
	September 30, 2020				December 31, 2019
(Dollars in thousands)	Amount		Percent		Amount		Percent
Commercial loans	$	614,737	48.1	%	$	409,420	36.2	%
Commercial real estate loans – owner occupied	195,586		15.3	%	219,483		19.5	%
Commercial real estate loans – all other	199,911		15.6	%	208,283		18.5	%
Residential mortgage loans – multi-family	161,947		12.7	%	176,523		15.7	%
Residential mortgage loans – single family	13,764		1.1	%	18,782		1.7	%
Construction and land development loans	9,300		0.7	%	2,981		0.3	%
Consumer loans	83,736		6.5	%	90,867		8.1	%
Gross loans	1,278,981		100.0	%	1,126,339		100.0	%
Deferred fee (income) costs, net	1,871				4,783
Allowance for loan and lease losses	(17,485)				(13,611)
Loans, net	$	1,263,367			$	1,117,511

At September 30, 2020, commercial loans included $281.0 million of loans originated through the Paycheck Protection Program ("PPP"), which is administered by the Small Business Administration ("SBA") and was established by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and subsequently modified by the Paycheck Protection Program Flexibility Act ("PPPFA"). The PPP loans are 100% guaranteed by the SBA and the principal and interest may be forgiven by the SBA if the borrower demonstrates that the loan proceeds were used as prescribed by the governing legislation and regulations during either an 8-week or 24-week period following funding (the "Covered Period"). Borrowers began submitting applications for forgiveness in the third quarter of 2020 and have until 10 months following the end of their Covered Period to apply.

At September 30, 2020 and December 31, 2019, real estate loans of approximately $443 million and $278 million, respectively, were pledged to secure borrowings obtained from the FHLB and to support our unfunded borrowing capacity. At September 30, 2020 and December 31, 2019, commercial and consumer loans of $160 million and $210 million, respectively, were pledged to secure borrowings from the FRB to support our unfunded borrowing capacity. During the three and nine months ended September 30, 2020, we sold $5.8 million of SBA loans for a net gain on sale of $535 thousand. During the three and nine months ended September 30, 2019, we sold $3.0 million and $10.1 million, respectively, of SBA loans for a net gain on sale of $265 thousand and $866 thousand, respectively. During the three and nine months ended September 30, 2020, we purchased no loans. During the three and nine months ended September 30, 2019, we purchased loans totaling $81.0 million and $123.1 million, respectively, of which $81.0 million were multi-family mortgage loans and $39.9 million were consumer loans.

The ALLL represents our estimate of credit losses in our loan and lease portfolio that are probable and estimable at the balance sheet date. We employ economic models that are based on bank regulatory guidelines, industry standards and our own historical loan loss experience, as well as a number of more subjective qualitative factors, to determine both the sufficiency of the ALLL and the amount of the provisions that are required to increase or replenish the ALLL.

The ALLL is first determined by (i) analyzing all classified loans (graded as “Substandard” or “Doubtful” under our internal asset quality grading parameters) on nonaccrual status for loss exposure and (ii) establishing specific reserves as needed. ASC 310-10 defines loan impairment as the existence of uncertainty concerning collection of all principal and interest in accordance with the contractual terms of a loan. For collateral dependent loans, impairment is typically measured by comparing the loan amount to the fair value of collateral, less estimated costs to sell, with any “shortfall” amount charged off. Other methods can be used in estimating impairment, including market price and the present value of expected future cash flows discounted at the loan’s original interest rate. We are an active lender with the U.S. Small Business Administration and collection of a percentage of the loan balance of many of the loans originated is guaranteed. The ALLL reserves are calculated against the non-guaranteed loan balances.

On a quarterly basis, we utilize a classification based loan loss migration model as well as review individual loans in determining the adequacy of the ALLL for homogenous pools of loans that are not subject to specific reserve allocations. Our loss migration analysis utilizes a series of nineteen staggered 16-quarter migration periods of loan loss history and industry loss factors to determine historical losses by classification category for each loan type, except certain consumer loans (automobile,

mortgage and credit cards). We then apply these calculated loss factors, together with qualitative factors based on external economic conditions and trends and internal assessments, to the outstanding loan balances in each homogenous group of loans, and then, using our internal asset quality grading parameters, we grade the loans as “Pass,” “Special Mention,” “Substandard” or “Doubtful”. We analyze impaired loans individually. This grading is based on the credit classifications of assets as prescribed by government regulations and industry standards and is separated into the following groups:

•Special Mention: Loans classified as special mention, while generally not delinquent, have 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 in the Bank’s credit position at some future date.

•Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard loan, and may also be at delinquency status and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full highly questionable and improbable.


(Dollars in thousands)	Commercial		Real Estate		Construction and Land Development		Consumer and Single Family Mortgages		Unallocated		Total
ALLL in the three months ended September 30, 2020:
Balance at beginning of period	$	11,487	$	4,733	$	77	$	1,869	$	—	$	18,166
Charge offs	(839)		—		—		(1)		—		(840)
Recoveries	128		—		—		31		—		159
Provision	156		(315)		37		122		—		—
Balance at end of period	$	10,932	$	4,418	$	114	$	2,021	$	—	$	17,485
ALLL in the nine months ended September 30, 2020:
Balance at beginning of period	$	8,883	$	2,897	$	34	$	1,797	$	—	$	13,611
Charge offs	(5,317)		—		—		(84)		—		(5,401)
Recoveries	187		—		—		38		—		225
Provision	7,179		1,521		80		270		—		9,050
Balance at end of period	$	10,932	$	4,418	$	114	$	2,021	$	—	$	17,485
ALLL in the three months ended September 30, 2019:
Balance at beginning of period	$	6,809	$	2,790	$	119	$	1,756	$	—	$	11,474
Charge offs	(1,549)		—		—		(2)		—		(1,551)
Recoveries	58		—		—		5		—		63
Provision	2,202		(45)		(36)		(21)		—		2,100
Balance at end of period	$	7,520	$	2,745	$	83	$	1,738	$	—	$	12,086
ALLL in the nine months ended September 30, 2019:
Balance at beginning of period	$	8,071	$	3,643	$	426	$	1,290	$	76	$	13,506
Charge offs	(7,337)		—		—		(39)		—		(7,376)
Recoveries	541		—		—		15		—		556
Provision	6,245		(898)		(343)		472		(76)		5,400
Balance at end of period	$	7,520	$	2,745	$	83	$	1,738	$	—	$	12,086


(Dollars in thousands)	Commercial		Real Estate		Construction and Land Development		Consumer and Single Family Mortgages		Unallocated		Total
ALLL balance at September 30, 2020 related to:
Loans individually evaluated for impairment	$	185	$	—	$	—	$	—	$	—	$	185
Loans collectively evaluated for impairment	10,747		4,418		114		2,021		—		17,300
Total	$	10,932	$	4,418	$	114	$	2,021	$	—	$	17,485
Loan balance at September 30, 2020 related to:
Loans individually evaluated for impairment	$	10,166	$	5,969	$	—	$	—	$	—	$	16,135
Loans collectively evaluated for impairment	604,571		551,474		9,300		97,501		—		1,262,846
Total	$	614,737	$	557,443	$	9,300	$	97,501	$	—	$	1,278,981
ALLL balance at December 31, 2019 related to:
Loans individually evaluated for impairment	$	561	$	—	$	—	$	—	$	—	$	561
Loans collectively evaluated for impairment	8,322		2,897		34		1,797		—		13,050
Total	$	8,883	$	2,897	$	34	$	1,797	$	—	$	13,611
Loan balance at December 31, 2019 related to:
Loans individually evaluated for impairment	$	9,056	$	6,507	$	—	$	—	$	—	$	15,563
Loans collectively evaluated for impairment	400,364		597,782		2,981		109,649		—		1,110,776
Total	$	409,420	$	604,289	$	2,981	$	109,649	$	—	$	1,126,339


(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater		Total Past Due		Current		Total Loans Outstanding		Loans >90 Days and Accruing
At September 30, 2020
Commercial loans	$	6,817	$	7,546	$	7,814	$	22,177	$	592,560	$	614,737	$	1,854
Commercial real estate loans – owner-occupied	—		—		97		97		195,489		195,586		—
Commercial real estate loans – all other	—		11,200		1,837		13,037		186,874		199,911		1,837
Residential mortgage loans – multi-family	—		—		—		—		161,947		161,947		—
Residential mortgage loans – single family	—		—		—		—		13,764		13,764		—
Construction and land development loans	—		—		—		—		9,300		9,300		—
Consumer loans	53		—		145		198		83,538		83,736		—
Total	$	6,870	$	18,746	$	9,893	$	35,509	$	1,243,472	$	1,278,981	$	3,691
At December 31, 2019
Commercial loans	$	354	$	1,361	$	533	$	2,248	$	407,172	$	409,420	$	—
Commercial real estate loans – owner-occupied	749		—		—		749		218,734		219,483		—
Commercial real estate loans – all other	—		—		—		—		208,283		208,283		—
Residential mortgage loans – multi-family	—		—		—		—		176,523		176,523		—
Residential mortgage loans – single family	—		—		—		—		18,782		18,782		—
Construction and land development loans	—		—		—		—		2,981		2,981		—
Consumer loans	312		3		—		315		90,552		90,867		—
Total	$	1,415	$	1,364	$	533	$	3,312	$	1,123,027	$	1,126,339	$	—

Generally, the accrual of interest on a loan is discontinued when principal or interest payments become more than 90 days past due, unless we believe that the loan is adequately collateralized and it is in the process of collection. There were four loans, or $3.7 million, 90 days or more past due and still accruing interest at September 30, 2020. There were no loans 90 days or more past due and still accruing interest at December 31, 2019. In certain instances, when a loan is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received (referred to as full nonaccrual basis of accounting), except when the ultimate collectability of principal is probable, in which case such payments are applied to accrued and unpaid interest, which is credited to income (referred to as nonaccrual cash basis of accounting). Nonaccrual loans may be restored to accrual status when principal and interest become current and full repayment becomes expected.


	September 30, 2020		December 31, 2019
	(Dollars in thousands)
Pass:
Commercial loans	$	536,255	$	357,079
Commercial real estate loans – owner occupied	161,122		206,589
Commercial real estate loans – all other	199,912		208,283
Residential mortgage loans – multi family	161,576		176,523
Residential mortgage loans – single family	13,764		18,782
Construction and land development loans	9,300		2,981
Consumer loans	83,466		90,793
Total pass loans	$	1,165,395	$	1,061,030
Special Mention:
Commercial loans	$	21,818	$	21,894
Commercial real estate loans – owner occupied	6,931		6,387

Residential mortgage loans – multi family	371		—



Total special mention loans	$	29,120	$	28,281
Substandard:
Commercial loans	$	55,104	$	30,447
Commercial real estate loans – owner occupied	27,532		6,507




Consumer loans	270		74
Total substandard loans	$	82,906	$	37,028
Doubtful:
Commercial loans	$	1,560	$	—






Total doubtful loans	$	1,560	$	—
Total Loans:	$	1,278,981	$	1,126,339

A loan generally is classified as impaired when, in our opinion, principal or interest is not likely to be collected in accordance with the contractual terms of the loan agreement. We measure for impairments on a loan-by-loan basis, using either the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent.


	September 30, 2020		December 31, 2019
	(Dollars in thousands)
Impaired loans:
Nonaccruing loans	$	16,650	$	15,682
Nonaccruing restructured loans(1)	130		—
Accruing restructured loans(1)(2)	—		—

Total impaired loans	$	16,780	$	15,682
Impaired loans less than 90 days delinquent and included in total impaired loans	$	10,449	$	15,149


	September 30, 2020						December 31, 2019
	Recorded Investment		Unpaid Principal Balance		Related Allowance (1)		Recorded Investment		Unpaid Principal Balance		Related Allowance (1)
	(Dollars in thousands)
No allowance recorded:
Commercial loans	$	9,244	$	17,559	$	—	$	7,996	$	12,090	$	—
Commercial real estate loans – owner occupied	6,303		6,839		—		6,507		6,784		—




Consumer loans	261		284		—		74		101		—
Total	$	15,808	$	24,682	$	—	$	14,577	$	18,975	$	—
With allowance recorded:
Commercial loans	$	972	$	1,054	$	185	$	1,105	$	1,122	$	561






Total	$	972	$	1,054	$	185	$	1,105	$	1,122	$	561
All impaired loans
Commercial loans	$	10,216	$	18,613	$	185	$	9,101	$	13,212	$	561
Commercial real estate loans – owner occupied	6,303		6,839		—		6,507		6,784		—




Consumer loans	261		284		—		74		101		—
Total	$	16,780	$	25,736	$	185	$	15,682	$	20,097	$	561

(1)When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, then specific reserves are not required to be set aside for the loan within the ALLL. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the balance of the principal outstanding.

At September 30, 2020 and December 31, 2019, there were $15.8 million and $14.6 million, respectively, of impaired loans for which no specific reserves had been allocated because these loans, in our judgment, were sufficiently collateralized. Of the impaired loans at September 30, 2020 for which no specific reserves were allocated, $9.2 million had been deemed impaired in the prior year.


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020				2019				2020				2019
	Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized		Average Balance		Interest Income Recognized
	(Dollars in thousands)
No allowance recorded:
Commercial loans	$	12,226	$	—	$	3,658	$	190	$	11,202	$	70	$	2,786	$	394
Commercial real estate loans – owner occupied	6,264		23		3,524		118		6,352		53		2,171		237
Commercial real estate loans – all other	—		—		—		—		—		—		—		—

Residential mortgage loans – single family	—		—		—		—		—		—		—		—

Consumer loans	259		—		95		—		194		2		68		2
Total	18,749		23		7,277		308		17,748		125		5,025		633
With allowance recorded:
Commercial loans	1,982		—		—		—		1,543		—		—		—






Total	1,982		—		—		—		1,543		—		—		—
Total
Commercial loans	14,208		—		3,658		190		12,745		70		2,786		394
Commercial real estate loans – owner occupied	6,264		23		3,524		118		6,352		53		2,171		237
Commercial real estate loans – all other	—		—		—		—		—		—		—		—

Residential mortgage loans – single family	—		—		—		—		—		—		—		—

Consumer loans	259		—		95		—		194		2		68		2
Total	$	20,731	$	23	$	7,277	$	308	$	19,291	$	125	$	5,025	$	633

The interest that would have been earned had the impaired loans remained current in accordance with their original terms was $524 thousand and $50 thousand during the three months ended September 30, 2020 and 2019, respectively, and $1.5 million and $54 thousand during the nine months ended September 30, 2020 and 2019, respectively.

Pursuant to the FASB's ASU No. 2011-2, A Creditor’s Determination of whether a Restructuring is a Troubled Debt Restructuring, the Bank's TDRs totaled $130 thousand at September 30, 2020. There were no TDRs as of December 31, 2019. TDRs consist of loans to which modifications have been made for the purpose of alleviating temporary impairments of the borrower's financial condition and cash flows. Those modifications have come in the form of changes in amortization terms, reductions in interest rates, interest only payments and, in limited cases, concessions to outstanding loan balances. The modifications are made as part of workout plans we enter into with the borrower that are designed to provide a bridge for the borrower’s cash flow shortfalls in the near term. If a borrower works through the near term issues, then in most cases, the original contractual terms of the borrower’s loan will be reinstated. TDRs do not include short term loan modifications made on a good faith basis in response to COVID-19. There were no loans restructured as TDRs during the three or nine months ended September 30, 2019.


	Three Months Ended
	September 30, 2020					September 30, 2019
(Dollars in thousands)	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment








Nonperforming
Commercial loans	1	$	420	$	130	—	$	—	$	—





Total Troubled Debt Restructurings(1)	1	$	420	$	130	—	$	—	$	—

	Nine Months Ended
	September 30, 2020					September 30, 2019
(Dollars in thousands)	Number of loans	Pre- Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment








Nonperforming
Commercial loans	1	$	420	$	130	—	$	—	$	—





Total Troubled Debt Restructurings(1)	1	$	420	$	130	—	$	—	$	—