Note 3. Loans and Allowance for Loan Losses

A summary of loan balances by type follows:


	June 30, 2019						December 31, 2018
(In thousands)	Originated		Acquired		Total		Originated		Acquired		Total
Commercial real estate	$	679,017	$	56,004	$	735,021	$	616,614	$	66,988	$	683,602
Commercial and industrial		126,766		7,952		134,718		128,909		8,419		137,328
Commercial construction		210,538		7,644		218,182		141,694		11,645		153,339
Consumer residential		85,922		38,206		124,128		87,609		43,822		131,431
Consumer nonresidential		24,139		110		24,249		32,184		124		32,308
	$	1,126,382	$	109,916	$	1,236,298	$	1,007,010	$	130,998	$	1,138,008
Less:
Allowance for loan losses		9,996		—		9,996		9,159		—		9,159
Unearned income and (unamortized premiums), net		1,926		—		1,926		1,265		—		1,265
Loans, net	$	1,114,460	$	109,916	$	1,224,376	$	996,586	$	130,998	$	1,127,584

During 2018, as a result of the Company’s acquisition of Colombo, the loan portfolio was segregated between loans initially accounted for under the amortized cost method (referred to as “originated” loans) and loans acquired (referred to as “acquired” loans).

The loans segregated to the acquired loan portfolio were initially measured at fair value and subsequently accounted for under either ASC Topic 310-30 or ASC 310-20. The outstanding principal balance and related carrying amount of acquired loans included in the consolidated balance sheets as of June 30, 2019 and December 31, 2018 are as follows:


(In thousands)	June 30, 2019
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,579
Carrying amount		1,846
Other acquired loans
Outstanding principal balance		109,511
Carrying amount		108,070
Total acquired loans
Outstanding principal balance		112,090
Carrying amount		109,916


(In thousands)	December 31, 2018
Purchased credit impaired acquired loans evaluated individually for future credit losses
Outstanding principal balance	$	2,533
Carrying amount		1,401
Other acquired loans
Outstanding principal balance		131,286
Carrying amount		129,597
Total acquired loans
Outstanding principal balance		133,819
Carrying amount		130,998

The following table presents changes during the six months ended June 30, 2019 and the year ended December 31, 2018, respectively, in the accretable yield on purchased credit impaired loans for which the Company applies ASC 310-30.


(In thousands)
Balance at January 1, 2019	$	357
Accretion		(51)
Balance at June 30, 2019	$	306
(In thousands)
Balance at January 1, 2018	$	—
Accretable yield at acquisition date		379
Accretion		(22)
Balance at December 31, 2018	$	357

An analysis of the allowance for loan losses for the three and six months ended June 30, 2019 and 2018, and for the year ended December 31, 2018, follows:

Allowance for Loan Losses

For the three months ended June 30, 2019

(In thousands)


	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, April 1	$	5,812	$	1,480	$	1,491	$	495	$	234	$	9,512
Charge-offs		—		—		—		—		(21)		(21)
Recoveries		—		—		—		—		—		—
Provision		177		(69)		397		(1)		1		505
Ending Balance	$	5,989	$	1,411	$	1,888	$	494	$	214	$	9,996

Allowance for Loan Losses

For the six months ended June 30, 2019

(In thousands)


	Commercial		Commercial		Commercial		Consumer		Consumer
	Real Estate		and Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Beginning Balance, January 1	$	5,548	$	1,474	$	1,285	$	518	$	334	$	9,159
Charge-offs		—		—		—		—		(183)		(183)
Recoveries		—		—		—		—		—		—
Provision		441		(63)		603		(24)		63		1,020
Ending Balance	$	5,989	$	1,411	$	1,888	$	494	$	214	$	9,996

Allowance for Loan Losses

For the three months ended June 30, 2018

(In thousands)


	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance, April 1	$	5,140	$	821	$	1,249	$	630	$	230	$	32	$	8,102
Charge-offs		—		(86)		—		—		(11)		—		(97)
Recoveries		—		12		—		—		—		—		12
Provision		135		122		57		(26)		(11)		4		281
Ending Balance	$	5,275	$	869	$	1,306	$	604	$	208	$	36	$	8,298

Allowance for Loan Losses

For the six months ended June 30, 2018

(In thousands)


	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	4,832	$	768	$	1,191	$	626	$	268	$	40	$	7,725
Charge-offs		—		(86)		—		—		(11)		—		(97)
Recoveries		—		31		—		—		—		—		31
Provision		443		156		115		(22)		(49)		(4)		639
Ending Balance	$	5,275	$	869	$	1,306	$	604	$	208	$	36	$	8,298

Allowance for Loan Losses

For the year ended December 31, 2018

(In thousands)


	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Beginning Balance	$	4,832	$	768	$	1,191	$	626	$	268	$	40	$	7,725
Charge-offs		—		(86)		—		(187)		(292)		—		(565)
Recoveries		—		26		—		1		52		—		79
Provision		716		766		94		78		306		(40)		1,920
Beginning Balance	$	5,548	$	1,474	$	1,285	$	518	$	334	$	—	$	9,159

The following tables present the recorded investment in loans and impairment method as of June 30, 2019 and 2018, and at December 31, 2018, by portfolio segment:

Allowance for Loan Losses

At June 30, 2019

(In thousands)


	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	26	$	343	$	—	$	29	$	—	$	398
Purchase credit impaired		—		—		—		—		—		—
Collectively evaluated for impairment		5,963		1,068		1,888		465		214		9,598
	$	5,989	$	1,411	$	1,888	$	494	$	214	$	9,996

Loans Receivable

At June 30, 2019

(In thousands)


	Commercial		Commercial and		Commercial		Consumer		Consumer
	Real Estate		Industrial		Construction		Residential		Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	5,493	$	2,905	$	—	$	169	$	—	$	8,567
Purchase credit impaired		1,019		461		—		366		—		1,846
Collectively evaluated for impairment		728,509		131,352		218,182		123,593		24,249		1,225,885
	$	735,021	$	134,718	$	218,182	$	124,128	$	24,249	$	1,236,298

Allowance for Loan Losses

At June 30, 2018

(In thousands)


	Commercial		Commercial		Commercial		Consumer		Consumer
	Real Estate		and Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		5,275		869		1,306		604		244		—		8,298
	$	5,275	$	869	$	1,306	$	604	$	244	$	—	$	8,298

Loans Receivable

At June 30, 2018

(In thousands)


	Commercial		Commercial		Commercial		Consumer		Consumer
	Real Estate		and Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	1,897	$	294	$	—	$	587	$	—	$	—	$	2,778
Collectively evaluated for impairment		571,529		110,254		139,678		105,253		27,285		—		953,999
	$	573,426	$	110,548	$	139,678	$	105,840	$	27,285	$	—	$	956,777

Allowance for Loan Losses

At December 31, 2018

(In thousands)


	Commercial		Commercial		Commercial		Consumer		Consumer
	Real Estate		and Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Allowance for credit losses:
Ending Balance:
Individually evaluated for impairment	$	—	$	372	$	—	$	1	$	—	$	—	$	373
Purchase credit impaired		—		—		—		—		—		—		—
Collectively evaluated for impairment		5,548		1,102		1,285		517		334		—		8,786
	$	5,548	$	1,474	$	1,285	$	518	$	334	$	—	$	9,159

Loans Receivable

At December 31, 2018

(In thousands)


	Commercial		Commercial		Commercial		Consumer		Consumer
	Real Estate		and Industrial		Construction		Residential		Nonresidential		Unallocated		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	1,306	$	2,969	$	—	$	182	$	—	$	—	$	4,457
Purchase credit impaired		139		467		421		374		—		—		1,401
Collectively evaluated for impairment		682,157		133,892		152,918		130,875		32,308		—		1,132,150
	$	683,602	$	137,328	$	153,339	$	131,431	$	32,308	$	—	$	1,138,008

Impaired loans by class excluding purchased credit impaired, at June 30, 2019 and December 31, 2018, are summarized as follows:

Impaired Loans – Originated Loan Portfolio


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
June 30, 2019
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		1,788		1,789		343		1,791		69
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	1,788	$	1,789	$	343	$	1,791	$	69
June 30, 2019
With no related allowance:
Commercial real estate	$	5,301	$	5,304	$	—	$	5,318	$	121
Commercial and industrial		1,117		1,117		—		1,137		332
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	6,418	$	6,421	$	—	$	6,455	$	453

Impaired Loans – Acquired Loan Portfolio


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
June 30, 2019
With an allowance recorded:
Commercial real estate	$	192	$	192	$	26	$	192	$	8
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		169		163		29		163		5
Consumer nonresidential		—		—		—		—		—
	$	361	$	355	$	55	$	355	$	13
June 30, 2019
With no related allowance:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—

Impaired Loans – Originated Loan Portfolio


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		1,793		1,793		372		1,801		100
Commercial construction		—		—		—		—		—
Consumer residential		182		182		1		184		12
Consumer nonresidential		—		—		—		—		—
	$	1,975	$	1,975	$	373	$	1,985	$	112
December 31, 2018
With no related allowance:
Commercial real estate	$	1,306	$	1,319	$	—	$	1,321	$	68
Commercial and industrial		1,156		1,170		—		1,378		81
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	2,462	$	2,489	$	—	$	2,699	$	149

Impaired Loans – Acquired Loan Portfolio


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
(In thousands)	Investment		Balance		Allowance		Investment		Recognized
December 31, 2018
With an allowance recorded:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		—		—		—		—		—
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	—	$	—	$	—	$	—	$	—
December 31, 2018
With no related allowance:
Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial		20		20		—		58		3
Commercial construction		—		—		—		—		—
Consumer residential		—		—		—		—		—
Consumer nonresidential		—		—		—		—		—
	$	20	$	20	$	—	$	58	$	3

No additional funds are committed to be advanced in connection with the impaired loans. There were no nonaccrual loans excluded from the impaired loan disclosure.

Pass — Loans listed as pass include larger non‑homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

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.

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 enhanced possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful include those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, improbable.

Loss — Loans classified as loss include those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be achieved in the future, it is neither practical nor desirable to defer writing off these loans.

Based on the most recent analysis performed, the risk category of loans by class of loans was as follows as of June 30, 2019 and December 31, 2018:

As of June 30, 2019 – Originated Loan Portfolio


	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	659,207	$	117,238	$	207,451	$	85,115	$	24,120	$	1,093,131
Special mention		15,617		6,792		3,087		705		19		26,220
Substandard		4,193		2,736		—		102		—		7,031
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	679,017	$	126,766	$	210,538	$	85,922	$	24,139	$	1,126,382

As of June 30, 2019 – Acquired Loan Portfolio


	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	54,611	$	7,491	$	7,644	$	37,842	$	110	$	107,698
Special mention		1,109		—		—		131		—		1,240
Substandard		284		461		—		233		—		978
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	56,004	$	7,952	$	7,644	$	38,206	$	110	$	109,916

As of December 31, 2018 – Originated Loan Portfolio


	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	610,580	$	124,349	$	141,694	$	86,848	$	32,184	$	995,655
Special mention		6,034		1,783		—		761		—		8,578
Substandard		—		2,777		—		—		—		2,777
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	616,614	$	128,909	$	141,694	$	87,609	$	32,184	$	1,007,010

As of December 31, 2018 – Acquired Loan Portfolio


	Commercial Real		Commercial and		Commercial		Consumer		Consumer
(In thousands)	Estate		Industrial		Construction		Residential		Nonresidential		Total
Grade:
Pass	$	66,849	$	7,952	$	11,224	$	43,811	$	124	$	129,960
Special mention		56		—		421		—		—		477
Substandard		83		467		—		11		—		561
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	66,988	$	8,419	$	11,645	$	43,822	$	124	$	130,998

The Company categorizes 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, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes, larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At June 30, 2019, the Company had $26.2 million in loans identified as special mention within the originated loan portfolio, an increase of $17.6 million from December 31, 2018. Special mention rated loans are loans that have a potential weakness that deserves management's close attention. The increase from December 31, 2018 is concentrated in four loans that were added to this risk category during the second quarter of 2019. These loans do not have a specific reserve and are considered secured. At June 30, 2019, the Company had $7.0 million in loans identified as substandard within the originated loan portfolio, an increase of $4.3 million from December 31, 2018. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. As of June 30, 2019, specific reserves totaling $398 thousand, has been allocated within the allowance for loan losses to supplement any shortfall of collateral.

Past due and nonaccrual loans presented by loan class were as follows at June 30, 2019 and December 31, 2018:

As of June 30, 2019 – Originated Loan Portfolio


	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	324	$	829	$	1,901	$	3,054	$	675,963	$	679,017	$	1,901	$	4,191
Commercial and industrial		235		48		140		423		126,343		126,766		140		1,769
Commercial construction		—		—		593		593		209,945		210,538		593		—
Consumer residential		187		—		344		531		85,391		85,922		344		163
Consumer nonresidential		64		200		—		264		23,875		24,139		—		—
Total	$	810	$	1,077	$	2,978	$	4,865	$	1,121,517	$	1,126,382	$	2,978	$	6,123

As of June 30, 2019 – Acquired Loan Portfolio


	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	681	$	—	$	51	$	732	$	55,272	$	56,004	$	51	$	275
Commercial and industrial		—		—		—		—		7,952		7,952		—		252
Commercial construction		—		—		—		—		7,644		7,644		—		—
Consumer residential		669		—		—		669		37,537		38,206		—		310
Consumer nonresidential		—		23		—		23		87		110		—		—
Total	$	1,350	$	23	$	51	$	1,424	$	108,492	$	109,916	$	51	$	837

As of December 31, 2018 – Originated Loan Portfolio


	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	3,062	$	2,148	$	—	$	5,210	$	611,404	$	616,614	$	—	$	—
Commercial and industrial		68		181		2,701		2,950		125,959		128,909		1,031		1,769
Commercial construction		—		—		—		—		141,694		141,694		—		—
Consumer residential		843		345		—		1,188		86,421		87,609		—		182
Consumer nonresidential		111		44		—		155		32,029		32,184		—		—
Total	$	4,084	$	2,718	$	2,701	$	9,503	$	997,507	$	1,007,010	$	1,031	$	1,951

As of December 31, 2018 – Acquired Loan Portfolio


	30 - 59 days		60 - 89 days		90 days or more		Total						90 days past due
(In thousands)	past due		past due		past due		past due		Current		Total loans		and still accruing		Nonaccruals
Commercial real estate	$	1,001	$	83	$	56	$	1,140	$	65,848	$	66,988	$	—	$	56
Commercial and industrial		446		—		—		446		7,973		8,419		—		—
Commercial construction		186		—		—		186		11,459		11,645		—		—
Consumer residential		2,785		612		173		3,570		40,252		43,822		—		173
Consumer nonresidential		—		—		—		—		124		124		—		—
Total	$	4,418	$	695	$	229	$	5,342	$	125,656	$	130,998	$	—	$	229

There were overdrafts of $74 thousand and $28 thousand at June 30, 2019 and December 31, 2018, which have been reclassified from deposits to loans. At June 30, 2019 and December 31, 2018 loans with a carrying value of $167.7 million and $173.0 million were pledged to the Federal Home Loan Bank of Atlanta.

There was a default of the one troubled debt restructuring (TDR) during the twelve months of the restructuring for the six months ended June 30, 2019. For the six months ended June 30, 2018, no TDRs defaulted within twelve months of the restructuring.

The following table presents the TDR’s originiated during the six months ended June 30, 2019:

For the six months ended June 30, 2019


		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
Troubled Debt Restructurings	Contracts	Investment		Investment
	(In thousands)
Commercial real estate	1	$	3,903	$	3,903
Total	1	$	3,903	$	3,903

There were no TDR’s originated in the six months ended June 30, 2018.

As of June 30, 2019, and December 31, 2018, the Company has a recorded investment in troubled debt restructurings of $3.9 million and $203 thousand, respectively.

The concessions made in troubled debt restructurings were extensions of the maturity dates or reductions in the stated interest rate for the remaining life of the debt.