The Company, through the Bank, grants residential, consumer and commercial loans to customers located primarily in Northeastern Ohio and Western Pennsylvania.

The following represents the composition of the loan portfolio for the period ending:

	(Amounts in thousands)
	December 31,
	2019				2018
	Balance		%		Balance		%
Commercial	$	99,864		19.3	$	112,440		21.9
Commercial real estate		302,084		58.2		303,804		59.0
Residential real estate		87,172		16.8		69,845		13.6
Consumer - home equity		25,856		5.0		25,076		4.9
Consumer - other		3,740		0.7		3,227		0.6
Total loans	$	518,716			$	514,392

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented loans in the portfolio by product type. Loans are segmented into the following pools: commercial loans, commercial real estate loans, residential real estate loans and consumer loans. The pools of commercial real estate loans and commercial loans are also broken down further by industry sectors when analyzing the related pools. Using the largest concentrations as the qualifier, these industry sectors include non-residential buildings; skilled nursing and nursing care; residential real estate lessors, agents and managers; hotel and motels, and trucking. The Company also sub-segments the consumer loan portfolio into the following two classes: home equity loans and other consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over multiple periods for all portfolio segments. Management evaluates these results and utilizes the most reflective period in the calculation. Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor.

The following factors are analyzed and applied to loans internally graded with higher risk credit in addition to the above factors for non-classified loans:

The provision charged to operations can be allocated to a loan classification either as a positive or negative value as a result of any material changes to: net charge-offs or recoveries which influence the historical allocation percentage, qualitative risk factors or loan balances.

The following is an analysis of changes in the allowance for loan losses for the periods ended:

	(Amounts in thousands)
December 31, 2019	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,232		$	2,414		$	314		$	115		$	123		$	4,198
Loan charge-offs		(231	)		(40	)		(78	)		—			(205	)		(554	)
Recoveries		28			—			—			2			76			106
Net loan recoveries (charge-offs)		(203	)		(40	)		(78	)		2			(129	)		(448	)
Provision charged to operations		727			(244	)		98			(13	)		147			715
Balance at end of period	$	1,756		$	2,130		$	334		$	104		$	141		$	4,465

	(Amounts in thousands)
December 31, 2018	Commercial			Commercial real estate			Residential real estate		Consumer - home equity		Consumer - other			Total
Balance at beginning of period	$	1,591		$	2,702		$	117	$	70	$	98		$	4,578
Loan charge-offs		(1,163	)		—			—		—		(175	)		(1,338	)
Recoveries		—			166			3		5		59			233
Net loan recoveries (charge-offs)		(1,163	)		166			3		5		(116	)		(1,105	)
Provision charged to operations		804			(454	)		194		40		141			725
Balance at end of period	$	1,232		$	2,414		$	314	$	115	$	123		$	4,198

	(Amounts in thousands)
December 31, 2017	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,394		$	3,072		$	163		$	150		$	89		$	4,868
Loan charge-offs		—			(654	)		(14	)		(26	)		(146	)		(840	)
Recoveries		388			—			5			10			47			450
Net loan recoveries (charge-offs)		388			(654	)		(9	)		(16	)		(99	)		(390	)
Provision charged to operations		(191	)		284			(37	)		(64	)		108			100
Balance at end of period	$	1,591		$	2,702		$	117		$	70		$	98		$	4,578

The commercial charge-off in 2018 related to loans that were restructured with no principal forgiveness with a new borrowing relationship, but with a substantial concession in interest rate. The below market rate triggered recognition of a charge-off equivalent to the difference in present value of loan payments discounted at the market rate of interest. The charged off amount of $1.1 million is recorded as a loan discount. As loan payments are made, interest will be recognized at the market rate versus the negotiated rate via the amortization of the discount over the various lives of the loans. There was $625,000 in specific reserve previously allocated to these loans at December 31, 2017. The decrease in commercial real estate and the majority of the increase in residential real estate is due to reclassification of loans between these categories in 2019.

The allowance for commercial loans includes an amount for a single loan impairment, otherwise the provision decreased modestly. The decrease in the provision for commercial real estate loans is due mainly to a decrease in the concentration of credit factor. The recent segmentation of the commercial real estate loan portfolio into its five largest concentrations has resulted in lower allocations to those segments. The residential real estate, consumer-home equity and other household provisions remained fairly constant. The amount of net charge-offs also impacts the provision charged to operations for any category of loans. Charge-offs affect the historical rate applied to each category, and the amount needed to replenish the amount charged-off, which impacted residential real estate and consumer loans as well as commercial real estate loans. Along with the impact of classified loans, the amount of net charge-offs impacts the provision charged to operations for any category of loans. Charge-offs affect the historical rate applied to each category, and the amount needed to replenish the charge off to the allowance. The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the Consolidated Balance Sheet date.

The following tables present a full breakdown by portfolio classification of the allowance for loan losses and the recorded investment in loans for the periods ended December 31, 2019 and 2018:

	(Amounts in thousands)
December 31, 2019	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	579	$	—	$	—	$	—	$	—	$	579
Collectively evaluated for impairment		1,177		2,130		334		104		141		3,886
Total ending allowance balance	$	1,756	$	2,130	$	334	$	104	$	141	$	4,465
Loan Portfolio:
Individually evaluated for impairment	$	4,909	$	2,940	$	—	$	—	$	—	$	7,849
Collectively evaluated for impairment		94,955		299,144		87,172		25,856		3,740		510,867
Total ending loan balance	$	99,864	$	302,084	$	87,172	$	25,856	$	3,740	$	518,716

	(Amounts in thousands)
December 31, 2018	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,232		2,414		314		115		123		4,198
Total ending allowance balance	$	1,232	$	2,414	$	314	$	115	$	123	$	4,198
Loan Portfolio:
Individually evaluated for impairment	$	5,364	$	4,340	$	—	$	—	$	—	$	9,704
Collectively evaluated for impairment		107,076		299,464		69,845		25,076		3,227		504,688
Total ending loan balance	$	112,440	$	303,804	$	69,845	$	25,076	$	3,227	$	514,392

The following tables represent credit exposures by internally assigned grades for years ended December 31, 2019 and 2018, respectively. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The following is a summary of credit quality indicators by internally assigned grade as of December 31, 2019 and 2018.

The Company evaluates the classification of consumer, home equity and residential loans primarily on a pooled basis. If the Company becomes aware that adverse or distressed conditions exist that may affect a particular loan, the loan is downgraded following the above definitions of special mention and substandard. Nonaccrual loans in these categories are evaluated for charge off or charge down, and the remaining balance has the same allowance factor as pooled loans.

The following is a summary of consumer credit exposure as of December 31, 2019 and 2018.

	(Amounts in thousands)
	Residential real estate		Consumer - home equity		Consumer- other
December 31, 2019
Performing	$	86,703	$	25,709	$	3,740
Nonperforming		469		147		—
Total	$	87,172	$	25,856	$	3,740

	(Amounts in thousands)
	Residential real estate		Consumer - home equity		Consumer- other
December 31, 2018
Performing	$	69,535	$	24,956	$	3,227
Nonperforming		310		120		—
Total	$	69,845	$	25,076	$	3,227

Loans are considered to be nonperforming when they become 90 days past due or on nonaccrual status, though the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in non-accrual status, previously accrued but unpaid interest is recorded against interest income. Loans in foreclosure are considered nonperforming. At December 31, 2019, there were $154,000 of loans in the process of foreclosure.

Gross income that should have been recorded in income on nonaccrual loans was $210,000, $191,000 and $57,000 for the years ended December 31, 2019, 2018 and 2017, respectively. Actual interest included in income on these nonaccrual loans amounts to $46,000, $42,000 and $16,000 in 2019, 2018 and 2017, respectively.

Nonperforming loans also include certain loans that have been modified in troubled debt restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

There were no loans modified as TDRs during the years ended December 31, 2019 and 2017. The following presents, by class, information related to loans modified in a TDR during the period ended December 31, 2018.

The seven commercial loans were all to one new borrowing relationship. The loans were restructured with no principal forgiveness, but with a substantial concession in interest rate. The below market rate triggered recognition of a charge-off equivalent to the difference in present value of loan payments discounted at the market rate of interest. The charged off amount of $1.1 million is recorded as loan discount. As loan payments are made, interest will be recognized at the market rate versus the negotiated rate via the amortization of the discount over the various lives of the loans.

The following is an aging analysis of the recorded investment of past due loans as of the periods ended December 31, 2019 and 2018:

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
December 31, 2019
Commercial	$	1	$	—	$	1,152	$	1,153	$	98,711	$	99,864	$	—
Commercial real estate		—		—		253		253		301,831		302,084		—
Residential real estate		5		214		454		673		86,499		87,172		—
Consumer:
Consumer - home equity		24		25		123		172		25,684		25,856		—
Consumer - other		14		—		—		14		3,726		3,740		—
Total	$	44	$	239	$	1,982	$	2,265	$	516,451	$	518,716	$	—

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
December 31, 2018
Commercial	$	14	$	—	$	1,291	$	1,305	$	111,135	$	112,440	$	—
Commercial real estate		—		—		167		167		303,637		303,804		—
Residential real estate		36		182		257		475		69,370		69,845		—
Consumer:
Consumer - home equity		—		141		25		166		24,910		25,076		—
Consumer - other		17		—		—		17		3,210		3,227		—
Total	$	67	$	323	$	1,740	$	2,130	$	512,262	$	514,392	$	—

An impaired loan is a loan on which, based on current information and events, it is probable that the Company will be unable to collect all amounts due (including both interest and principal) according to the contractual terms of the loan agreement. However, an insignificant delay or insignificant shortfall in amount of payments on a loan does not indicate that the loan is impaired.

When a loan is determined to be impaired, impairment should be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. However, as a practical expedient, the Company will measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

The following are the criteria for selecting individual loans / relationships for impairment analysis. Non-homogenous loans which meet the criteria below are evaluated quarterly.

Commercial loans and commercial real estate loans evaluated for impairment are excluded from the general pool of loans in the ALLL calculation regardless if a specific reserve was determined. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance estimate or a charge-off to the allowance.

The following table presents the recorded investment and unpaid principal balances for impaired loans with the associated allowance amount, if applicable, at December 31, 2019 and 2018. Also presented are the average recorded investments in the impaired balances and interest income recognized after impairment for the years ended December 31, 2019, 2018 and 2017.

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2019
With no related allowance recorded:
Commercial	$	3,925	$	4,946	$	—
Commercial real estate		2,940		2,940		—
With an allowance recorded:
Commercial		984		984		579
Commercial real estate		—		—		—
Total:
Commercial	$	4,909	$	5,930	$	579
Commercial real estate	$	2,940	$	2,940	$	—

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2018
With no related allowance recorded:
Commercial	$	5,364	$	6,411	$	—
Commercial real estate		4,340		4,340		—
With an allowance recorded:
Commercial		—		—		—
Commercial real estate		—		—		—
Total:
Commercial	$	5,364	$	6,411	$	—
Commercial real estate	$	4,340	$	4,340	$	—

	(Amounts in thousands)
	Average Recorded Investment		Interest Income Recognized
December 31, 2019
With no related allowance recorded:
Commercial	$	4,298	$	300
Commercial real estate		3,108		195
With an allowance recorded:
Commercial		823		—
Commercial real estate		—		—
Total:
Commercial	$	5,121	$	300
Commercial real estate	$	3,108	$	195

	(Amounts in thousands)
	Average Recorded Investment		Interest Income Recognized
December 31, 2018
With no related allowance recorded:
Commercial	$	4,231	$	25
Commercial real estate		4,405		293
With an allowance recorded:
Commercial		911		46
Commercial real estate		—		—
Total:
Commercial	$	5,142	$	71
Commercial real estate	$	4,405	$	293

	(Amounts in thousands)
	Average Recorded Investment		Interest Income Recognized
December 31, 2017
With no related allowance recorded:
Commercial	$	85	$	6
Commercial real estate		5,062		291
With an allowance recorded:
Commercial		460		—
Commercial real estate		527		—
Total:
Commercial	$	545	$	6
Commercial real estate	$	5,589	$	291