The following table summarizes the composition of our loan portfolio as of September 30, 2019 and December 31, 2018 (in thousands):

(1)	Includes $13.8 million and $18.3 million of loans as of September 30, 2019 and December 31, 2018, respectively, acquired in the Greater Atlantic Bank (“GAB”) transaction covered under an FDIC loss-share agreement. The agreement covering single family loans expires in December 2019.

In the first quarter of 2019, $33.9 million of commercial loans were reclassified into loans secured by real estate, upon review and validation of collateral and Call Report codes.

Accounting policy related to the allowance for loan losses is considered a critical policy given the level of estimation, judgment, and uncertainty in the levels of the allowance required to account for the inherent probable losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results.

As part of the GAB acquisition, the Bank and the FDIC entered into loss sharing agreements on approximately $143.4 million (contractual basis) of GAB’s assets. There were two agreements with the FDIC: one for single family loans which is a 10-year agreement expiring in December 2019, and one for non-single family (commercial) assets which was a 5-year agreement which expired in December 2014. The Bank will continue to share in the losses on the loans and foreclosed loan collateral with the FDIC as specified in the loss sharing agreement related to single family loans; we refer to these assets collectively as “covered assets.” Loans that are not covered in the loss sharing agreement are referred to as “non-covered loans.” Covered loans totaled $13.8 million and $18.3 million at September 30, 2019 and December 31, 2018, respectively.

Accretable discount on the acquired EVBS, GAB, Prince George’s Federal Savings Bank (“PGFSB”), and the HarVest Bank (“HarVest”) loans totaled $12.4 million and $15.1 million at September 30, 2019 and December 31, 2018, respectively. Accretion associated with the acquired loans held for investment of $901 thousand and $1.1 million was recognized in the three months ended September 30, 2019 and 2018, respectively, and $2.7 million and $3.7 million was recognized in the nine months ended September 30, 2019 and 2018, respectively.

For the three acquisitions subsequent to the GAB acquisition noted above, management sold the majority of the purchased credit impaired loans immediately after closing of the acquisition.

Impaired loans for the covered and non-covered portfolios were as follows (in thousands):


	Total Loans
			Unpaid
	Recorded		Principal		Related
September 30, 2019	Investment (1)		Balance		Allowance
With no related allowance recorded
Commercial real estate - owner occupied	$	4,419	$	5,938	$	—
Commercial real estate - non-owner occupied (2)		4,676		4,951		—
Construction and land development		356		783		—
Commercial loans		5,466		8,990		—
Residential 1-4 family (3)		1,588		4,059		—
Other consumer loans		—		20		—
Total	$	16,505	$	24,741	$	—

With an allowance recorded
Commercial real estate - owner occupied	$	—	$	—	$	—
Commercial real estate - non-owner occupied (2)		—		—		—
Construction and land development		—		—		—
Commercial loans		2,699		2,726		900
Residential 1-4 family (3)		294		490		2
Other consumer loans		—		—		—
Total	$	2,993	$	3,216	$	902
Grand total	$	19,498	$	27,957	$	902

(1)	Recorded investment is after cumulative prior charge offs of $1.1 million. These loans also have aggregate SBA guarantees of $3.3 million.

(2)	Includes loans secured by farmland and multi-family loans.

(3)	Includes home equity lines of credit.


	Total Loans
			Unpaid
	Recorded		Principal		Related
December 31, 2018	Investment (1)		Balance		Allowance
With no related allowance recorded
Commercial real estate - owner occupied	$	2,795	$	4,777	$	—
Commercial real estate - non-owner occupied (2)		171		333		—
Construction and land development		—		336		—
Commercial loans		3,450		6,013		—
Residential 1-4 family (3)		1,591		5,911		—
Other consumer loans		—		—		—
Total	$	8,007	$	17,370	$	—

With an allowance recorded
Commercial real estate - owner occupied	$	—	$	—	$	—
Commercial real estate - non-owner occupied (2)		—		—		—
Construction and land development		—		—		—
Commercial loans		2,626		3,276		612
Residential 1-4 family (3)		1,429		1,476		6
Other consumer loans		—		—		—
Total	$	4,055	$	4,752	$	618
Grand total	$	12,062	$	22,122	$	618

(1)	Recorded investment is after cumulative prior charge offs of $1.5 million. These loans also have aggregate SBA guarantees of $3.4 million.

(2)	Includes loans secured by farmland and multi-family loans.

(3)	Includes home equity lines of credit.

The following tables present the average recorded investment and interest income recognized for impaired loans recognized by class of loans for the three and nine months ended September 30, 2019 and 2018 (in thousands):


	Total Loans
	Average		Interest
	Recorded		Income
Three Months Ended September 30, 2019	Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	4,562	$	69
Commercial real estate - non-owner occupied (1)		4,718		69
Construction and land development		379		15
Commercial loans		5,552		54
Residential 1-4 family (2)		1,645		41
Other consumer loans		—		—
Total	$	16,856	$	248

With an allowance recorded
Commercial real estate - owner occupied	$	—	$	—
Commercial real estate - non-owner occupied (1)		—		—
Construction and land development		—		—
Commercial loans		2,760		48
Residential 1-4 family (2)		345		(13)
Other consumer loans		—		—
Total	$	3,105	$	35
Grand total	$	19,961	$	283

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.


	Total Loans
	Average		Interest
	Recorded		Income
Three Months Ended September 30, 2018	Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	663	$	9
Commercial real estate - non-owner occupied (1)		—		—
Construction and land development		—		—
Commercial loans		4,849		12
Residential 1-4 family (2)		1,821		22
Other consumer loans		19		—
Total	$	7,352	$	43

With an allowance recorded
Commercial real estate - owner occupied	$	—	$	—
Commercial real estate - non-owner occupied (1)		—		—
Construction and land development		—		—
Commercial loans		—		—
Residential 1-4 family (2)		—		—
Other consumer loans		—		—
Total	$	—	$	—
Grand total	$	7,352	$	43

________________________________________

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.


	Total Loans
	Average		Interest
	Recorded		Income
Nine Months Ended September 30, 2019	Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	4,612	$	227
Commercial real estate - non-owner occupied (1)		4,774		206
Construction and land development		396		43
Commercial loans		5,604		163
Residential 1-4 family (2)		1,665		148
Other consumer loans		—		—
Total	$	17,051	$	787

With an allowance recorded
Commercial real estate - owner occupied	$	—	$	—
Commercial real estate - non-owner occupied (1)		—		—
Construction and land development		—		—
Commercial loans		2,799		147
Residential 1-4 family (2)		345		25
Other consumer loans		—		—
Total	$	3,144	$	172
Grand total	$	20,195	$	959

________________________________________

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.


	Total Loans
	Average		Interest
	Recorded		Income
Nine Months Ended September 30, 2018	Investment		Recognized
With no related allowance recorded
Commercial real estate - owner occupied	$	663	$	26
Commercial real estate - non-owner occupied (1)		—		—
Construction and land development		—		—
Commercial loans		4,732		31
Residential 1-4 family (2)		2,005		52
Other consumer loans		21		—
Total	$	7,421	$	109

With an allowance recorded
Commercial real estate - owner occupied	$	—	$	—
Commercial real estate - non-owner occupied (1)		—		—
Construction and land development		—		—
Commercial loans		—		—
Residential 1-4 family (2)		—		—
Other consumer loans		—		—
Total	$	—	$	—
Grand total	$	7,421	$	109

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.

The following tables present the aging of the recorded investment in past due loans by class of loans as of September 30, 2019 and December 31, 2018 (in thousands):


	30 - 59		60 - 89
	Days		Days		90 Days		Total		Nonaccrual		Loans Not		Total
September 30, 2019	Past Due		Past Due		or More		Past Due		Loans		Past Due		Loans
Total loans:
Commercial real estate - owner occupied	$	115	$	—	$	—	$	115	$	189	$	398,801	$	399,105
Commercial real estate - non-owner occupied (1)		423		406		—		829		—		642,210		643,039
Construction and land development		110		—		—		110		—		162,348		162,458
Commercial loans		2,768		14		—		2,782		3,309		214,616		220,707
Residential 1-4 family (2)		1,721		425		—		2,146		344		685,246		687,736
Other consumer loans		71				—		71		—		28,004		28,075
Total	$	5,208	$	845	$	—	$	6,053	$	3,842	$	2,131,225	$	2,141,120

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.


	30 - 59		60 - 89
	Days		Days		90 Days		Total		Nonaccrual		Loans Not		Total
December 31, 2018	Past Due		Past Due		or More		Past Due		Loans		Past Due		Loans
Total loans:
Commercial real estate - owner occupied	$	577	$	344	$	—	$	921	$	1,284	$	404,826	$	407,031
Commercial real estate - non-owner occupied (1)		581		617		—		1,198		—		642,982		644,180
Construction and land development		851		—		—		851		—		145,803		146,654
Commercial loans		319		168		—		487		3,391		251,563		255,441
Residential 1-4 family (2)		5,523		197		—		5,720		2,055		685,533		693,308
Other consumer loans		142		18		—		160		—		32,187		32,347
Total	$	7,993	$	1,344	$	—	$	9,337	$	6,730	$	2,162,894	$	2,178,961

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.

Nonaccrual loans include SBA guaranteed amounts totaling $3.3 million and $3.4 million at September 30, 2019 and December 31, 2018, respectively.

Activity in the allowance for non-covered loan and lease losses for the three and nine months ended September 30, 2019 and 2018 is summarized below (in thousands):


	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
Three Months Ended September 30, 2019	Occupied		Occupied (1)		Development		Loans		Residential (2)		Loans		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	833	$	1,890	$	802	$	5,834	$	1,127	$	273	$	854	$	11,613
Provision (recovery)		(113)		(281)		16		133		347		11		37		150
Charge offs		—		(1)		—		(266)		(315)		(65)		—		(647)
Recoveries		(1)		4		—		65		8		9		—		85
Ending balance	$	719	$	1,612	$	818	$	5,766	$	1,167	$	228	$	891	$	11,201

Three Months Ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	750	$	1,293	$	873	$	6,306	$	1,579	$	199	$	—	$	11,000
Provision (recovery)		62		(81)		247		375		273		174		—		1,050
Charge offs		—		—		—		(366)		(200)		(38)		—		(604)
Recoveries		4		—		—		15		4		(18)		—		5
Ending balance	$	816	$	1,212	$	1,120	$	6,330	$	1,656	$	317	$	—	$	11,451

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.


	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
Nine Months Ended September 30, 2019	Occupied		Occupied (1)		Development		Loans		Residential (2)		Loans		Unallocated		Total
Allowance for loan losses:
Beginning balance	$	802	$	1,669	$	821	$	7,097	$	1,106	$	224	$	564	$	12,283
Provision (recovery)		497		399		(3)		(1,235)		166		199		327		350
Charge offs		(782)		(463)		—		(433)		(405)		(221)		—		(2,304)
Recoveries		202		7		—		337		300		26		—		872
Ending balance	$	719	$	1,612	$	818	$	5,766	$	1,167	$	228	$	891	$	11,201

Nine Months Ended September 30, 2018
Allowance for loan losses:
Beginning balance	$	690	$	1,321	$	692	$	4,496	$	1,586	$	612	$	—	$	9,397
Provision (recovery)		115		(109)		428		2,915		437		(86)		—		3,700
Charge offs		—		—		—		(1,303)		(461)		(220)		—		(1,984)
Recoveries		11		—		—		222		94		11		—		338
Ending balance	$	816	$	1,212	$	1,120	$	6,330	$	1,656	$	317	$	—	$	11,451

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.

The following tables present the balance in the allowance for loan losses and the recorded investment in non-covered loans by portfolio segment and based on impairment method as of September 30, 2019 and December 31, 2018 (in thousands):


	Commercial		Commercial
	Real Estate		Real Estate		Construction						Other
	Owner		Non-owner		and Land		Commercial		1-4 Family		Consumer
September 30, 2019	Occupied		Occupied (1)		Development		Loans		Residential (2)		Loans		Unallocated		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	900	$	2	$	—	$	—	$	902
Collectively evaluated for impairment		719		1,612		818		4,866		1,165		228		891		10,299
Total ending allowance	$	719	$	1,612	$	818	$	5,766	$	1,167	$	228	$	891	$	11,201

Loans:
Individually evaluated for impairment	$	4,419	$	4,676	$	356	$	8,165	$	1,588	$	—	$	—	$	19,204
Collectively evaluated for impairment		394,686		638,363		162,102		212,542		686,148		28,075		—		2,121,916
Total ending loan balances	$	399,105	$	643,039	$	162,458	$	220,707	$	687,736	$	28,075	$	—	$	2,141,120

December 31, 2018
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	600	$	—	$	—	$	—	$	600
Collectively evaluated for impairment		802		1,669		821		6,497		1,106		224		564		11,683
Total ending allowance	$	802	$	1,669	$	821	$	7,097	$	1,106	$	224	$	564	$	12,283

Loans:
Individually evaluated for impairment	$	2,795	$	171	$	—	$	3,450	$	1,591	$	—	$	—	$	8,007
Collectively evaluated for impairment		404,236		644,009		146,654		251,991		691,717		32,347		—		2,170,954
Total ending loan balances	$	407,031	$	644,180	$	146,654	$	255,441	$	693,308	$	32,347	$	—	$	2,178,961

(1)	Includes loans secured by farmland and multi-family loans.

(2)	Includes home equity lines of credit.

Troubled Debt Restructurings

A modification is classified as a troubled debt restructuring (“TDR”) if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rates for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.

Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.

As of September 30, 2019, we had two loans in TDRs. One loan was modified in TDRs during the year ending December 31, 2018. One TDR which had been modified in 2013 defaulted in 2015. This loan, in the amount of $651 thousand, was current as of September 30, 2019.

Credit Quality Indicators

Through its system of internal controls, Southern National evaluates and segments loan portfolio credit quality on a quarterly basis using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified.

Special Mention loans are loans that have a potential weakness that deserve 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.

Substandard loans may be 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 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. Southern National had no loans classified Doubtful at September 30, 2019 or December 31, 2018.

As of September 30, 2019 and December 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows (in thousands):


	Total Loans
	Special
September 30, 2019	Mention		Substandard (3)		Pass		Total
Commercial real estate - owner occupied	$	3,883	$	4,211	$	391,011	$	399,105
Commercial real estate - non-owner occupied (1)		4,255		181		638,603		643,039
Construction and land development		713		—		161,745		162,458
Commercial loans		3,441		5,007		212,259		220,707
Residential 1-4 family (2)		674		1,365		685,697		687,736
Other consumer loans		127		—		27,948		28,075
Total	$	13,093	$	10,764	$	2,117,263	$	2,141,120


	Total Loans
	Special
December 31, 2018	Mention		Substandard (3)		Pass		Total
Commercial real estate - owner occupied	$	6,611	$	2,810	$	397,610	$	407,031
Commercial real estate - non-owner occupied (1)		4,382		189		639,609		644,180
Construction and land development		—		—		146,654		146,654
Commercial loans		2,373		2,689		250,379		255,441
Residential 1-4 family (2)		395		1,982		690,931		693,308
Other consumer loans		142		—		32,205		32,347
Total	$	13,903	$	7,670	$	2,157,388	$	2,178,961

(1)	Includes loans secured by farmland and multi-family residential loans.

(2)	Includes home equity lines of credit.

(3)	Includes SBA guarantees of $3.3 million and $3.4 million as of September 30, 2019 and December 31, 2018, respectively.

The amount of foreclosed residential real estate property held at September 30, 2019 and December 31, 2018 was $282 thousand. The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $282 thousand and $1.5 million at September 30, 2019 and December 31, 2018, respectively.