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Note 3 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans | 9 Months Ended
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Sep. 30, 2020
Notes to Financial Statements |
Allowance for Credit Losses [Text Block] |
Note 3: | Allowance for Loan Losses, Nonperforming Assets and Impaired Loans
The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and value of the underlying collateral. Impaired Loans Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts will not be collected when due according to the contractual terms of the loan agreement. Impaired loans are those loans that have been modified in a TDR and larger, usually non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate that collection probably will not occur when due according to the loan’s terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “special mention.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair value. Impaired loans that are not TDRs and for which fair value measurement indicates an impairment loss are designated nonaccrual. A restructured loan that maintains current status for at least six months may be in accrual status. Please refer to the Company’s 2019 Form 10-K, Note 1: Summary of Significant Accounting Policies for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs. TDRs impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal or accrued interest, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Restructured loans are individually evaluated for impairment, and the amount of a restructured loan’s book value in excess of its fair value is accrued as a specific allocation in the allowance for loan losses. If a TDR loan payment exceeds 90 days past due, it is examined to determine whether the late payment indicates collateral dependency or cash flows below those that were used in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value. Deficiencies indicated by impairment measurements for TDRs that are not collateral dependent may be accrued in the allowance for loan losses or charged off if deemed uncollectible. Collectively-Evaluated Loans The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level. Portfolio Segments and Classes The segments and classes used in determining the allowance for loan losses are as follows.
Real Estate Construction Construction, residential Construction, other Consumer Real Estate Equity lines Residential closed-end first liens Residential closed-end junior liens Investor-owned residential real estate Commercial Real Estate Multifamily real estate Commercial real estate, owner-occupied Commercial real estate, other | Commercial Non Real Estate Commercial and industrial Public Sector and IDA State and political subdivisions Consumer Non Real Estate Credit cards Automobile Other consumer
Historical Loss Rates The Company’s allowance methodology for collectively evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The Company averages loss rates for the most recent 8 quarters to determine the historical loss rate for each class. Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or lower. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date. Risk Factors In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system. The analysis of certain factors results in standard allocations to all segments and classes. These factors include the risk from changes in lending policies, loan officers’ average years of experience, and economic factors including unemployment levels, bankruptcy rates, interest rate environment, and competition/legal/regulatory environments. Also applied to all segments and classes is an economic factor implemented to address COVID-19 uncertainty: national unemployment filings. Typically the Company applies to the allowance calculation economic data specific to its market area. However, historical analysis determined that local unemployment filings were closely correlated to national unemployment filings. Since local data is not available timely, the Company elected to use national unemployment filings. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include the risk from changes in loan review, levels of past due loans, levels of nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment. Please refer to the Company’s 2019 Form 10-K, Note 1: Summary of Significant Accounting Policies for a discussion of risk factors pertinent to each class. Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. These risks are measured by market-area unemployment rates, bankruptcy rates, building market trends, and interest rates. The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates. The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate. Commercial non-real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non-real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates. Included in this segment are the SBA-guaranteed PPP loans, which are assumed to be not subject to credit risk. Public sector and Industrial Development Authority (“IDA”) loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends. Consumer non-real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates. Factor allocations applied to each class are increased for loans rated special mention and increased to a greater extent for loans rated classified. The Company allocates additional reserves for “high risk” loans. High risk loans include junior liens, interest only and high loan to value loans. A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.
|  | Activity in the Allo wance for Loan Losses for the Nine Months Ended September 30, 2020 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Balance, December 31, 2019 |  | $ | 400 |  |  | $ | 1,895 |  |  | $ | 2,559 |  |  | $ | 555 |  |  | $ | 478 |  |  | $ | 650 |  |  | $ | 326 |  |  | $ | 6,863 |
Charge-offs |  |  | --- |  |  |  | (62 | ) |  |  | (15 | ) |  |  | (372 | ) |  |  | --- |  |  |  | (190 | ) |  |  | --- |  |  |  | (639 | )
Recoveries |  |  | --- |  |  |  | 18 |  |  |  | 53 |  |  |  | 6 |  |  |  | --- |  |  |  | 142 |  |  |  | --- |  |  |  | 219 |
Provision for (recovery of) loan losses |  |  | 24 |  |  |  | 311 |  |  |  | 1,047 |  |  |  | 510 |  |  |  | 53 |  |  |  | (5 | ) |  |  | 45 |  |  |  | 1,985 |
Balance, September 30, 20 20 |  | $ | 424 |  |  | $ | 2,162 |  |  | $ | 3,644 |  |  | $ | 699 |  |  | $ | 531 |  |  | $ | 597 |  |  | $ | 371 |  |  | $ | 8,428 |
|  | A ctivity in the Allowance for Loan Losses for the Nine Months Ended September 30, 201 9 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Balance, December 31, 2018 |  | $ | 398 |  |  | $ | 2,049 |  |  | $ | 2,798 |  |  | $ | 602 |  |  | $ | 583 |  |  | $ | 750 |  |  | $ | 210 |  |  | $ | 7,390 |
Charge-offs |  |  | --- |  |  |  | (147 | ) |  |  | (150 | ) |  |  | --- |  |  |  | --- |  |  |  | (399 | ) |  |  | --- |  |  |  | (696 | )
Recoveries |  |  | --- |  |  |  | --- |  |  |  | 37 |  |  |  | --- |  |  |  | --- |  |  |  | 181 |  |  |  | --- |  |  |  | 218 |
Provision for (recovery of) loan losses |  |  | 56 |  |  |  | 199 |  |  |  | 14 |  |  |  | (75 | ) |  |  | (93 | ) |  |  | 156 |  |  |  | 93 |  |  |  | 350 |
Balance, September 30, 2019 |  | $ | 454 |  |  | $ | 2,101 |  |  | $ | 2,699 |  |  | $ | 527 |  |  | $ | 490 |  |  | $ | 688 |  |  | $ | 303 |  |  | $ | 7,262 |
|  | A ctivity in the Allowance for Loan Losses for the Year Ended December 31, 201 9 |
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Balance, December 31, 2018 |  | $ | 398 |  |  | $ | 2,049 |  |  | $ | 2,798 |  |  | $ | 602 |  |  | $ | 583 |  |  | $ | 750 |  |  | $ | 210 |  |  | $ | 7,390 |
Charge-offs |  |  | --- |  |  |  | (192 | ) |  |  | (150 | ) |  |  | (47 | ) |  |  | --- |  |  |  | (531 | ) |  |  | --- |  |  |  | (920 | )
Recoveries |  |  | --- |  |  |  | --- |  |  |  | 49 |  |  |  | 1 |  |  |  | --- |  |  |  | 217 |  |  |  | --- |  |  |  | 267 |
Provision for (recovery of) loan losses |  |  | 2 |  |  |  | 38 |  |  |  | (138 | ) |  |  | (1 | ) |  |  | (105 | ) |  |  | 214 |  |  |  | 116 |  |  |  | 126 |
Balance, December 31, 2019 |  | $ | 400 |  |  | $ | 1,895 |  |  | $ | 2,559 |  |  | $ | 555 |  |  | $ | 478 |  |  | $ | 650 |  |  | $ | 326 |  |  | $ | 6,863 |
|  | Allowance for Loan Losses as of September 30, 20 20
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | --- |  |  | $ | 2 |  |  | $ | --- |  |  | $ | 102 |  |  | $ | --- |  |  | $ | --- |  |  | $ | --- |  |  | $ | 104 |
Collectively evaluated for impairment |  |  | 424 |  |  |  | 2,160 |  |  |  | 3,644 |  |  |  | 597 |  |  |  | 531 |  |  |  | 597 |  |  |  | 371 |  |  |  | 8,324 |
Total |  | $ | 424 |  |  | $ | 2,162 |  |  | $ | 3,644 |  |  | $ | 699 |  |  | $ | 531 |  |  | $ | 597 |  |  | $ | 371 |  |  | $ | 8,428 |
|  | Allowance for Loan Losses as of December 31, 201 9
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | --- |  |  | $ | 2 |  |  | $ | --- |  |  | $ | 108 |  |  | $ | --- |  |  | $ | --- |  |  | $ | --- |  |  | $ | 110 |
Collectively evaluated for impairment |  |  | 400 |  |  |  | 1,893 |  |  |  | 2,559 |  |  |  | 447 |  |  |  | 478 |  |  |  | 650 |  |  |  | 326 |  |  |  | 6,753 |
Total |  | $ | 400 |  |  | $ | 1,895 |  |  | $ | 2,559 |  |  | $ | 555 |  |  | $ | 478 |  |  | $ | 650 |  |  | $ | 326 |  |  | $ | 6,863 |
|  | Loans as of September 30, 2020
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | --- |  |  | $ | 244 |  |  | $ | 3,887 |  |  | $ | 861 |  |  | $ | --- |  |  | $ | 3 |  |  | $ | --- |  |  | $ | 4,995 |
Collectively evaluated for impairment |  |  | 36,994 |  |  |  | 178,302 |  |  |  | 389,817 |  |  |  | 100,045 |  |  |  | 59,035 |  |  |  | 33,611 |  |  |  | --- |  |  |  | 797,804 |
Total |  | $ | 36,994 |  |  | $ | 178,546 |  |  | $ | 393,704 |  |  | $ | 100,906 |  |  | $ | 59,035 |  |  | $ | 33,614 |  |  | $ | --- |  |  | $ | 802,799 |
|  | Loans as of December 31, 201 9
|  | Real Estate Construction |  |  | Consumer Real Estate |  |  | Commercial Real Estate |  |  | Commercial Non Real Estate |  |  | Public Sector and IDA |  |  | Consumer Non Real Estate |  |  | Unallocated |  |  | Total |
Individually evaluated for impairment |  | $ | --- |  |  | $ | 759 |  |  | $ | 3,608 |  |  | $ | 918 |  |  | $ | --- |  |  | $ | 4 |  |  | $ | --- |  |  | $ | 5,289 |
Collectively evaluated for impairment |  |  | 42,303 |  |  |  | 180,713 |  |  |  | 361,765 |  |  |  | 45,658 |  |  |  | 63,764 |  |  |  | 34,535 |  |  |  | --- |  |  |  | 728,738 |
Total |  | $ | 42,303 |  |  | $ | 181,472 |  |  | $ | 365,373 |  |  | $ | 46,576 |  |  | $ | 63,764 |  |  | $ | 34,539 |  |  | $ | --- |  |  | $ | 734,027 |
A summary of ratios for the allowance for loan losses follows.
|  | As of and for the |
|  | Nine Months Ended September 30, |  |  | Year E nded December 31, |
|  | 2020 |  |  | 2019 |  |  | 2019 |
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs(2) |  |  | 1.05 | % |  |  | 1.01 | % |  |  | 0.94 | %
Ratio of net charge-offs to average loans, net of unearned income and deferred fees and costs(1) |  |  | 0.07 | % |  |  | 0.09 | % |  |  | 0.09 | %
(1) | Net charge-offs are on an annualized basis.
(2) | The ratio of the allowance for loan losses to the end of period loans, net of unearned income and deferred fees and costs at September 30, 2020 includes government-guaranteed SBA PPP loans, which do not require an allowance for loan losses. Excluding the PPP loans, the ratio would be 1.13%.
A summary of nonperforming assets follows.
|  | September 30, |  |  | December 31, |
|  | 2020 |  |  | 2019 |  |  | 2019 |
Nonperforming assets: |  |  |  |  |  |  |  |  |  |  |  |
Nonaccrual loans |  | $ | 736 |  |  | $ | 699 |  |  | $ | 164 |
Restructured loans in nonaccrual |  |  | 2,866 |  |  |  | 3,377 |  |  |  | 3,211 |
Total nonperforming loans |  |  | 3,602 |  |  |  | 4,076 |  |  |  | 3,375 |
Other real estate owned, net |  |  | 1,553 |  |  |  | 1,470 |  |  |  | 1,612 |
Total nonperforming assets |  | $ | 5,155 |  |  | $ | 5,546 |  |  | $ | 4,987 |
Ratio of nonperforming assets to loans, net of unearned income and deferred fees and costs, plus other real estate owned |  |  | 0.64 | % |  |  | 0.77 | % |  |  | 0.68 | %
Ratio of allowance for loan losses to nonperforming loans(1) |  |  | 233.98 | % |  |  | 178.16 | % |  |  | 203.35 | %
(1) | The Company defines nonperforming loans as nonaccrual loans and restructured loans that are nonaccrual. Nonperforming loans do not include loans 90 days past due and still accruing or accruing restructured loans.
A summary of loans past due 90 days or more and impaired loans follows.
|  | As of and For the |
|  | Nine Months Ended September 30, |  |  | Year ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2019 |
Loans past due 90 days or more and still accruing |  | $ | 236 |  |  | $ | 212 |  |  | $ | 231 |
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees and costs |  |  | 0.03 | % |  |  | 0.03 | % |  |  | 0.03 | %
Accruing restructured loans |  | $ | 1,426 |  |  | $ | 1,880 |  |  | $ | 1,729 |
Impaired loans: |  |  |  |  |  |  |  |  |  |  |  |
Impaired loans with no valuation allowance |  | $ | 3,939 |  |  | $ | 5,163 |  |  | $ | 4,174 |
Impaired loans with a valuation allowance |  |  | 1,056 |  |  |  | 1,070 |  |  |  | 1,115 |
Total impaired loans |  | $ | 4,995 |  |  | $ | 6,233 |  |  | $ | 5,289 |
Valuation allowance |  |  | (104 | ) |  |  | (120 | ) |  |  | (110 | )
Impaired loans, net of allowance |  | $ | 4,891 |  |  | $ | 6,113 |  |  | $ | 5,179 |
Average recorded investment in impaired loans(1) |  | $ | 5,227 |  |  | $ | 6,729 |  |  | $ | 5,359 |
Interest income recognized on impaired loans, after designation as impaired |  | $ | 49 |  |  | $ | 144 |  |  | $ | 171 |
Amount of income recognized on a cash basis |  | $ | --- |  |  | $ | --- |  |  | $ | --- |
(1) Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status. Nonaccrual loan relationships that meet the Company’s balance threshold of $250 and all TDRs are designated as impaired. The Company also designates as impaired other loan relationships that meet the Company’s balance threshold of $250 and for which the Company does not expect to collect according to the note’s contractual terms. No interest income was recognized on nonaccrual loans for the nine months ended September 30, 2020 or September 30, 2019 or for the year ended December 31, 2019. A detailed analysis of investment in impaired loans and associated reserves, segregated by loan class follows.
|  | Impaired Loans as of September 30, 2020 |
|  | Contractual Principal Balance |  |  | Total Recorded Investment(1) |  |  | Recorded Investment(1)for Which There is No Related Allowance |  |  | Recorded Investment(1) for Which There is a Related Allowance |  |  | Related Allowance |
Co nsumer Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investor-owned residential real estate |  | $ | 244 |  |  | $ | 244 |  |  | $ | 49 |  |  | $ | 195 |  |  | $ | 2 |
Commercial Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate, owner-occupied |  |  | 893 |  |  |  | 846 |  |  |  | 846 |  |  |  | --- |  |  |  | --- |
Commercial real estate, other |  |  | 3,521 |  |  |  | 3,041 |  |  |  | 3,041 |  |  |  | --- |  |  |  | --- |
Commercial Non Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 861 |  |  |  | 861 |  |  |  | --- |  |  |  | 861 |  |  |  | 102 |
Consumer Non Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Automobile |  |  | 3 |  |  |  | 3 |  |  |  | 3 |  |  |  | --- |  |  |  | --- |
Total |  | $ | 5,522 |  |  | $ | 4,995 |  |  | $ | 3,939 |  |  | $ | 1,056 |  |  | $ | 104 |
(1) Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status. (2) Only classes with impaired loans are shown.
|  | Impaired Loans as of December 31, 2019 |
|  | Contractual Principal Balance |  |  | Total Recorded Investment(1) |  |  | Recorded Investment(1) for Which There is No Related Allowance |  |  | Recorded Investment(1) for Which There is a Related Allowance |  |  | Related Allowance |
Co nsumer Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  | $ | 100 |  |  | $ | 100 |  |  | $ | 100 |  |  | $ | --- |  |  | $ | --- |
Residential closed-end first liens |  |  | 221 |  |  |  | 221 |  |  |  | 221 |  |  |  | --- |  |  |  | --- |
Investor-owned residential real estate |  |  | 441 |  |  |  | 438 |  |  |  | 241 |  |  |  | 197 |  |  |  | 2 |
Commercial Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 278 |  |  |  | 278 |  |  |  | 278 |  |  |  | --- |  |  |  | --- |
Commercial real estate, owner occupied |  |  | 929 |  |  |  | 895 |  |  |  | 895 |  |  |  | --- |  |  |  | --- |
Commercial real estate, other |  |  | 2,867 |  |  |  | 2,435 |  |  |  | 2,435 |  |  |  | --- |  |  |  | --- |
Commercial Non-Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 917 |  |  |  | 918 |  |  |  | --- |  |  |  | 918 |  |  |  | 108 |
Consumer Non-Real Estate(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Automobile |  |  | 4 |  |  |  | 4 |  |  |  | 4 |  |  |  | --- |  |  |  | --- |
Total |  | $ | 5,757 |  |  | $ | 5,289 |  |  | $ | 4,174 |  |  | $ | 1,115 |  |  | $ | 110 |
(1) | Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2) | Only classes with impaired loans are shown.
The following tables show the average recorded investment and interest income recognized for impaired loans.
|  | For the Nine Months Ended September 30, 2020 |
|  | Average Recorded Investment(1) |  |  | Interest Income Recognized |
Consumer Real Estate(2) |  |  |  |  |  |  |  |
Investor-owned residential real estate |  | $ | 245 |  |  | $ | 11 |
Commercial Real Estate(2) |  |  |  |  |  |  |  |
Commercial real estate, owner occupied |  |  | 858 |  |  |  | 16 |
Commercial real estate, other |  |  | 3,223 |  |  |  | 5 |
Commercial Non Real Estate(2) |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 897 |  |  |  | 17 |
Consumer Non Real Estate(2) |  |  |  |  |  |  |  |
Automobile |  |  | 4 |  |  |  | --- |
Total |  | $ | 5,227 |  |  | $ | 49 |
(1) | Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2) | Only classes with impaired loans are shown.
|  | For the Nine Months Ended September 30, 2019 |
|  | Average Recorded Investment(1) |  |  | Interest Income Recognized |
Co nsumer Real Estate(2) |  |  |  |  |  |  |  |
Equity lines |  | $ | 97 |  |  | $ | 5 |
Residential closed-end first liens |  |  | 990 |  |  |  | 10 |
Residential closed-end junior liens |  |  | 137 |  |  |  | 6 |
Investor-owned residential real estate |  |  | 432 |  |  |  | 14 |
Commercial Real Estate(2) |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 463 |  |  |  | 9 |
Commercial real estate, owner occupied |  |  | 1,174 |  |  |  | 39 |
Commercial real estate, other |  |  | 2,451 |  |  |  | 43 |
Commercial Non Real Estate(2) |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 976 |  |  |  | 18 |
Consumer Non Real Estate(2) |  |  |  |  |  |  |  |
Automobile |  |  | 9 |  |  |  | --- |
Total |  | $ | 6,729 |  |  | $ | 144 |
(1) | Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2) | Only classes with impaired loans are shown.
|  | For the Year Ended December 31, 2019 |
|  | Average Recorded Investment(1) |  |  | Interest Income Recognized |
Consumer Real Estate(2) |  |  |  |  |  |  |  |
Equity lines |  | $ | 98 |  |  | $ | 6 |
Residential closed-end junior liens |  |  | 225 |  |  |  | 11 |
Investor-owned residential real estate |  |  | 439 |  |  |  | 17 |
Commercial Real Estate(2) |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 284 |  |  |  | 12 |
Commercial real estate, owner occupied |  |  | 913 |  |  |  | 41 |
Commercial real estate, other |  |  | 2,435 |  |  |  | 59 |
Commercial Non-Real Estate(2) |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 962 |  |  |  | 25 |
Co nsumer Non-Real Estate(2) |  |  |  |  |  |  |  |
Automobile |  |  | 3 |  |  |  | --- |
Total |  | $ | 5,359 |  |  | $ | 171 |
(1) | Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.
(2) | Only classes with impaired loans are shown.
The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least six consecutive payments in accordance with repayment terms and timeframes may be returned to accrual status. An analysis of past due and nonaccrual loans follows.
September 30, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 30 – 89 Days Past Due and Accruing |  |  | 90 or M ore Days Past Due |  |  | 90 or More Days Past Due and Accruing |  |  | Nonaccruals(2) |
Real Estate Construction(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction, other |  | $ | 18 |  |  | $ | --- |  |  | $ | --- |  |  | $ | --- |
Consumer Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity Lines |  |  | 30 |  |  |  | 19 |  |  |  | 19 |  |  |  | --- |
Residential closed-end first liens |  |  | 526 |  |  |  | 121 |  |  |  | 39 |  |  |  | 82 |
Investor-owned residential real estate |  |  | 107 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Commercial Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial real estate, owner-occupied |  |  | 147 |  |  |  | 582 |  |  |  | 103 |  |  |  | 479 |
Commercial real estate, other |  |  | --- |  |  |  | 654 |  |  |  | --- |  |  |  | 3,041 |
Commercial Non Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 127 |  |  |  | 61 |  |  |  | 61 |  |  |  | --- |
Consumer Non Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 5 |  |  |  | 2 |  |  |  | 2 |  |  |  | --- |
Automobile |  |  | 170 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Other consumer loans |  |  | 165 |  |  |  | 12 |  |  |  | 12 |  |  |  | --- |
Total |  | $ | 1,295 |  |  | $ | 1,451 |  |  | $ | 236 |  |  | $ | 3,602 |
(1) | Only classes with past-due or nonaccrual loans are shown.
(2) | Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 30 – 89 Days Past Due and Accruing |  |  | 90 or M ore Days Past Due |  |  | 90 or More Days Past Due and Accruing |  |  | Nonaccruals(2) |
Real Estate Construction(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction, other |  | $ | 19 |  |  | $ | --- |  |  | $ | --- |  |  | $ | --- |
Consumer Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential closed-end first liens |  |  | 499 |  |  |  | 210 |  |  |  | 188 |  |  |  | 22 |
Residential closed-end junior liens |  |  | 83 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Investor-owned residential real estate |  |  | --- |  |  |  | 264 |  |  |  | --- |  |  |  | 264 |
Commercial Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Multifamily real estate |  |  | 94 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Commercial real estate, owner occupied |  |  | --- |  |  |  | 287 |  |  |  | --- |  |  |  | 514 |
Commercial real estate, other |  |  | --- |  |  |  | --- |  |  |  | --- |  |  |  | 2,435 |
Commercial Non-Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 45 |  |  |  | 153 |  |  |  | 17 |  |  |  | 136 |
Consumer Non-Real Estate(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 4 |  |  |  | --- |  |  |  | --- |  |  |  | --- |
Automobile |  |  | 256 |  |  |  | 14 |  |  |  | 14 |  |  |  | 4 |
Other consumer loans |  |  | 70 |  |  |  | 12 |  |  |  | 12 |  |  |  | --- |
Total |  | $ | 1,070 |  |  | $ | 940 |  |  | $ | 231 |  |  | $ | 3,375 |
(1) | Only classes with past-due or nonaccrual loans are shown.
(2) | Includes current and past due loans in nonaccrual status. Includes impaired loans in nonaccrual status.
The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk. Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do not indicate heightened risk are graded as “pass.” Consumer loans are risk graded “classified” when they become 60 days past due. Loans that are not consumer loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than 75 days, or that show weakness in the borrower’s financial condition are risk graded “special mention.” Loans that are not consumer loans with frequent or persistent delinquency exceeding 75 days or that exhibit a higher level of weakness in the borrower’s financial condition are graded classified. Classified loans have regulatory risk ratings of “substandard” and “doubtful.” Allocations applied to the allowance for loan losses are increased by 50% and by 100% for loans with grades of “special mention” and “classified,” respectively. Determination of risk grades was completed for the portfolio as of September 30, 2020 and December 31, 2019. The following displays collectively-evaluated loans by credit quality indicator. September 30, 2020
|  | Pass(1) |  |  | Special Mention(1) |  |  | Classified(1) |
Real Estate Construction |  |  |  |  |  |  |  |  |  |  |  |
Construction, 1-4 family residential |  | $ | 7,052 |  |  | $ | --- |  |  | $ | --- |
Construction, other |  |  | 29,942 |  |  |  | --- |  |  |  | --- |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  |  | 14,710 |  |  |  | --- |  |  |  | 19 |
Closed-end first liens |  |  | 87,555 |  |  |  | 67 |  |  |  | 344 |
Closed-end junior liens |  |  | 3,530 |  |  |  | --- |  |  |  | --- |
Investor-owned residential real estate |  |  | 72,077 |  |  |  | --- |  |  |  | --- |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Multifamily residential real estate |  |  | 83,413 |  |  |  | 269 |  |  |  | --- |
Commercial real estate owner-occupied |  |  | 152,188 |  |  |  | --- |  |  |  | 143 |
Commercial real estate, other |  |  | 153,804 |  |  |  | --- |  |  |  | --- |
Commercial Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 99,984 |  |  |  | --- |  |  |  | 61 |
Public Sector and IDA |  |  |  |  |  |  |  |  |  |  |  |
State and political subdivisions |  |  | 59,035 |  |  |  | --- |  |  |  | --- |
Consumer Non Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 4,676 |  |  |  | --- |  |  |  | --- |
Automobile |  |  | 12,620 |  |  |  | --- |  |  |  | --- |
Other consumer |  |  | 16,309 |  |  |  | --- |  |  |  | 6 |
Total |  | $ | 796,895 |  |  | $ | 336 |  |  | $ | 573 |
(1) | Excludes impaired, if any.
The following displays collectively-evaluated loans by credit quality indicator. December 31, 201 9
|  | Pass(1) |  |  | Special Mention(1) |  |  | Classified(1) |
Real Estate Construction |  |  |  |  |  |  |  |  |  |  |  |
Construction, 1-4 family residential |  | $ | 7,590 |  |  | $ | --- |  |  | $ | --- |
Construction, other |  |  | 34,713 |  |  |  | --- |  |  |  | --- |
Consumer Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  |  | 16,435 |  |  |  | --- |  |  |  | --- |
Residential closed-end first liens |  |  | 94,814 |  |  |  | --- |  |  |  | 517 |
Residential closed-end junior liens |  |  | 3,861 |  |  |  | --- |  |  |  | --- |
Investor-owned residential real estate |  |  | 65,063 |  |  |  | --- |  |  |  | 23 |
Commercial Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Multifamily residential real estate |  |  | 87,934 |  |  |  | --- |  |  |  | 94 |
Commercial real estate owner-occupied |  |  | 127,937 |  |  |  | --- |  |  |  | 164 |
Commercial real estate, other |  |  | 145,636 |  |  |  | --- |  |  |  | --- |
Commercial Non-Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 45,387 |  |  |  | 135 |  |  |  | 136 |
Public Sector and IDA |  |  |  |  |  |  |  |  |  |  |  |
State and political subdivisions |  |  | 63,764 |  |  |  | --- |  |  |  | --- |
Consumer Non-Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Credit cards |  |  | 5,703 |  |  |  | --- |  |  |  | --- |
Automobile |  |  | 14,810 |  |  |  | --- |  |  |  | 19 |
Other consumer |  |  | 13,995 |  |  |  | --- |  |  |  | 8 |
Total |  | $ | 727,642 |  |  | $ | 135 |  |  | $ | 961 |
(1) Excludes impaired, if any. Sales, Purchases and Reclassification of Loans The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no major reclassifications from portfolio loans to held for sale. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied. Troubled Debt Restructurings From time to time the Company modifies loans that are designated TDRs. Total TDRs amounted to $4,292 at September 30, 2020, $4,940 at December 31, 2019, and $5,257 at September 30, 2019. The Company did not modify any loans that were designated TDR during the three or nine month periods ended September 30, 2020 and modified one loan resulting in a TDR during the three and nine months ended September 30, 2019. The following table presents restructuring by class that occurred during the three and nine month periods ended September 30, 2019.
|  | Number of Contracts |  |  | Pre-Modification Outstanding Principal Balance |  |  | Post-Modification Outstanding Principal Balance |
Residential Real Estate |  |  |  |  |  |  |  |  |  |  |  |
Equity lines |  |  | 1 |  |  | $ | 98 |  |  | $ | 98 |
Total |  |  | 1 |  |  | $ | 98 |  |  | $ | 98 |
The restructuring completed during the three and nine month periods ended September 30, 2019 provided relief to the borrower without forgiving principal or interest. The loan covenants require that the balance be paid in full for a period of 30 days each year. The Company allowed the borrower to maintain full funding for the past year, and extended the maturity date. The impairment measurement at September 30, 2019 was based upon the fair value of collateral and did not result in a specific allocation. The borrower paid off the loan during the second quarter of 2020. In accordance with regulatory guidance and provisions in the CARES Act to provide relief during the COVID-19 pandemic, the Company has provided short-term concessions to borrowers who request assistance. Through September 30, 2020, the Company provided principal and/or interest extensions, interest only periods or rate reductions on 361 loans with balances totaling $160,230 for COVID-19 related hardship. Loans that qualified for COVID-19 related modifications were not more than 30 days past due as of December 31, 2019. As such, they were not considered TDRs based on the relief provisions of the CARES Act and recent interagency regulatory guidance. The Company is monitoring loans with COVID-19 related modifications. If loans within this population require subsequent modifications, the Company will consider the borrower’s financial status at the time of the request and the effect of all modifications, past and requested. If the borrower is deemed to be in financial difficulty that is not short-term and the impact of all modifications is considered to amount to a concession under U.S. GAAP and the modification does not qualify under the CARES ACT or meet interagency thresholds to be excluded from TDR designation, the loan will be designated TDR. The Company is also monitoring the population to determine whether other credit-related action should be taken, possibly including downgrading credit risk ratings, designating as nonaccrual or charge-off. Downgraded credit risk ratings, nonaccrual status and charge-offs result in increasing the requirement for the allowance for loan losses. The Company analyzed its TDR portfolio for loans that defaulted during the three and nine month periods ended September 30, 2020 and September 30, 2019, and that were modified within 12 months prior to default. The Company defines default as one or more payments that occur more than 90 days past the due date, charge-offs, or foreclosure after the date of restructuring. As of September 30, 2020, there were none that defaulted within 12 months of modification. Of the Company's TDRs at September 30, 2019, seven consumer real estate loans within one relationship totaling $263 defaulted within 12 months of modification. The impairment measurement was based upon the fair value of collateral, less estimated cost to sell, and resulted in no allocation. All of the defaulted loans were in nonaccrual status while the Company worked with the borrowers to recover its investment. One commercial real estate loan defaulted within 12 months of modification. The impairment measurement was based upon the fair value of collateral, less estimated cost to sell, and resulted in no allocation.

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