,938,240
Ending balance: individually evaluated for impairment		4,658		3,048		2,153		261		10,120
Ending balance: collectively evaluated for impairment	$	518,299	$	1,008,375	$	299,225	$	102,221	$	1,928,120

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 nor 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 of 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 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 be affected 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:


			Special
March 31, 2020	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	528,747	$	3,776	$	5,426	$	$	537,949
Real estate:
Commercial		1,067,426		5,156		9,542			1,082,124
Residential		304,238				2,977			307,215
Consumer		95,607				260			95,867
Total	$	1,996,018	$	8,932	$	18,205	$	$	2,023,155


			Special
December 31, 2019	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	513,994	$	3,837	$	5,126	$	$	522,957
Real estate:
Commercial		993,645		2,508		15,270			1,011,423
Residential		298,449		597		2,332			301,378
Consumer		102,145				337			102,482
Total	$	1,908,233	$	6,942	$	23,065	$	$	1,938,240

The increase in special mention loans from December 31, 2019 to March 31, 2020 is primarily associated with the reclassification of two larger commercial real estate credits. The largest relationship totaled $3.8 million and was downgraded to special mention due to the loss of major tenants while the other relationship totaling $1.1 million was upgraded from special mention due to stabilized rental income and improved cash flows. The decrease to substandard loans resulted from the payoff of a $5.1 million commercial real estate construction loan that had experienced significant construction delays.

Information concerning nonaccrual loans by major loan classification at March 31, 2020 and December 31, 2019 is summarized as follows:


		March 31, 2020		December 31, 2019
Commercial	$	4,373	$	3,336
Real estate:
Commercial		3,258		2,765
Residential		843		1,148
Consumer		201		261
Total	$	8,675	$	7,510

The major classifications of loans by past due status are summarized as follows:


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
March 31, 2020	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	196		11	$	4,373	$	4,580	$	533,369	$	537,949
Real estate:
Commercial		2,861	$	187		3,258		6,306		1,075,818		1,082,124
Residential		3,924		256		1,266		5,446		301,769		307,215	$	423
Consumer		520		147		201		868		94,999		95,867
Total	$	7,501	$	601	$	9,098	$	17,200	$	2,005,955	$	2,023,155	$	423

The increase in the total past due loans was due to an increase in nonaccrual loans which are included in the greater than 90 day category, coupled with an increase in 30-59 days past due as borrowers began experiencing the initial impact of COVID-19.


					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2019	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	75	$		$	3,036	$	3,111	$	519,846	$	522,957
Real estate:
Commercial		926		175		2,765		3,866		1,007,557		1,011,423	$
Residential		2,164		1,227		1,526		4,917		296,461		301,378		378
Consumer		523		123		261		907		101,575		102,482
Total	$	3,688	$	1,525	$	7,588	$	12,801	$	1,925,439	$	1,938,240	$	378

The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2020 and March 31, 2019, and as of and for the year ended December 31, 2019 by major loan classification:


							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	3,706	$	4,249			$	3,672	$	16
Real estate:
Commercial		2,263		2,574				2,091		5
Residential		1,129		1,369				1,424		5
Consumer		201		219				231
Total		7,299		8,411				7,418		26
With an allowance recorded:
Commercial		1,956		1,974		764		1,488		6
Real estate:
Commercial		1,263		1,924		270		1,197
Residential		706		735		192		571		4
Consumer
Total		3,925		4,633		1,226		3,256		10
Total impaired loans
Commercial		5,662		6,223		764		5,160		22
Real estate:
Commercial		3,526		4,498		270		3,288		5
Residential		1,835		2,104		192		1,995		9
Consumer		201		219				231
Total	$	11,224	$	13,044	$	1,226	$	10,674	$	36


							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2019	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	3,638	$	4,175			$	3,907	$	63
Real estate:
Commercial		1,918		2,205				2,385		38
Residential		1,718		2,060				1,362		25
Consumer		261		274				233
Total		7,535		8,714				7,887		126
With an allowance recorded:
Commercial		1,020		1,038		363		1,012		32
Real estate:
Commercial		1,130		1,811		279		1,050		10
Residential		435		450		135		1,408		29
Consumer								20
Total		2,585		3,299		777		3,490		71
Total impaired loans
Commercial		4,658		5,213		363		4,919		95
Real estate:
Commercial		3,048		4,016		279		3,435		48
Residential		2,153		2,510		135		2,770		54
Consumer		261		274				253
Total	$	10,120	$	12,013	$	777	$	11,377	$	197


							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2019	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	6,072	$	6,407			$	3,817	$	17
Real estate:
Commercial		2,098		2,184				2,034		13
Residential		860		1,287				1,415		7
Consumer		238		245				195
Total		9,268		10,123				7,461		37
With an allowance recorded:
Commercial		940		990	$	138		808		7
Real estate:
Commercial		1,437		1,563		389		1,295		5
Residential		2,035		2,078		461		2,068		11
Consumer								30
Total		4,412		4,631		988		4,201		23
Total impaired loans
Commercial		7,012		7,397		138		4,625		24
Real estate:
Commercial		3,535		3,747		389		3,329		18
Residential		2,895		3,365		461		3,483		18
Consumer		238		245		—		225
Total	$	13,680	$	14,754	$	988	$	11,662	$	60

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $2,140 at March 31, 2020, $2,193 at December 31, 2019 and $3,096 at March 31, 2019.

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.

There were no loans modified as troubled debt restructurings during the three months ended March 31, 2020. For the three months ended March 31 2019, there was one commercial real estate loan modified as troubled debt restructuring in the amount of $340. During the three months ended March 31, 2020, there was one payment default on a residential real estate loan in the amount of $52 and there were no payment defaults on troubled debt restructings. During the three months ended March 31, 2019, there were no payment defaults on restructured loans.