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Note 4 - Loans and Allowance for Loan Losses
 12 Months Ended
Dec. 31, 2019
Notes to Financial Statements  
Loans, Notes, Trade and Other Receivables Disclosure [Text Block]
(
4
)
LOANS AND ALLOWANCE FOR LOAN LOSSES
 
Loans at December 31, 2019 and 2018 consisted of the following:        
         
(In thousands)   2019   2018
         
Real estate mortgage loans:                
Residential   $
131,959
     $
136,445
  
Land    
19,185
      
22,607
  
Residential construction    
35,554
      
31,459
  
Commercial real estate    
121,563
      
107,445
  
Commercial real estate construction    
20,086
      
20,591
  
Commercial business loans    
45,307
      
36,297
  
Consumer loans:                
Home equity and second mortgage loans    
54,677
      
51,731
  
Automobile loans    
46,443
      
42,124
  
Loans secured by deposits    
1,372
      
1,399
  
Unsecured loans    
3,653
      
3,638
  
Other consumer loans    
13,700
      
10,169
  
Gross loans    
493,499
      
463,905
  
Less undisbursed portion of loans in process    
(23,081
 )    
(26,675
 )
                 
Principal loan balance    
470,418
      
437,230
  
                 
Deferred loan origination fees and costs, net    
1,137
      
1,095
  
Allowance for loan losses    
(5,061
 )    
(4,065
 )
                 
Loans, net   $
466,494
     $
434,260
  
 
At
December 31, 2019
and
2018,
the net unamortized premium on loans acquired from other financial institutions, excluding purchased credit impaired (“PCI”) loans, was
$67,000
and
$70,000,
respectively.
 
At
December 31, 2019
and
2018,
residential mortgage loans secured by residential properties without private mortgage insurance or government guarantee and with loan-to-value ratios exceeding
90%
amounted to approximately
$2.3
million and
$2.7
million, respectively.
 
At
December 31, 2019,
there were
no
mortgage loans serviced for the benefit of others as compared to
$111,000
at
December 31, 2018.
 
The Bank has entered into loan transactions with certain directors, officers and their affiliates (i.e., related parties). In the opinion of management, such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated persons and does
not
involve more than normal risk of collectability or present other unfavorable features.
 
The following table represents the aggregate activity for related party loans during the years ended
December 31, 2019
and
2018.
Adjustments are made to reflect new directors and officers added during the year, as well as directors and officers that left the Company during the year.
 
(In thousands)   2019   2018
         
Beginning balance   $
7,867
     $
7,639
  
Adjustments due to officer and director changes    
-
      
(205
 )
New loans    
5,271
      
1,971
  
Payments    
(3,618
 )    
(1,538
 )
                 
Ending balance   $
9,520
     $
7,867
  
 
Off-balance-sheet commitments (including commitments to make loans, unused lines of credit and letters of credit) to related parties at
December 31, 2019
and
2018
were
$7.5
million and
$2.6
million, respectively.
 
The following table provides the components of the Company’s recorded investment in loans at
December 31, 2019
and
2018:
 
   
 
Residential
Real Estate
  
 
Land
  
 
Construction
  
 
Commercial Real Estate
  
 
Commercial Business
   Home Equity and Second Mortgage  
Other Consumer
  
 
Total
    (In thousands)
December 31, 2019:                                
Principal loan balance   $
131,959
     $
19,185
     $
32,559
     $
121,563
     $
45,307
     $
54,677
     $
65,168
     $
470,418
  
                                                                 
Accrued interest receivable    
462
      
114
      
86
      
312
      
142
      
244
      
272
      
1,632
  
                                                                 
Net deferred loan origination fees and costs    
118
      
15
      
(1
 )    
(62
 )    
-
      
1,067
      
-
      
1,137
  
                                                                 
Recorded investment in loans   $
132,539
     $
19,314
     $
32,644
     $
121,813
     $
45,449
     $
55,988
     $
65,440
     $
473,187
  
                                                                 
                                                                 
December 31, 2018:                                                                
Principal loan balance   $
136,445
     $
22,607
     $
25,375
     $
107,445
     $
36,297
     $
51,731
     $
57,330
     $
437,230
  
                                                                 
Accrued interest receivable    
475
      
119
      
76
      
265
      
120
      
247
      
228
      
1,530
  
                                                                 
Net deferred loan origination fees and costs    
99
      
18
      
(9
 )    
(38
 )    
-
      
1,025
      
-
      
1,095
  
                                                                 
Recorded investment in loans   $
137,019
     $
22,744
     $
25,442
     $
107,672
     $
36,417
     $
53,003
     $
57,558
     $
439,855
  
 
An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended
December 31, 2019
is as follows:
 
  
 
Residential
Real Estate
 
 
Land
 
Construction
 
Commercial Real Estate
 
Commercial Business
 
Home Equity and Second Mortgage
 
Other Consumer
 
Total
 
(In thousands)
Allowance for Loan Losses:                                
Beginning balance   $
693
     $
162
     $
224
     $
1,401
     $
459
     $
443
     $
683
     $
4,065
  
Provisions    
251
      
-
      
126
      
222
      
132
      
77
      
617
      
1,425
  
Charge-offs    
(194
 )    
-
      
-
      
-
      
-
      
(24
 )    
(548
 )    
(766
 )
Recoveries    
117
      
1
      
-
      
-
      
4
      
19
      
196
      
337
  
                                                                 
Ending balance   $
867
     $
163
     $
350
     $
1,623
     $
595
     $
515
     $
948
     $
5,061
  
                                                                 
Ending allowance balance attributable to loans:                                                                
                                                                 
Individually evaluated for impairment   $
16
     $
-
     $
-
     $
-
     $
-
     $
-
     $
-
     $
16
  
Collectively evaluated for  impairment    
839
      
163
      
350
      
1,623
      
595
      
515
      
948
      
5,033
  
Acquired with deteriorated credit quality    
12
      
-
      
-
      
-
      
-
      
-
      
-
      
12
  
                                                                 
Ending balance   $
867
     $
163
     $
350
     $
1,623
     $
595
     $
515
     $
948
     $
5,061
  
                                                                 
Recorded Investment in Loans:                                                                
                                                                 
Individually evaluated for impairment   $
1,926
     $
115
     $
-
     $
353
     $
249
     $
56
     $
48
     $
2,747
  
Collectively evaluated for impairment    
130,328
      
19,199
      
32,644
      
121,421
      
45,200
      
55,932
      
65,392
      
470,116
  
Acquired with deteriorated credit quality    
285
      
-
      
-
      
39
      
-
      
-
      
-
      
324
  
                                                                 
Ending balance   $
132,539
     $
19,314
     $
32,644
     $
121,813
     $
45,449
     $
55,988
     $
65,440
     $
473,187
  
 
An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended
December 31, 2018
is as follows:
 
 
 
 
 
Residential
Real Estate
 
 
 
Land
 
 
Construction
 
 
Commercial Real Estate
 
Commercial Business
 
 
Home Equity and Second Mortgage
 
 
 
Other Consumer
 
Total
(In thousands)                                
Allowance for Loan Losses:                                
Beginning balance   $
219
     $
133
     $
245
     $
1,622
     $
291
     $
710
     $
414
     $
3,634
  
Provisions    
723
      
29
      
(21
 )    
(296
 )    
218
      
(278
 )    
793
      
1,168
  
Charge-offs    
(258
 )    
-
      
-
      
-
      
(51
 )    
(21
 )    
(697
 )    
(1,027
 )
Recoveries    
9
      
-
      
-
      
75
      
1
      
32
      
173
      
290
  
                                                                 
Ending balance   $
693
     $
162
     $
224
     $
1,401
     $
459
     $
443
     $
683
     $
4,065
  
                                                                 
Ending allowance balance attributable to loans:                                                                
Individually evaluated for impairment   $
3
     $
-
     $
-
     $
44
     $
1
     $
-
     $
-
     $
48
  
Collectively evaluated for impairment    
690
      
162
      
224
      
1,357
      
458
      
443
      
683
      
4,017
  
Acquired with deteriorated credit quality    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Ending balance   $
693
     $
162
     $
224
     $
1,401
     $
459
     $
443
     $
683
     $
4,065
  
                                                                 
Recorded Investment in Loans:                                                                
Individually evaluated for impairment   $
2,184
     $
152
     $
521
     $
466
     $
427
     $
35
     $
-
     $
3,785
  
Collectively evaluated for impairment    
134,553
      
22,592
      
24,921
      
107,158
      
35,990
      
52,968
      
57,558
      
435,740
  
Acquired with deteriorated credit quality    
282
      
-
      
-
      
48
      
-
      
-
      
-
      
330
  
                                                                 
Ending balance   $
137,019
     $
22,744
     $
25,442
     $
107,672
     $
36,417
     $
53,003
     $
57,558
     $
439,855
  
 
An analysis of the allowance for loan losses for the year ended
December 31, 2017
is as follows:
 
 
 
 
 
Residential
Real Estate
 
 
 
Land
 
 
Construction
 
 
Commercial Real Estate
 
Commercial Business
 
 
Home Equity and Second Mortgage
 
 
 
Other Consumer
 
Total
(In thousands)                                
Allowance for Loan Losses:                                
Beginning balance   $
380
     $
56
     $
80
     $
1,670
     $
198
     $
683
     $
319
     $
3,386
  
Provisions    
(120
 )    
77
      
165
      
(124
 )    
226
      
28
      
663
      
915
  
Charge-offs    
(74
 )    
-
      
-
      
(3
 )    
(140
 )    
(6
 )    
(713
 )    
(936
 )
Recoveries    
33
      
-
      
-
      
79
      
7
      
5
      
145
      
269
  
                                                                 
Ending balance   $
219
     $
133
     $
245
     $
1,622
     $
291
     $
710
     $
414
     $
3,634
  
 
At
December 31, 2019
and
2018,
management applied qualitative factor adjustments to various portfolio segments as they determined that the historical loss experience was
not
indicative of the level of risk in the remaining balance of those portfolio segments. As part of their analysis of qualitative factors, management considers changes in underwriting standards, economic conditions, past due loan trends, collateral valuations, loan concentrations and other internal and external factors. Had these qualitative factor adjustments
not
been considered, the allowance for loan losses based on historical loss factors would have been
$3.8
million and
$3.1
million lower at
December 31, 2019
and
2018,
respectively. These changes were made to reflect management’s estimates of inherent losses in these portfolio segments at
December 31, 2019
and
2018.
 
Management also adjusts the historical loss factors for loans classified as watch, special mention and substandard that are
not
individually evaluated for impairment. The adjustments consider the increased likelihood of loss on classified loans based on the Company’s separate historical experience for classified loans. The effect of the adjustments for classified loans was to increase the estimated allowance for loan losses by
$386,000
and
$333,000
at
December 31, 2019
and
2018,
respectively.
 
The following table summarizes the Company’s impaired loans as of and for the year ended
December 31, 2019.
The Company did
not
recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended
December 31, 2019.
 
    Unpaid   Average   Interest        
    Recorded   Principal   Related   Recorded   Income
    Investment   Balance   Allowance   Investment   Recognized
    (In thousands)
                     
Loans with no related allowance recorded:                    
Residential real estate   $
1,737
     $
1,986
     $
-
     $
1,973
     $
17
  
Land    
115
      
117
      
-
      
147
      
-
  
Construction    
-
      
-
      
-
      
209
      
-
  
Commercial real estate    
353
      
352
      
1
      
446
      
33
  
Commercial business    
249
      
257
      
-
      
330
     
11
  
Home equity and second mortgage    
56
      
56
      
-
      
29
      
1
  
Other consumer    
48
      
50
      
-
      
20
      
-
  
                                         
    $
2,558
     $
2,818
     $
-
     $
3,154
     $
62
  
                                         
Loans with an allowance recorded:                                        
Residential real estate   $
189
     $
211
     $
16
     $
87
     $
-
  
Land    
-
      
-
      
-
      
-
      
-
  
Construction    
-
      
-
      
-
      
-
      
-
  
Commercial real estate    
-
      
-
      
-
      
81
      
-
  
Commercial business    
-
      
-
      
-
      
58
      
-
  
Home equity and second mortgage    
-
      
-
      
-
      
13
      
-
  
Other consumer    
-
      
-
      
-
      
-
      
-
  
                                         
    $
189
     $
211
     $
16
     $
239
     $
-
  
                                         
Total:                                        
Residential real estate   $
1,926
     $
2,197
     $
16
     $
2,060
     $
17
  
Land    
115
      
117
      
-
      
147
      
-
  
Construction    
-
      
-
      
-
      
209
      
-
  
Commercial real estate    
353
      
352
      
-
      
527
      
33
  
Commercial business    
249
      
257
      
-
      
388
      
11
  
Home equity and second mortgage    
56
      
56
      
-
      
42
      
1
  
Other consumer    
48
      
50
      
-
      
20
      
-
  
                                         
    $
2,747
     $
3,029
     $
16
     $
3,393
     $
62
  
 
The following table summarizes the Company’s impaired loans as of and for the year ended
December 31, 2018.
The Company did
not
recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended
December 31, 2018.
 
    Unpaid   Average   Interest        
    Recorded   Principal   Related   Recorded   Income
    Investment   Balance   Allowance   Investment   Recognized
    (In thousands)
                     
Loans with no related allowance recorded:                    
Residential real estate   $
2,170
     $
2,409
     $
-
     $
2,335
     $
23
  
Land    
152
      
153
      
-
      
135
      
-
  
Construction    
521
      
521
      
-
      
104
      
-
  
Commercial real estate    
255
     
260
      
-
      
325
      
16
  
Commercial business    
400
      
451
      
-
      
237
     
14
  
Home equity and second mortgage    
35
      
44
      
-
      
57
      
1
  
Other consumer    
-
      
-
      
-
      
5
      
1
  
                                         
    $
3,533
     $
3,838
     $
-
     $
3,198
     $
55
  
                                         
Loans with an allowance recorded:                                        
Residential real estate   $
14
     $
15
     $
3
     $
203
     $
-
  
Land    
-
      
-
      
-
      
-
      
-
  
Construction    
-
      
-
      
-
      
-
      
-
  
Commercial real estate    
211
      
213
      
44
     
42
      
-
  
Commercial business    
27
      
30
      
1
      
38
      
-
  
Home equity and second mortgage    
-
      
-
      
-
      
5
      
-
  
Other consumer    
-
      
-
      
--
      
-
      
 
  
                                         
    $
252
     $
258
     $
48
     $
288
     $
-
  
                                         
Total:                                        
Residential real estate   $
2,184
     $
2,424
     $
3
     $
2,538
     $
23
  
Land    
152
      
153
      
-
      
135
      
-
  
Construction    
521
      
521
      
-
      
104
      
-
  
Commercial real estate    
466
      
473
      
44
      
367
      
16
  
Commercial business    
427
      
481
      
1
      
275
      
14
  
Home equity and second mortgage    
35
      
44
      
-
      
62
      
1
  
Other consumer    
-
      
-
      
-
      
5
      
1
  
                                         
    $
3,785
     $
4,096
     $
48
     $
3,486
     $
55
  
 
The following table summarizes the Company’s impaired loans for the year ended
December 31, 2017.
The Company did
not
recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended
December 31, 2017.
 
 
    Average   Interest
    Recorded   Income
    Investment   Recognized
 
(In thousands)
         
Loans with no related allowance recorded:        
Residential real estate   $
2,437
     $
28
  
Land    
-
      
2
  
Construction    
-
      
-
  
Commercial real estate    
686
      
16
  
Commercial business    
57
      
1
  
Home equity and second mortgage    
194
      
1
  
Other consumer    
4
      
-
  
                 
    $
3,378
     $
48
  
                 
Loans with an allowance recorded:                
Residential real estate   $
140
     $
-
  
Land    
-
      
-
  
Construction    
-
      
-
  
Commercial real estate    
-
      
-
  
Commercial business    
40
      
-
  
Home equity and second mortgage    
20
      
-
  
Other consumer    
14
      
-
  
                 
    $
214
     $
-
  
                 
Total:                
Residential real estate   $
2,577
     $
28
  
Land    
-
      
2
  
Construction    
-
      
-
  
Commercial real estate    
686
      
16
  
Commercial business    
97
      
1
  
Home equity and second mortgage    
214
      
1
  
Other consumer           
18
      
-
  
                 
    $
3,592
     $
48
  
 
Nonperforming loans consists of nonaccrual loans and loans over
90
days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at
December 31, 2019
and
2018:
 
  December 31, 2019  
December 31, 2018
 
 
 
Nonaccrual Loans
 
Loans 90+ Days Past Due Still Accruing
Total Nonperforming Loans
 
Nonaccrual Loans
 
 
Loans 90+ Days Past Due Still Accruing
 
Total Nonperforming Loans
(In thousands)                        
Residential real estate   $
1,544
     $
13
     $
1,557
     $
1,769
     $
-
     $
1,769
  
Land    
115
      
-
      
115
      
152
      
-
      
152
  
Construction    
-
      
-
      
-
      
521
      
-
      
521
  
Commercial real estate    
-
      
-
      
-
      
371
      
-
      
371
  
Commercial business    
58
      
-
      
58
      
207
      
-
      
207
  
Home equity and second mortgage    
-
      
-
      
-
      
35
      
-
      
35
  
Other consumer    
48
      
-
      
48
      
-
      
2
      
2
  
Total   $
1,765
     $
13
     $
1,778
     $
3,055
     $
2
     $
3,057
  
 
 
The following table presents the aging of the recorded investment in loans at
December 31, 2019:
 
   
 
30-59 Days
Past Due
  
 
60-89 Days
Past Due
  
Over 90 Days
Past Due
  
 
Total
Past Due
  
 
 
Current
   Purchased Credit Impaired Loans  
 
Total
Loans
        (In thousands)
                             
Residential real estate   $
2,572
     $
824
     $
1,010
     $
4,406
     $
127,848
     $
285
     $
132,539
  
Land    
185
      
101
      
80
      
366
      
18,948
      
-
      
19,314
  
Construction    
-
      
-
      
-
      
-
      
32,644
      
-
      
32,644
  
Commercial real estate    
-
      
146
      
-
      
146
      
121,628
      
39
      
121,813
  
Commercial business    
61
      
-
      
58
      
119
      
45,330
      
-
      
45,449
  
Home equity and second mortgage    
395
      
256
      
-
      
651
      
55,337
      
-
      
55,988
  
Other consumer    
504
      
66
      
-
      
570
      
64,870
      
-
      
65,440
  
                                                         
Total   $
3,717
     $
1,393
     $
1,148
     $
6,258
     $
466,605
     $
324
     $
473,187
  
 
The following table presents the aging of the recorded investment in loans at
December 31, 2018:
 
   
 
30-59 Days
Past Due
  
 
60-89 Days
Past Due
  
Over 90 Days
Past Due
  
 
Total
Past Due
  
 
 
Current
   Purchased Credit Impaired Loans  
 
Total
Loans
        (In thousands)
                             
Residential real estate   $
2,617
     $
926
     $
1,189
     $
4,732
     $
132,005
     $
282
     $
137,019
  
Land    
247
      
39
      
152
      
438
      
22,306
      
-
      
22,744
  
Construction    
-
      
-
      
-
      
-
      
25,442
      
-
      
25,442
  
Commercial real estate    
450
      
-
      
-
      
450
      
107,174
      
48
      
107,672
  
Commercial business    
377
      
-
      
145
      
522
      
35,895
      
-
      
36,417
  
Home equity and second mortgage    
191
      
-
      
35
      
226
      
52,777
      
-
      
53,003
  
Other consumer    
491
      
50
      
2
      
543
      
57,015
      
-
      
57,558
  
                                                         
Total   $
4,373
     $
1,015
     $
1,523
     $
6,911
     $
432,614
     $
330
     $
439,855
  
 
 
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, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:
 
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 Company’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 distinct possibility that the Company will sustain some loss if the deficiencies are
not
corrected.
 
Doubtful/Nonaccrual:
Loans classified as doubtful/nonaccrual have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
 
Loss:
Loans classified as loss are considered uncollectible and of such little value that their continuance on the Company’s books as an asset is
not
warranted.
 
Loans
not
meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
 
The following table presents the recorded investment in loans by risk category as of the date indicated:
 
   
 
Residential
Real Estate
  
 
Land
  
 
Construction
  
 
Commercial Real Estate
  
 
Commercial Business
   Home Equity and Second Mortgage  
 
Other Consumer
  
 
Total
(In thousands)
December 31, 2019:                        
Pass   $
129,613
     $
18,805
     $
32,394
     $
119,469
     $
44,879
     $
55,569
     $
65,320
     $
466,049
  
Special mention    
46
      
327
      
250
      
1,136
      
378
      
-
      
72
      
2,209
  
Substandard    
1,336
      
67
      
-
      
1,208
      
134
      
419
      
-
      
3,164
  
Doubtful/Nonaccrual    
1,544
      
115
      
-
      
-
      
58
      
-
      
48
      
1,765
  
Loss    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Total   $
132,539
     $
19,314
     $
32,644
     $
121,813
     $
45,449
     $
55,988
     $
65,440
     $
473,187
  
                                                                 
December 31, 2018:
                                                                
Pass   $
133,878
     $
22,458
     $
24,921
     $
104,843
     $
35,162
     $
52,859
     $
57,529
     $
431,650
  
Special mention    
133
      
65
      
-
      
1,520
      
763
      
-
      
29
      
2,510
  
Substandard    
1,168
      
69
      
-
      
938
      
285
      
109
      
-
      
2,569
  
Doubtful/Nonaccrual    
1,840
      
152
      
521
      
371
      
207
      
35
      
-
      
3,126
  
Loss    
-
      
-
      
-
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Total   $
137,019
     $
22,744
     $
25,442
     $
107,672
     $
36,417
     $
53,003
     $
57,558
     $
439,855
  
 
 
Troubled Debt Restructurings
 
The following table summarizes the Company’s TDRs by accrual status as of
December 31, 2019
and
2018:
 
    December 31, 2019   December 31, 2018
   
 
 
 
Accruing
  
 
 
 
Nonaccrual
  
 
 
 
Total
   Related Allowance for Loan Losses  
 
 
 
Accruing
  
 
 
 
Nonaccrual
  
 
 
 
Total
   Related Allowance for Loan Losses
    (In thousands)
                                 
Residential real estate   $
367
     $
66
     $
433
     $
-
     $
295
     $
302
     $
597
     $
-
  
Commercial real estate    
553
      
-
      
553
      
-
      
190
      
371
      
561
      
44
  
Commercial business    
191
      
-
      
191
      
-
      
218
      
-
      
218
      
-
  
Home equity and second mortgage    
55
      
-
      
55
      
-
      
-
      
-
      
-
      
-
  
                                                                 
Total   $
1,166
     $
66
     $
1,232
     $
-
     $
703
     $
673
     $
1,376
     $
44
  
 
At
December 31, 2019
and
2018,
there were
no
commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.
 
The Company restructured
two
residential real estate loans,
one
commercial real estate loan and
one
home equity loan during the year ended
December 31, 2019,
with pre-modification and post-modification balances of
$225,000,
$154,000
and
$56,000,
respectively. The Company restructured
two
commercial business loans,
one
commercial real estate loan and
one
residential real estate loan during the year ended
December 31, 2018,
with pre-modification and post-modification balances of
$234,000,
$94,000
and
$241,000,
respectively. The Company restructured
one
residential real estate loan in a TDR during the year ended
December 31, 2017,
with a pre-modification and post-modification outstanding balance of
$65,000.
For the TDRs restructured during
2019,
2018
and
2017,
the terms of modification included the deferral of contractual principal payments and the renewal/extension of matured loans where the debtor was unable to access funds elsewhere at a market interest rate for debt with similar risk characteristics. There were
no
principal charge-offs recorded as a result of TDRs during the years ended
December 31, 2019,
2018
and
2017.
 
The Company had
no
payment defaults (defined as the loan becoming more than
90
days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) for TDRs modified within the previous
12
months during the years ended
December 31, 2019,
2018
and
2017.
In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance for loan losses
may
be increased or charge-offs
may
be taken to reduce the carrying amount of the loan. The Company did
not
recognize any provisions for loan losses or net charge-offs as a result of defaulted TDRs for the years ended
December 31, 2019,
2018
and
2017.
Purchased Credit Impaired (“PCI”) Loans
 
Purchased loans acquired in a business combination are recorded at estimated fair value on their purchase date with
no
carryover of the related allowance for loan and lease losses. Such loans are accounted for individually or aggregated into pools of loans based on common risk characteristics such as credit score, loan type and date of origination. In determining the estimated fair value of purchased loans or pools, management considers a number of factors including the remaining life, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and net present value of cash flows expected to be received, among others. Purchased loans are accounted for in accordance with guidance for certain loans acquired in a transfer (FASB ASC
310
-
30
), when the loans have evidence of credit deterioration since origination and it is probable at the date of acquisition that the acquirer will
not
collect all contractually required principal and interest payments. The difference between contractually required payments and the cash flows expected to be collected at acquisition is referred to as the nonaccretable difference. The difference between the expected cash flows and the fair value at acquisition is recorded as interest income over the remaining life of the loan or pool of loans and is referred to as the accretable yield. Subsequent decreases to the expected cash flows will generally result in a provision for loan and lease losses. Subsequent increases in expected cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to accretable yield, which is recognized as future interest income.
 
The following table presents the carrying amount of PCI loans accounted for under FASB ASC
310
-
30
at
December 31, 2019
and
2018:
 
(In thousands)
   2019   2018
         
Residential real estate   $
285
     $
282
  
Commercial real estate    
39
      
48
  
Carrying amount    
324
      
330
  
Allowance for loan losses    
12
      
-
  
                 
    $
312
     $
330
  
 
The outstanding balance of PCI loans accounted for under FASB ASC
310
-
30,
including contractual principal, interest, fees and penalties was
$466,000
and
$519,000
at
December 31, 2019
and
2018,
respectively.
 
The allowance for loan losses related to PCI loans was
$12,000
at
December 31, 2019.
There was
no
allowance for loan losses related to PCI loans at
December 31, 2018.
Provisions for loan losses related to PCI loans were
$12,000
for the year ended
December 31, 2019.
There was a
$2,000
reduction of the allowance for loan losses related PCI loans for the year ended
December 31, 2018.
Provisions for loan losses related to PCI loans were
$2,000
for the year ended
December 31, 2017.
 
Accretable yield, or income expected to be collected, is as follows for the years ended
December 31, 2019,
2018
and
2017:
 
(In thousands)
   2019   2018   2017
             
Beginning balance   $
423
     $
470
     $
252
  
New loans acquired    
-
      
-
      
-
  
Accretion to income    
(46
 )    
(54
 )    
(55
 )
Disposals and other adjustments    
-
    
(32
 )    
(21
 )
Reclassification from nonaccretable difference    
26
      
42
      
294
  
                         
Ending balance   $
403
     $
423
     $
470