The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $3.6 million as of September 30, 2020 and $3.3 million as of December 31, 2019.

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.


	December 31, 2019
			After one
	One year		but within		After five
(dollars in thousands)	or less		five years		years		Total
Commercial
Owner occupied RE	$	40,476		147,945		219,430		407,851
Non-owner occupied RE		55,187		267,879		178,812		501,878
Construction		31,035		19,278		30,173		80,486
Business		84,452		146,051		77,620		308,123
Total commercial loans		211,150		581,153		506,035		1,298,338
Consumer
Real estate		16,663		82,445		299,137		398,245
Home equity		9,921		25,828		143,989		179,738
Construction		13,405		1,222		26,844		41,471
Other		6,422		15,022		4,289		25,733
Total consumer		46,411		124,517		474,259		645,187
Total gross loan, net of deferred fees	$	257,561		705,670		980,294		1,943,525
Loans maturing after one year with:
Fixed interest rates							$	1,310,744
Floating interest rates								375,220

Paycheck Protection Program (“PPP”)

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act or the “Act”) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The Small Business Administration (“SBA”) received funding and authority through the Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency. The Act temporarily permits the SBA to guarantee 100% of certain loans under a new program titled the “Paycheck Protection Program” and also provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

In an effort to assist our clients as best we could through the pandemic, we became an approved SBA lender in March 2020 and processed 853 loans under the PPP for a total of $97.5 million, receiving SBA lender fee income of $3.9 million. As the regulations and guidance for PPP loans and the forgiveness process continued to change and evolve, management recognized the operational risk and complexity associated with this portfolio and decided to pursue the sale of the PPP loan portfolio to a third party better suited to support and serve our PPP clients through the loan forgiveness process. The loan sale allowed our team to focus on serving our clients and proactively monitoring and addressing credit risk brought on by the pandemic. On June 26, 2020, we completed the sale of our PPP loan portfolio to The Loan Source Inc., together with its servicing partner, ACAP SME LLC, and immediately recognized SBA lender fee income of $2.2 million, net of sale and processing costs, which is included in other noninterest income in the consolidated financial statements.

Portfolio Segment Methodology

Commercial

Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. The Company applies historic grade-specific loss factors to each loan class. In the development of statistically derived loan grade loss factors, the Company observes historical losses over 20 quarters for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status.

Consumer

For consumer loans, the Company determines the allowance on a collective basis utilizing historical losses over 20 quarters to represent its best estimate of inherent loss. The Company pools loans, generally by loan class with similar risk characteristics. The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status.

Credit Quality Indicators

Commercial

We manage a consistent process for assessing commercial loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our risk categories include Pass, Special Mention, Substandard, and Doubtful, each of which is defined by our banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses.

We categorize our loans into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:

•

Pass—These loans range from minimal credit risk to average credit risk; however, still have acceptable credit risk.

•

Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

•

Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

•

Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status as well as accruing TDRs.


	September 30, 2020
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Current	$	418,765		569,552		64,063		303,248		1,355,628
30-59 days past due		-		-		-		475		475
60-89 days past due		-		355		-		-		355
Greater than 90 Days		551		232		-		37		820
	$	419,316		570,139		64,063		303,760		1,357,278


	December 31, 2019
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Current	$	406,594		501,676		80,486		307,710		1,296,466
30-59 days past due		706		151		-		178		1,035
60-89 days past due		-		-		-		-		-
Greater than 90 Days		551		51		-		235		837
	$	407,851		501,878		80,486		308,123		1,298,338

As of September 30, 2020 and December 31, 2019, loans 30 days or more past due represented 0.26% and 0.23% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.08% and 0.10% of the Company’s total loan portfolio as of September 30, 2020 and December 31, 2019, respectively.

The tables below provide a breakdown of outstanding commercial loans by risk category.


	September 30, 2020
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Pass	$	415,899		560,896		63,920		297,179		1,337,894
Special mention		359		6,078		-		2,596		9,033
Substandard		3,058		3,165		143		3,985		10,351
Doubtful		-		-		-		-		-
	$	419,316		570,139		64,063		303,760		1,357,278


	December 31, 2019
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Pass	$	404,237		492,941		80,486		301,504		1,279,168
Special mention		1,312		744		-		3,108		5,164
Substandard		2,302		8,193		-		3,511		14,006
Doubtful		-		-		-		-		-
	$	407,851		501,878		80,486		308,123		1,298,338

Consumer

The Company manages a consistent process for assessing consumer loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. The Company’s categories include Pass, Special Mention, Substandard, and Doubtful, which are defined above. Delinquency statistics are also an important indicator of credit quality in the establishment of the allowance for loan losses.

The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.


	September 30, 2020
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Current	$	494,202		160,605		39,355		23,428		717,590
30-59 days past due		857		399		-		-		1,256
60-89 days past due		-		494		-		-		494
Greater than 90 Days		1,625		297		-		-		1,922
	$	496,684		161,795		39,355		23,428		721,262


	December 31, 2019
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Current	$	396,445		179,051		41,471		25,650		642,617
30-59 days past due		799		369		-		83		1,251
60-89 days past due		-		118		-		-		118
Greater than 90 Days		1,001		200		-		-		1,201
	$	398,245		179,738		41,471		25,733		645,187

Consumer loans 30 days or more past due were 0.18% and 0.13% of total loans as of September 30, 2020 and December 31, 2019, respectively.

The tables below provide a breakdown of outstanding consumer loans by risk category.


	September 30, 2020
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Pass	$	489,923		156,496		39,355		23,287		709,061
Special mention		2,182		1,351		-		107		3,640
Substandard		4,579		3,948		-		34		8,561
Doubtful		-		-		-		-		-
	$	496,684		161,795		39,355		23,428		721,262


	December 31, 2019
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Pass	$	392,572		176,532		41,471		25,421		635,996
Special mention		2,267		775		-		261		3,303
Substandard		3,406		2,431		-		51		5,888
Doubtful		-		-		-		-		-
	$	398,245		179,738		41,471		25,733		645,187

Nonperforming assets

The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when the Company believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received.

Following is a summary of our nonperforming assets, including nonaccruing TDRs.


(dollars in thousands)	September 30, 2020			December 31, 2019
Commercial
Owner occupied RE	$	-			-
Non-owner occupied RE		1,059			188
Construction		143			-
Business		201			235
Consumer
Real estate		2,518			1,829
Home equity		632			431
Construction		-			-
Other		-			-
Nonaccruing troubled debt restructurings		4,198			4,111
Total nonaccrual loans, including nonaccruing TDRs		8,751			6,794
Other real estate owned		1,684			-
Total nonperforming assets	$	10,435			6,794
Nonperforming assets as a percentage of:
Total assets		0.42	%		0.30	%
Gross loans		0.50	%		0.35	%
Total loans over 90 days past due	$	2,742			2,038
Loans over 90 days past due and still accruing		-			-
Accruing troubled debt restructurings		5,277			5,219

Impaired Loans

The table below summarizes key information for impaired loans. The Company’s impaired loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans may have estimated impairment which is included in the allowance for loan losses. The Company’s commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.


			September 30, 2020
			Recorded investment
					Impaired loans		Impaired loans
	Unpaid				with no related		with related		Related
	Principal		Impaired		allowance for		allowance for		allowance for
(dollars in thousands)	Balance		loans		loan losses		loan losses		loan losses
Commercial
Owner occupied RE	$	2,316		2,296		1,843		453		92
Non-owner occupied RE		3,114		2,143		610		1,533		455
Construction		143		143		143		-		-
Business		2,919		2,483		281		2,202		910
Total commercial		8,492		7,065		2,877		4,188		1,457
Consumer
Real estate		4,206		4,031		3,152		879		75
Home equity		2,982		2,794		2,439		355		252
Construction		-		-		-		-		-
Other		138		138		-		138		18
Total consumer		7,326		6,963		5,591		1,372		345
Total	$	15,818		14,028		8,468		5,560		1,802


			December 31, 2019
			Recorded investment
					Impaired loans		Impaired loans
	Unpaid				with no related		with related		Related
	Principal		Impaired		allowance for		allowance for		allowance for
(dollars in thousands)	Balance		loans		loan losses		loan losses		loan losses
Commercial
Owner occupied RE	$	2,791		2,726		2,270		456		75
Non-owner occupied RE		4,512		4,051		2,419		1,632		465
Construction		-		-		-		-		-
Business		1,620		1,531		558		973		452
Total commercial		8,923		8,308		5,247		3,061		992
Consumer
Real estate		2,727		2,720		1,638		1,082		364
Home equity		885		838		459		379		66
Construction		-		-		-		-		-
Other		147		147		-		147		16
Total consumer		3,759		3,705		2,097		1,608		446
Total	$	12,682		12,013		7,344		4,669		1,438

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.


	Three months ended September 30, 2020					Three months ended September 30, 2019
	Average		Recognized		Average		Recognized
	recorded		interest		recorded		interest
(dollars in thousands)	investment		income		investment		income
Commercial
Owner occupied RE	$	2,985		40		2,728		27
Non-owner occupied RE		3,880		63		4,077		74
Construction		72		2		-		-
Business		2,506		51		1,738		14
Total commercial		9,443		156		8,543		115
Consumer
Real estate		3,063		58		2,876		30
Home equity		2,540		22		1,668		30
Construction		-		-		-		-
Other		139		1		151		2
Total consumer		5,742		81		4,695		62
Total	$	15,185		237		13,238		177


	Nine months ended					Nine months ended				Year ended
	September 30, 2020					September 30, 2019				December 31, 2019
	Average		Recognized		Average		Recognized		Average		Recognized
	recorded		interest		recorded		interest		recorded		interest
(dollars in thousands)	investment		income		investment		income		investment		income
Commercial
Owner occupied RE	$	2,617		73		2,742		96		2,739		128
Non-owner occupied RE		4,724		165		4,139		202		4,161		255
Construction		36		2		-		-		-		-
Business		2,270		98		1,766		61		1,582		79
Total commercial		9,647		338		8,647		359		8,482		462
Consumer
Real estate		3,207		98		3,062		97		2,771		131
Home equity		2,067		39		1,688		82		853		42
Construction		-		-		-		-		-		-
Other		143		3		154		4		153		5
Total consumer		5,417		140		4,904		183		3,777		178
Total	$	15,064		478		13,551		542		12,259		640

Allowance for Loan Losses

The allowance for loan loss is management’s estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a 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 allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability 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 Company has an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in the portfolio. While the Company attributes portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The Company’s process involves procedures to appropriately consider the unique risk characteristics of the commercial and consumer loan portfolio segments. For each portfolio segment, impairment is measured individually for each impaired loan. The Company’s allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions.

The following table summarizes the activity related to the allowance for loan losses by commercial and consumer portfolio segments:


	Three months ended September 30, 2020
	Commercial										Consumer
	Owner		Non-owner
	occupied		occupied								Real		Home
(dollars in thousands)	RE		RE			Construction		Business			Estate		equity			Construction		Other			Total
Balance, beginning of period	$	5,800		8,791			977		5,841			6,538		2,641			615		399			31,602
Provision for loan losses		2,105		2,461			217		2,274			2,936		850			87		170			11,100
Loan charge-offs		-		(375	)		-		(564	)		-		(100	)		-		(25	)		(1,064	)
Loan recoveries		-		554			-		14			2		-			-		11			581
Net loan charge-offs		-		179			-		(550	)		2		(100	)		-		(14	)		(483	)
Balance, end of period	$	7,905		11,431			1,194		7,565			9,476		3,391			702		555			42,219
Net charge-offs to average loans (annualized)																						0.09	%
Allowance for loan losses to gross loans																						2.03	%
Allowance for loan losses to nonperforming loans																						482.43	%


	Three months ended September 30, 2019
	Commercial												Consumer
(dollars in thousands)	Owner occupied RE			Non-owner occupied RE			Construction			Business			Real Estate			Home equity		Construction		Other			Total
Balance, beginning of period	$	2,808			4,016			569			3,623			3,104			1,409		318		297			16,144
Provision for loan losses		(75	)		237			(63	)		588			(93	)		14		8		34			650
Loan charge-offs		-			(225	)		-			(709	)		-			-		-		(29	)		(963	)
Loan recoveries		-			-			-			8			7			1		-		1			17
Net loan charge-offs		-			(225	)		-			(701	)		7			1		-		(28	)		(946	)
Balance, end of period	$	2,733			4,028			506			3,510			3,018			1,424		326		303			15,848
Net charge-offs to average loans (annualized)																								0.21	%
Allowance for loan losses to gross loans																								0.86	%
Allowance for loan losses to nonperforming loans																								225.51	%

	Nine months ended September 30, 2020
	Commercial							Consumer
(dollars in thousands)	Owner occupied RE		Non-owner occupied RE		Construction	Business		Real Estate	Home equity			Construction		Other		Total
Balance, beginning of period	$	2,835	4,304		541	3,692		3,278		1,447			268	277			16,642
Provision for loan losses		5,070	8,081		653	4,562		6,187		1,976			434	337			27,300
Loan charge-offs		-	(1,508	)	-	(735	)	-		(100	)		-	(70	)		(2,413	)
Loan recoveries		-	554		-	46		11		68			-	11			690
Net loan charge-offs		-	(954	)	-	(689	)	11		(32	)		-	(59	)		(1,723	)
Balance, end of period	$	7,905	11,431		1,194	7,565		9,476		3,391			702	555			42,219
Net charge-offs to average loans (annualized)																	0.11	%

	Nine months ended September 30, 2019
	Commercial												Consumer
	Owner occupied RE			Non-owner occupied RE			Construction			Business		Real Estate			Home equity		Construction		Other			Total
Balance, beginning of period	$	2,726			3,811			615		3,616			3,081		1,348			275		290			15,762
Provision for loan losses		117			454			(109	)	577			(99	)	174			51		85			1,250
Loan charge-offs		(110	)		(239	)		-		(709	)		-		(100	)		-		(82	)		(1,240	)
Loan recoveries		-			2			-		26			36		2			-		10			76
Net loan charge-offs		(110	)		(237	)		-		(683	)		36		(98	)		-		(72	)		(1,164	)
Balance, end of period	$	2,733			4,028			506		3,510			3,018		1,424			326		303			15,848
Net charge-offs to average loans (annualized)																							0.09	%

The following table disaggregates the allowance for loan losses and recorded investment in loans by impairment methodology.


	September 30, 2020
	Allowance for loan losses				Recorded investment in loans
(dollars in thousands)	Commercial		Consumer	Total	Commercial	Consumer	Total
Individually evaluated	$	1,457	345	1,802	7,065	6,963	14,028
Collectively evaluated		26,638	13,779	40,417	1,350,213	714,299	2,064,512
Total	$	28,095	14,124	42,219	1,357,278	721,262	2,078,540


	December 31, 2019
	Allowance for loan losses				Recorded investment in loans
(dollars in thousands)	Commercial		Consumer	Total	Commercial	Consumer	Total
Individually evaluated	$	992	446	1,438	8,308	3,705	12,013
Collectively evaluated		10,380	4,824	15,204	1,290,030	641,482	1,931,512
Total	$	11,372	5,270	16,642	1,298,338	645,187	1,943,525