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Allowance for loan losses and credit quality
 6 Months Ended
Jun. 30, 2020
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract]  
Allowance for Credit Losses [Text Block] Allowance for Loan Losses and Credit Quality
The ALL is established for estimated losses in the loan portfolio through a provision for loan losses charged to earnings. For all loan classes, loan losses are charged against the ALL when management believes the loan balance is uncollectible or in accordance with federal guidelines. Subsequent recoveries, if any, are credited to the ALL.

The ALL is maintained at a level believed by management to be appropriate to absorb probable credit losses inherent in the loan portfolio as of the balance sheet date. The amount of the ALL is based on management's periodic evaluation of the collectability of the loan portfolio, including the nature, volume and risk characteristics of the portfolio, credit concentrations, trends in historical loss experience, estimated value of any underlying collateral, specific impaired loans and economic conditions. There was no change to the methodology used to estimate the ALL during the second quarter of 2020. While management uses available information to recognize losses on loans, future additions to the ALL may be necessary based on changes in economic conditions or other relevant factors.

In addition, various regulatory agencies, as an integral part of their examination process, regularly review the Company's ALL. Such agencies may require the Company to recognize additions to the ALL, with a corresponding charge to earnings, based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

The ALL consists of specific, general and unallocated components. The specific component relates to the loans that are classified as impaired. Loans are evaluated for impairment and may be classified as impaired when management believes it is probable that the Company will not collect all the contractual interest and principal payments as scheduled in the loan agreement. Impaired loans may also include troubled loans that are restructured. A TDR occurs when the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that would otherwise not be granted. A TDR classification may result from the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan's terms (such as reduction of stated interest rates below market rates, extension of maturity that does not conform to the Company's policies, reduction of the face amount of the loan, reduction of accrued interest, or reduction or deferment of loan payments), or a combination. A specific reserve amount is allocated to the ALL for individual loans that have been classified as impaired based on management's estimate of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows. The Company accounts for the change in present value attributable to the passage of time in the loan loss reserve. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer, real estate or small balance commercial loans for impairment evaluation, unless such loans are subject to a restructuring agreement or have been identified as impaired as part of a larger customer relationship. Based on an evaluation of the Company's historical loss experience on substandard commercial loans, management has established the commercial loan threshold for individual impairment evaluation as commercial loan relationships with aggregate balances greater than $500 thousand.

The general component represents the level of ALL allocable to each loan portfolio segment with similar risk characteristics and is determined based on historical loss experience, adjusted for qualitative factors, for each class of loan. Management deems a five year average to be an appropriate time frame on which to base historical losses for each portfolio segment. Qualitative factors considered include underwriting, economic and market conditions, portfolio composition, collateral values, delinquencies, lender experience and legal issues. The qualitative factors are determined based on the various risk characteristics of each portfolio segment. Risk characteristics relevant to each portfolio segment are as follows:
•Residential real estate - Loans in this segment are collateralized by owner-occupied 1-4 family residential real estate, second and vacation homes, 1-4 family investment properties, home equity and second mortgage loans. Repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, could have an effect on the credit quality of this segment.

•Construction real estate - Loans in this segment include residential and commercial construction properties, commercial real estate development loans (while in the construction phase of the projects), land and land development loans. Repayment is dependent on the credit quality of the individual borrower and/or the underlying cash flows generated by the properties being constructed. The overall health of the economy, including unemployment rates, housing prices, vacancy rates and material costs, could have an effect on the credit quality of this segment.

•Commercial real estate - Loans in this segment are primarily properties occupied by businesses or income-producing properties. The underlying cash flows generated by the properties may be adversely impacted by a downturn in the economy as evidenced by a general slowdown in business or increased vacancy rates which, in turn, could have an effect
on the credit quality of this segment. Management requests business financial statements at least annually and monitors the cash flows of these loans.

•Commercial - Loans in this segment are made to businesses and are generally secured by non-real estate assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer or business spending, could have an effect on the credit quality of this segment.

•Consumer - Loans in this segment are made to individuals for personal expenditures, such as an automobile purchase, and include unsecured loans. Repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment, could have an effect on the credit quality of this segment.

•Municipal - Loans in this segment are made to municipalities located within the Company's service area. Repayment is primarily dependent on taxes or other funds collected by the municipalities. Management considers there to be minimal risk surrounding the credit quality of this segment.
An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the ALL reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

All evaluations are inherently subjective as they require estimates that are susceptible to significant revision as more information becomes available or as changes occur in economic conditions or other relevant factors. Despite the allocation shown in the tables below, the ALL is general in nature and is available to absorb losses from any class of loan.

Changes in the ALL, by class of loans, for the three and six months ended June 30, 2020 and 2019 were as follows:
For The Three Months Ended June 30, 2020Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
(Dollars in thousands)
Balance, March 31, 2020$1,513  $622  $3,459  $407  $23  $85  $282  $6,391  
Provision (credit) for loan losses77  (28) 373  84  3  (6) (3) 500  
Recoveries of amounts charged off—  —  —  —  —  —  —  —  
1,590  594  3,832  491  26  79  279  6,891  
Amounts charged off—  —  —  —  (3) —  —  (3) 
Balance, June 30, 2020$1,590  $594  $3,832  $491  $23  $79  $279  $6,888  
For The Three Months Ended June 30, 2019Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
(Dollars in thousands)
Balance, March 31, 2019$1,389  $643  $2,863  $332  $23  $92  $230  $5,572  
Provision (credit) for loan losses48  3  148  (19) 5  (59) 24  150  
Recoveries of amounts charged off5  —  —  —  1  —  —  6  
1,442  646  3,011  313  29  33  254  5,728  
Amounts charged off(46) —  —  —  (6) —  —  (52) 
Balance, June 30, 2019$1,396  $646  $3,011  $313  $23  $33  $254  $5,676  
For The Six Months Ended June 30, 2020Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
(Dollars in thousands)
Balance, December 31, 2019$1,392  $774  $3,178  $394  $23  $76  $285  $6,122  
Provision (credit) for loan
losses		175  (180) 708  97  3  3  (6) 800  
Recoveries of amounts
charged off		23  —  —  —  —  —  —  23  
1,590  594  3,886  491  26  79  279  6,945  
Amounts charged off—  —  (54) —  (3) —  —  (57) 
Balance, June 30, 2020$1,590  $594  $3,832  $491  $23  $79  $279  $6,888  

For The Six Months Ended June 30, 2019Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
(Dollars in thousands)
Balance, December 31, 2018$1,368  $617  $2,933  $354  $23  $82  $362  $5,739  
Provision (credit) for loan
losses		85  29  78  158  7  (49) (108) 200  
Recoveries of amounts
charged off		5  —  —  1  4  —  —  10  
1,458  646  3,011  513  34  33  254  5,949  
Amounts charged off(62) —  —  (200) (11) —  —  (273) 
Balance, June 30, 2019$1,396  $646  $3,011  $313  $23  $33  $254  $5,676  

The allocation of the ALL, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:
June 30, 2020Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
(Dollars in thousands)
Individually evaluated
for impairment		$35  $2  $86  $7  $—  $—  $—  $130  
Collectively evaluated
for impairment		1,555  592  3,746  484  23  79  279  6,758  
Total allocated$1,590  $594  $3,832  $491  $23  $79  $279  $6,888  
December 31, 2019Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalUnallocatedTotal
(Dollars in thousands)
Individually evaluated
for impairment		$39  $—  $149  $8  $—  $—  $—  $196  
Collectively evaluated
for impairment		1,353  774  3,029  386  23  76  285  5,926  
Total allocated$1,392  $774  $3,178  $394  $23  $76  $285  $6,122  

The recorded investment in loans, summarized on the basis of the Company's impairment methodology by class of loan, as of the balance sheet dates, was as follows:
June 30, 2020Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
(Dollars in thousands)
Individually evaluated
for impairment		$1,959  $218  $3,085  $250  $—  $—  $5,512  
Collectively evaluated
for impairment		179,998  46,490  310,963  115,214  3,188  31,293  687,146  
Total$181,957  $46,708  $314,048  $115,464  $3,188  $31,293  $692,658  
December 31, 2019Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
(Dollars in thousands)
Individually evaluated
for impairment		$1,515  $223  $3,204  $299  $—  $—  $5,241  
Collectively evaluated
for impairment		190,610  69,394  286,679  47,400  3,562  67,358  665,003  
Total$192,125  $69,617  $289,883  $47,699  $3,562  $67,358  $670,244  

Risk and collateral ratings are assigned to loans and are subject to ongoing monitoring by lending and credit personnel with such ratings updated annually or more frequently if warranted. The following is an overview of the Company's loan rating system:
1-3 Rating - Pass
Risk-rating grades "1" through "3" comprise those loans ranging from those with lower than average credit risk, defined as borrowers with high liquidity, excellent financial condition, strong management, favorable industry trends or loans secured by highly liquid assets, through those with marginal credit risk, defined as borrowers that, while creditworthy, exhibit some characteristics requiring special attention by the account officer.
4/M Rating - Satisfactory/Monitor
Borrowers exhibit potential credit weaknesses or downward trends warranting management's attention. While potentially weak, these borrowers are currently marginally acceptable; no loss of principal or interest is envisioned. When warranted, these credits may be monitored on the watch list.
5-7 Rating - Substandard
Borrowers exhibit well defined weaknesses that jeopardize the orderly liquidation of debt. The loan may be inadequately protected by the net worth and paying capacity of the obligor and/or the underlying collateral is inadequate.

The following tables summarize the loan ratings applied by management to the Company's loans by class as of the balance sheet dates:
June 30, 2020Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
(Dollars in thousands)
Pass$163,436  $35,810  $176,816  $102,902  $3,137  $31,293  $513,394  
Satisfactory/Monitor15,218  10,360  133,240  12,053  48  —  170,919  
Substandard3,303  538  3,992  509  3  —  8,345  
Total$181,957  $46,708  $314,048  $115,464  $3,188  $31,293  $692,658  
December 31, 2019Residential Real EstateConstruction Real EstateCommercial Real EstateCommercialConsumerMunicipalTotal
(Dollars in thousands)
Pass$174,798  $47,326  $168,654  $35,625  $3,499  $67,358  $497,260  
Satisfactory/Monitor14,520  21,819  117,004  10,974  57  —  164,374  
Substandard2,807  472  4,225  1,100  6  —  8,610  
Total$192,125  $69,617  $289,883  $47,699  $3,562  $67,358  $670,244  
The following tables provide information with respect to impaired loans by class of loan as of and for the three and six months ended June 30, 2020 and June 30, 2019:
As of June 30, 2020For The Three Months Ended June 30, 2020For The Six Months Ended June 30, 2020
Recorded Investment
(1)		Principal Balance
(1)		Related AllowanceAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
(Dollars in thousands)
Residential real estate$213  $222  $35  
Construction real estate69  69  2  
Commercial real estate1,987  2,068  86  
Commercial10  11  7  
With an allowance recorded2,279  2,370  130  
Residential real estate1,746  2,302  —  
Construction real estate149  168  —  
Commercial real estate1,098  1,196  —  
Commercial240  243  —  
With no allowance recorded3,233  3,909  —  
Residential real estate1,959  2,524  35  $1,724  $9  $1,654  $28  
Construction real estate218  237  2  218  1  219  2  
Commercial real estate3,085  3,264  86  3,121  16  3,149  38  
Commercial250  254  7  265  5  276  12  
Total$5,512  $6,279  $130  $5,328  $31  $5,298  $80  
____________________
(1)Does not reflect government guaranties on impaired loans as of June 30, 2020 totaling $553 thousand.
As of June 30, 2019For The Three Months Ended June 30, 2019For The Six Months Ended June 30, 2019
Recorded Investment
(1)		Principal Balance
(1)		Related AllowanceAverage Recorded InvestmentInterest Income RecognizedAverage Recorded InvestmentInterest Income Recognized
(Dollars in thousands)
Residential real estate$1,617  $2,180  $44  $1,669  $19  $1,672  $38  
Construction real estate110  128  —  112  1  114  2  
Commercial real estate1,496  1,590  —  1,583  25  1,814  65  
Commercial321  323  8  330  6  337  11  
Total$3,544  $4,221  $52  $3,694  $51  $3,937  $116  
____________________
(1)Does not reflect government guaranties on impaired loans as of June 30, 2019 totaling $613 thousand.
The following table provides information with respect to impaired loans by class of loan as of December 31, 2019:
December 31, 2019
Recorded Investment
(1)		Principal Balance
(1)		Related Allowance
(Dollars in thousands)
Residential real estate$218  $228  $39  
Commercial real estate1,762  1,783  149  
Commercial11  12  8  
With an allowance recorded1,991  2,023  196  
Residential real estate1,297  1,832  —  
Construction real estate223  241  —  
Commercial real estate1,442  1,539  —  
Commercial288  290  —  
With no allowance recorded3,250  3,902  —  
Residential real estate1,515  2,060  39  
Construction real estate223  241  —  
Commercial real estate3,204  3,322  149  
Commercial299  302  8  
Total$5,241  $5,925  $196  
____________________
(1)Does not reflect government guaranties on impaired loans as of December 31, 2019 totaling $587 thousand.

The following is a summary of TDR loans by class of loan as of the balance sheet dates:
June 30, 2020December 31, 2019
Number of LoansPrincipal BalanceNumber of LoansPrincipal Balance
(Dollars in thousands)
Residential real estate31  $1,959  25  $1,515  
Construction real estate2  94  2  100  
Commercial real estate8  944  8  966  
Commercial5  250  5  290  
Total46  $3,247  40  $2,871  
The TDR loans above represent loan modifications in which a concession was provided to the borrower, including due date extensions, maturity date extensions, interest rate reductions or the forgiveness of accrued interest. Troubled loans that are restructured and meet established thresholds are classified as impaired and a specific reserve amount is allocated to the ALL on the basis of the fair value of the collateral for collateral dependent loans, an observable market price, or the present value of anticipated future cash flows.
The following tables provide new TDR activity for the three and six months ended June 30, 2020 and 2019:
New TDRs During theNew TDRs During the
Three Months Ended June 30, 2020Six Months Ended June 30, 2020
Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
(Dollars in thousands)
Residential real estate6  $493  $493  6  $493  $493  
New TDRs During theNew TDRs During the
Three Months Ended June 30, 2019Six Months Ended June 30, 2019
Number of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded InvestmentNumber of LoansPre-Modification Outstanding Recorded InvestmentPost-Modification Outstanding Recorded Investment
(Dollars in thousands)
Residential real estate—  $—  $—  1  $77  $79  
There were no TDR loans modified within the previous twelve months that subsequently defaulted during the three and six months ended June 30, 2020 or 2019. TDR loans are considered defaulted at 90 days past due.
In March 2020, the federal banking agencies issued guidance, confirmed by the FASB, that certain modifications made in loans to a borrower affected by the COVID-19 pandemic and government shutdown orders would not be considered a TDR under specified circumstances (See Notes 2 and 5). The Company has executed 406 of these modifications on outstanding loan balances of $173.3 million and these balances carried accrued interest of $1.6 million as of June 30, 2020. The Company intends to continue to follow the guidance of the banking regulators in making TDR determinations.

At June 30, 2020 and December 31, 2019, the Company was not committed to lend any additional funds to borrowers whose loans were nonperforming, impaired or restructured.