Note 3 - Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2021

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

3.         Loans and Allowance for Loan Losses

The Company’s loan and allowance for loan loss policies are as follows:

Loans are stated at unpaid principal balances, less net deferred loan fees and the allowance for loan losses.  The Company originates real estate mortgage, commercial business and consumer loans.  A substantial portion of the loan portfolio is represented by mortgage loans to customers in the Louisville, Kentucky metropolitan statistical area (MSA).  The ability of the Company’s customers to honor their loan agreements is largely dependent upon the real estate and general economic conditions in this area.

Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method.  Amortization of net deferred loan fees is discontinued when a loan is placed on nonaccrual status.

The recognition of income on a loan is discontinued and previously accrued interest is reversed, when interest or principal payments become 90 days past due unless, in the opinion of management, the outstanding interest remains collectible. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income is subsequently recognized only as received until the loan is returned to accrual status. The cash receipts method is used when the likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the loan qualifies for return to accrual status.  Interest income on impaired loans is recognized using the cost recovery method, unless the likelihood of further loss on the loan is remote. 

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at least six consecutive months.

For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons.  A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan will not be repaid.  A specific reserve is recognized as a component of the allowance for estimated losses on loans individually evaluated for impairment.  Partial charge-offs on nonperforming and impaired loans are included in the Company’s historical loss experience used to estimate the general component of the allowance for loan losses as discussed below.  Specific reserves are not considered charge-offs in management’s analysis of the allowance for loan losses because they are estimates and the outcome of the loan relationship is undetermined. 

Consumer loans not secured by real estate are typically charged off at 90 days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection.  Overdrafts are charged off after 45 days past due.  Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon.

The allowance for loan losses reflects management’s judgment of probable loan losses inherent in the loan portfolio at the balance sheet date.  Additions to the allowance for loan losses are made by the provision for loan losses charged to earnings.  Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The Company uses a disciplined process and methodology to evaluate the allowance for loan losses on at least a quarterly basis that is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.  The specific component relates to loans that are individually evaluated for impairment or loans otherwise classified as doubtful, substandard, or special mention.  For such loans that are also classified as impaired, an allowance is established when the underlying discounted collateral value (or present value of estimated future cash flows) of the impaired loan is lower than the carrying value of that loan.

The general component covers loans not considered to be impaired.  Such loans are pooled by segment and losses are modeled using annualized historical loss experience adjusted for qualitative factors.  The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior five years.  The Company’s historical loss experience is then adjusted for qualitative factors that are reviewed on a quarterly basis based on the risks present for each portfolio segment.  Management considers changes and trends in the following qualitative loss factors:  underwriting standards, economic conditions, changes and trends in past due and classified loans, collateral valuations, loan concentrations and other internal and external factors.

Management also applies additional loss factor multiples to loans classified as watch, special mention and substandard that are not individually evaluated for impairment.  The loss factor multiples for classified loans are based on management’s assessment of historical trends regarding losses experienced on classified loans in prior periods.  See below for additional discussion of the qualitative factors utilized in management’s allowance for loan loss methodology at June 30, 2021 and December 31, 2020.

Management exercises significant judgment in evaluating the relevant historical loss experience and the qualitative factors.  Management also monitors the differences between estimated and actual incurred loan losses for loans considered impaired in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary.

Management utilizes the following portfolio segments in its analysis of the allowance for loan losses:  residential real estate, land, construction, commercial real estate, commercial business, home equity and second mortgage, and other consumer loans.  Additional discussion of the portfolio segments and the risks associated with each segment can be found in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other factors.  New appraisals are generally obtained for all significant properties when a loan is identified as impaired, and a property is considered significant if the value of the property is estimated to exceed $200,000.  Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of the property.  In instances where it is not deemed necessary to obtain a new appraisal, management bases its impairment and allowance for loan loss analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property.

At June 30, 2021, the balance of foreclosed real estate includes $110,000 of residential real estate properties where physical possession had been obtained.  At December 31, 2020, the Company held no foreclosed real estate.  At June 30, 2021 and December 31, 2020, the recorded investment in loans secured by residential real estate properties for which formal foreclosure proceedings are in process was $213,000 and $109,000, respectively.

Loans at June 30, 2021 and December 31, 2020 consisted of the following:

	June 30,			December 31,
(In thousands)	2021			2020
Real estate mortgage loans:
Residential	$	129,619		$	131,217
Land		18,322			17,328
Residential construction		52,872			39,160
Commercial real estate		132,379			135,114
Commercial real estate construction		9,138			4,988
Commercial business loans		68,208			82,274
Consumer loans:
Home equity and second mortgage loans		49,817			52,001
Automobile loans		43,302			43,770
Loans secured by savings accounts		922			1,083
Unsecured loans		2,292			2,766
Other consumer loans		14,108			16,117
Gross loans		520,979			525,818
Less undisbursed portion of loans in process		(29,713	)		(19,179	)
Principal loan balance		491,266			506,639
Deferred loan origination fees and costs, net		121			317
Allowance for loan losses		(6,637	)		(6,625	)
Loans, net	$	484,750		$	500,331

At June 30, 2021 and December 31, 2020, PPP loans guaranteed by the SBA totaling $23.4 million and $37.3 million, respectively, were included in commercial business loans.  At June 30, 2021 and December 31, 2020, net deferred loan fees related to PPP loans were $1.1 million and $843,000, respectively, which will be recognized over the expected life of the loans and as borrowers are granted forgiveness.

The following table provides the components of the Company’s recorded investment in loans at June 30, 2021:

														Home Equity
	Residential							Commercial			Commercial			and Second		Other
	Real Estate		Land		Construction			Real Estate			Business			Mortgage		Consumer		Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	129,619	$	18,322	$	32,297		$	132,379		$	68,208		$	49,817	$	60,624	$	491,266
Accrued interest receivable		447		83		64			309			303			158		218		1,582
Net deferred loan origination fees and costs		118		15		(15	)		(62	)		(1,053	)		1,117		1		121
Recorded investment in loans	$	130,184	$	18,420	$	32,346		$	132,626		$	67,458		$	51,092	$	60,843	$	492,969
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	1,659	$	151	$	-		$	740		$	190		$	398	$	-	$	3,138
Collectively evaluated for impairment		128,253		18,269		32,346			131,865			67,268			50,694		60,843		489,538
Acquired with deteriorated credit quality		272		-		-			21			-			-		-		293
Ending balance	$	130,184	$	18,420	$	32,346		$	132,626		$	67,458		$	51,092	$	60,843	$	492,969

The following table provides the components of the Company’s recorded investment in loans at December 31, 2020:

														Home Equity
	Residential							Commercial			Commercial			and Second		Other
	Real Estate		Land		Construction			Real Estate			Business			Mortgage		Consumer		Total
	(In thousands)
Recorded Investment in Loans:
Principal loan balance	$	131,217	$	17,328	$	24,969		$	135,114		$	82,274		$	52,001	$	63,736	$	506,639
Accrued interest receivable		513		116		61			435			378			176		244		1,923
Net deferred loan origination fees and costs		120		17		(12	)		(65	)		(843	)		1,100		-		317
Recorded investment in loans	$	131,850	$	17,461	$	25,018		$	135,484		$	81,809		$	53,277	$	63,980	$	508,879
Recorded Investment in Loans as Evaluated for Impairment:
Individually evaluated for impairment	$	1,728	$	97	$	-		$	779		$	211		$	353	$	-	$	3,168
Collectively evaluated for impairment		129,851		17,364		25,018			134,679			81,598			52,924		63,980		505,414
Acquired with deteriorated credit quality		271		-		-			26			-			-		-		297
Ending balance	$	131,850	$	17,461	$	25,018		$	135,484		$	81,809		$	53,277	$	63,980	$	508,879

An analysis of the allowance for loan losses as of June 30, 2021 is as follows:

											Home Equity
	Residential						Commercial		Commercial		and Second		Other
	Real Estate		Land		Construction		Real Estate		Business		Mortgage		Consumer		Total
	(In thousands)
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	5	$	-	$	-	$	-	$	7	$	-	$	12
Collectively evaluated for impairment		1,186		210		389		2,357		784		618		1,051		6,595
Acquired with deteriorated credit quality		30		-		-		-		-		-		-		30
Ending balance	$	1,216	$	215	$	389	$	2,357	$	784	$	625	$	1,051	$	6,637

An analysis of the allowance for loan losses as of December 31, 2020 is as follows:

											Home Equity
	Residential						Commercial		Commercial		and Second		Other
	Real Estate		Land		Construction		Real Estate		Business		Mortgage		Consumer		Total
	(In thousands)
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		1,208		209		292		2,358		843		617		1,067		6,594
Acquired with deteriorated credit quality		31		-		-		-		-		-		-		31
Ending balance	$	1,239	$	209	$	292	$	2,358	$	843	$	617	$	1,067	$	6,625

An analysis of the changes in the allowance for loan losses for the three and six months ended June 30, 2021 is as follows:

															Home Equity
	Residential								Commercial			Commercial			and Second			Other
	Real Estate			Land			Construction		Real Estate			Business			Mortgage			Consumer			Total
	(In thousands)
Allowance for loan losses:
Changes in Allowance for Loan Losses for the three-months ended June 30, 2021
Beginning balance	$	1,221		$	209		$	348	$	2,355		$	816		$	622		$	1,057		$	6,628
Provisions for loan losses		(5	)		6			41		2			(32	)		3			(15	)		-
Charge-offs		-			-			-		-			-			-			(58	)		(58	)
Recoveries		-			-			-		-			-			-			67			67
Ending balance	$	1,216		$	215		$	389	$	2,357		$	784		$	625		$	1,051		$	6,637
Changes in Allowance for Loan Losses for the six-months ended June 30, 2021
Beginning balance	$	1,239		$	209		$	292	$	2,358		$	843		$	617		$	1,067		$	6,625
Provisions for loan losses		(19	)		9			97		(1	)		(59	)		17			31			75
Charge-offs		(4	)		(3	)		-		-			-			(9	)		(171	)		(187	)
Recoveries		-			-			-		-			-			-			124			124
Ending balance	$	1,216		$	215		$	389	$	2,357		$	784		$	625		$	1,051		$	6,637

An analysis of the changes in the allowance for loan losses for the three and six months ended June 30, 2020 is as follows:

												Home Equity
	Residential							Commercial		Commercial		and Second		Other
	Real Estate			Land		Construction		Real Estate		Business		Mortgage		Consumer			Total
	(In thousands)
Allowance for loan losses:
Changes in Allowance for Loan Losses for the three-months ended June 30, 2020
Beginning balance	$	929		$	163	$	353	$	1,735	$	620	$	550	$	957		$	5,307
Provisions for loan losses		150			33		16		167		248		45		166			825
Charge-offs		(71	)		-		-		-		-		-		(106	)		(177	)
Recoveries		47			-		-		-		-		9		53			109
Ending balance	$	1,055		$	196	$	369	$	1,902	$	868	$	604	$	1,070		$	6,064
Changes in Allowance for Loan Losses for the six-months ended June 30, 2020
Beginning balance	$	867		$	163	$	350	$	1,623	$	595	$	515	$	948		$	5,061
Provisions for loan losses		213			33		19		279		273		79		280			1,176
Charge-offs		(72	)		-		-		-		-		-		(264	)		(336	)
Recoveries		47			-		-		-		-		10		106			163
Ending balance	$	1,055		$	196	$	369	$	1,902	$	868	$	604	$	1,070		$	6,064

At June 30, 2021 and December 31, 2020, management applied qualitative factor adjustments to each portfolio segment 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.  During 2020, management adjusted the qualitative factors due to economic uncertainties related to COVID-19.  At June 30, 2021, there was still considerable uncertainty about how severely the COVID-19 pandemic has impacted the loan portfolio.  As a result, management has maintained the allowance qualitative factor adjustments for each portfolio segment while considering the potential length of the pandemic, continued elevated unemployment rates, the impact of further state and local restrictions, the impact of government stimulus activities and the timeline for economic recovery. 

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. 

At June 30, 2021, the Company's allowance for loan losses totaled $6.6 million, of which $6.1 million related to qualitative factor adjustments.  At December 31, 2020, the Company's allowance for loan losses totaled $6.6 million, of which $6.0 million related to qualitative factor adjustments.  These changes were made to reflect management’s estimates of inherent losses in the loan portfolio at June 30, 2021 and December 31, 2020.

The following table summarizes the Company’s impaired loans as of June 30, 2021 and for the three months and six months ended June 30, 2021.  The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the three or six month periods ended June 30, 2021:

	At June 30, 2021						Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
			Unpaid				Average		Interest		Average		Interest
	Recorded		Principal		Related		Recorded		Income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
	(In thousands)
Loans with no related allowance recorded:
Residential	$	1,659	$	1,762	$	-	$	1,769	$	6	$	1,755	$	12
Land		100		102		-		100		-		99		-
Construction		-		-		-		-		-		-		-
Commercial real estate		740		750		-		750		9		760		17
Commercial business		190		189		-		196		2		201		4
Home equity and second mortgage		109		107		-		87		1		175		2
Other consumer		-		-		-		-		-		-		-
		2,798		2,910		-		2,902		18		2,990		35
Loans with an allowance recorded:
Residential		-		-		-		-		-		-		-
Land		51		54		5		26		-		17		-
Construction		-		-		-		-		-		-		-
Commercial real estate		-		-		-		-		-		-		-
Commercial business		-		-		-		-		-		-		-
Home equity and second mortgage		289		294		7		290		-		193		-
Other consumer		-		-		-		-		-		-		-
		340		348		12		316		-		210		-
Total:
Residential		1,659		1,762		-		1,769		6		1,755		12
Land		151		156		5		126		-		116		-
Construction		-		-		-		-		-		-		-
Commercial real estate		740		750		-		750		9		760		17
Commercial business		190		189		-		196		2		201		4
Home equity and second mortgage		398		401		7		377		1		368		2
Other consumer		-		-		-		-		-		-		-
	$	3,138	$	3,258	$	12	$	3,218	$	18	$	3,200	$	35

The following table summarizes the Company’s impaired loans for the three months and six months ended June 30, 2020.  The Company did not recognize any interest income on impaired loans using the cash receipts method of accounting for the three or six month periods ended June 30, 2020:

	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Loans with no related allowance recorded:
Residential	$	1,622	$	5	$	1,660	$	11
Land		99		-		104		-
Construction		-		-		-		-
Commercial real estate		883		9		706		18
Commercial business		265		3		260		4
Home equity and second mortgage		204		4		155		5
Other consumer		25		-		32		-
		3,098		21		2,917		38
Loans with an allowance recorded:
Residential		144		-		159		-
Land		-		-		-		-
Construction		-		-		-		-
Commercial real estate		-		-		-		-
Commercial business		99		-		66		-
Home equity and second mortgage		-		-		-		-
Other consumer		-		-		-		-
		243		-		225		-
Total:
Residential		1,766		5		1,819		11
Land		99		-		104		-
Construction		-		-		-		-
Commercial real estate		883		9		706		18
Commercial business		364		3		326		4
Home equity and second mortgage		204		4		155		5
Other consumer		25		-		32		-
	$	3,341	$	21	$	3,142	$	38

The following table summarizes the Company’s impaired loans as of December 31, 2020:

			Unpaid
	Recorded		Principal		Related
	Investment		Balance		Allowance
	(In thousands)
Loans with no related allowance recorded:
Residential	$	1,728	$	1,902	$	-
Land		97		97		-
Construction		-		-		-
Commercial real estate		779		784		-
Commercial business		211		210		-
Home equity and second mortgage		353		345		-
Other consumer		-		-		-
		3,168		3,338		-
Loans with an allowance recorded:
Residential		-		-		-
Land		-		-		-
Construction		-		-		-
Commercial real estate		-		-		-
Commercial business		-		-		-
Home equity and second mortgage		-		-		-
Other consumer		-		-		-
		-		-		-
Total:
Residential		1,728		1,902		-
Land		97		97		-
Construction		-		-		-
Commercial real estate		779		784		-
Commercial business		211		210		-
Home equity and second mortgage		353		345		-
Other consumer		-		-		-
	$	3,168	$	3,338	$	-

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 June 30, 2021 and December 31, 2020:

	June 30, 2021						December 31, 2020
			Loans 90+ Days		Total				Loans 90+ Days		Total
	Nonaccrual		Past Due		Nonperforming		Nonaccrual		Past Due		Nonperforming
	Loans		Still Accruing		Loans		Loans		Still Accruing		Loans
	(In thousands)
Residential	$	1,092	$	52	$	1,144	$	1,154	$	-	$	1,154
Land		151		-		151		97		59		156
Construction		-		-		-		-		-		-
Commercial real estate		135		-		135		155		-		155
Commercial business		-		-		-		-		-		-
Home equity and second mortgage		348		-		348		-		-		-
Other consumer		-		-		-		-		-		-
Total	$	1,726	$	52	$	1,778	$	1,406	$	59	$	1,465

The following table presents the aging of the recorded investment in loans at June 30, 2021:

											Purchased
					90 Days						Credit
	30-59 Days		60-89 Days		or More		Total				Impaired		Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Loans
	(In thousands)
Residential	$	912	$	20	$	845	$	1,777	$	128,135	$	272	$	130,184
Land		256		-		97		353		18,067		-		18,420
Construction		-		-		-		-		32,346		-		32,346
Commercial real estate		-		-		-		-		132,605		21		132,626
Commercial business		-		-		-		-		67,458		-		67,458
Home equity and second mortgage		342		-		60		402		50,690		-		51,092
Other consumer		160		44		-		204		60,639		-		60,843
Total	$	1,670	$	64	$	1,002	$	2,736	$	489,940	$	293	$	492,969

The following table presents the aging of the recorded investment in loans at December 31, 2020:

											Purchased
					90 Days						Credit
	30-59 Days		60-89 Days		or More		Total				Impaired		Total
	Past Due		Past Due		Past Due		Past Due		Current		Loans		Loans
	(In thousands)
Residential	$	1,672	$	227	$	726	$	2,625	$	128,954	$	271	$	131,850
Land		130		65		156		351		17,110		-		17,461
Construction		-		-		-		-		25,018		-		25,018
Commercial real estate		155		-		-		155		135,303		26		135,484
Commercial business		-		-		-		-		81,809		-		81,809
Home equity and second mortgage		53		302		-		355		52,922		-		53,277
Other consumer		285		101		-		386		63,594		-		63,980
Total	$	2,295	$	695	$	882	$	3,872	$	504,710	$	297	$	508,879

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

Doubtful:  Loans classified as doubtful 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 institution’s books as an asset is not warranted.

Loans not meeting the criteria above that are analyzed individually as part of the 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:

											Home Equity
	Residential						Commercial		Commercial		and Second		Other
	Real Estate		Land		Construction		Real Estate		Business		Mortgage		Consumer		Total
	(In thousands)
June 30, 2021
Pass	$	128,452	$	18,144	$	32,266	$	129,097	$	66,872	$	50,744	$	60,843	$	486,418
Special Mention		-		62		-		2,146		281		-		-		2,489
Substandard		640		63		80		1,248		305		-		-		2,336
Doubtful		1,092		151		-		135		-		348		-		1,726
Loss		-		-		-		-		-		-		-		-
Total	$	130,184	$	18,420	$	32,346	$	132,626	$	67,458	$	51,092	$	60,843	$	492,969
December 31, 2020
Pass	$	130,054	$	16,925	$	25,018	$	131,822	$	81,452	$	52,869	$	63,919	$	502,059
Special Mention		-		315		-		2,289		284		-		10		2,898
Substandard		642		124		-		1,218		73		408		51		2,516
Doubtful		1,154		97		-		155		-		-		-		1,406
Loss		-		-		-		-		-		-		-		-
Total	$	131,850	$	17,461	$	25,018	$	135,484	$	81,809	$	53,277	$	63,980	$	508,879

The following table summarizes the Company’s TDRs by accrual status as of June 30, 2021 and December 31, 2020:

	June 30, 2021								December 31, 2020
							Related								Related
							Allowance								Allowance
	Accruing		Nonaccrual		Total		for Loan Losses		Accruing		Nonaccrual		Total		for Loan Losses
	(In thousands)
Troubled debt restructurings:
Residential real estate	$	548	$	-	$	548	$	-	$	556	$	-	$	556	$	-
Commercial real estate		603		-		603		-		621		-		621		-
Commercial business		189		-		189		-		210		-		210		-
Home equity and second mortgage		48		288		336		7		345		-		345		-
Total	$	1,388	$	288	$	1,676	$	7	$	1,732	$	-	$	1,732	$	-

At June 30, 2021 and December 31, 2020, there were no commitments to lend additional funds to debtors whose loan terms have been modified in a TDR.

The Company restructured one commercial business loan, one residential mortgage and one second mortgage during the three months ended June 30, 2020, with an aggregate pre-modification and post-modification outstanding balance of $321,000.  The Company restructured two residential mortgages, one commercial business loan, one commercial real estate loan and one second mortgage during the six months ended June 30, 2020, with an aggregate pre-modification and post-modification outstanding balance of $586,000.  There were no TDRs that were restructured during the three or six months ended June 30, 2021.    

There were no principal charge-offs recorded as a result of TDRs and there was no specific allowance for loan losses related to TDRs modified during the three and six months ended June 30, 2021 or 2020.

There were no TDRs modified within the previous 12 months for which there was a subsequent payment default (defined as the loan becoming more than 90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) during the three months ended June 30, 2021 and the three or six months ended June 30, 2020.  During the six months ended June 30, 2021, there was one second mortgage loan TDR modified within the previous 12 months with a balance of $290,000 that was moved to nonaccrual status.  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.  As a result of the payment default described above, a specific reserve of $7,000 was established during the six months ended June 30, 2021.

As discussed in Note 1, the federal banking agencies issued guidance in March 2020 that short-term modifications (e.g., six months) made to a borrower affected by the COVID-19 pandemic does not need to be identified as a TDR if the loan was current at the time of the modification.  The CARES Act also addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not TDRs.  The Consolidated Appropriations Act of 2021 further extended the relief from TDR accounting for qualified modifications to the earlier of January 1, 2022, or 60 days after the national emergency concerning COVID-19 terminates.  As of June 30, 2021, the Bank had approved payment extensions of primarily one to three months on $68.1 million of balances in the loan portfolio, primarily related to commercial real estate lending relationships.  Of that total, $58.5 million remained outstanding and all have resumed payments.

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 that have evidence of credit deterioration since origination for which it is deemed probable at the date of acquisition that the acquirer will not collect all contractually required principal and interest payments are accounted for in accordance with FASB Accounting Standards Codification (“ASC”) 310-30.  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 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 ASC 310-30 at June 30, 2021 and December 31, 2020:

	June 30,		December 31,
(In thousands)	2021		2020
Residential real estate	$	272	$	271
Commercial real estate		21		26
Carrying amount		293		297
Allowance for loan losses		30		31
Carrying amount, net of allowance	$	263	$	266

The outstanding balance of PCI loans accounted for under ASC 310-30, including contractual principal, interest, fees and penalties was $369,000 and $390,000 at June 30, 2021 and December 31, 2020, respectively.

There was a $30,000 allowance for loan losses related to PCI loans at June 30, 2021 and a $31,000 allowance for loan losses related to PCI loans at December 31, 2020.  There were reductions of $2,000 and $1,000, respectively, to the provision for loan losses related to PCI loans for the three-month and six-month periods ended June 30, 2021.  There was an $11,000 provision for loan losses related to PCI loans for the six-month period ended June 30, 2020.   There was no net provisions for loan losses related to PCI loans for the three-month period ended June 30, 2020.

Accretable yield, or income expected to be collected, is as follows for the three and six month periods ended June 30, 2021 and 2020:

	Three Months Ended						Six Months Ended
	6/30/2021			6/30/2020			6/30/2021			6/30/2020
Balance at beginning of period	$	303		$	375		$	316		$	403
New loans purchased		-			-			-			-
Accretion to income		(8	)		(11	)		(16	)		(22	)
Disposals and other adjustments		-			-			-			-
Reclassification (to) from nonaccretable difference		(2	)		(6	)		(7	)		(23	)
Balance at end of period	$	293		$	358		$	293		$	358