LOANS

The following table presents the recorded investment in loans at March 31, 2020 and December 31, 2019. The recorded investment in loans excludes accrued interest receivable.



(Dollars in thousands)	Originated		Acquired		Total
March 31, 2020
Commercial real estate	$	578,960	$	149,950	$	728,910
Commercial and industrial	398,875		70,352		469,227
Residential real estate	209,426		53,468		262,894
Consumer	846		4,530		5,376
Total	$	1,188,107	$	278,300	$	1,466,407
December 31, 2019
Commercial real estate	$	551,565	$	53,081	$	604,646
Commercial and industrial	403,922		6,306		410,228
Residential real estate	201,787		10,052		211,839
Consumer	864		32		896
Total	$	1,158,138	$	69,471	$	1,227,609

At March 31, 2020 and December 31, 2019, the Company had residential loans held for sale, which were originated with the intent to sell, totaling $18.3 million and $13.9 million, respectively. During the three months ended March 31, 2020 and 2019, the Company sold residential real estate loans with proceeds totaling $88.5 million and $29.1 million, respectively.

Nonperforming Assets

Nonperforming assets consist of loans for which the accrual of interest has been discontinued and other real estate owned obtained through foreclosure and other repossessed assets. Loans outside of those accounted for under ASC 310-30 are classified as nonaccrual when, in the opinion of management, it is probable that the Company will be unable to collect all the contractual interest and principal payments as scheduled in the loan agreement. The accrual of interest is discontinued when a loan is placed in nonaccrual status and any payments received reduce the carrying value of the loan. A loan may be placed back on accrual status if all contractual payments have been received and collection of future principal and interest payments are no longer doubtful. Acquired loans that are not performing in accordance with contractual terms are not reported as nonperforming because these loans are recorded in pools at their net realizable value based on the principal and interest the Company expects to collect on these loans. There were $2.1 million and $1.2 million in commitments to lend additional funds to borrowers whose loans were classified as nonaccrual as of March 31, 2020 and December 31, 2019, respectively.

Information as to nonperforming assets was as follows:



(Dollars in thousands)	March 31, 2020		December 31, 2019
Nonaccrual loans:
Commercial real estate	$	3,721	$	4,832
Commercial and industrial	9,364		11,112
Residential real estate	2,124		2,569
Consumer	15		16
Total nonaccrual loans	15,224		18,529
Other real estate owned	2,093		921
Total nonperforming assets	$	17,317	$	19,450
Loans 90 days or more past due and still accruing	$	437	$	157

At March 31, 2020 and December 31, 2019, all of the loans 90 days or more past due and still accruing were PCI loans.

Loan delinquency as of the dates presented below was as follows:



(Dollars in thousands)	Current		30 - 59 Days Past Due		60 - 89 Days Past Due		90+ Days Past Due		Total
March 31, 2020
Commercial real estate	$	726,231	$	1,557	$	293	$	829	$	728,910
Commercial and industrial	467,608		306		201		1,112		469,227
Residential real estate	256,486		4,071		868		1,469		262,894
Consumer	5,350		23		3		—		5,376
Total	$	1,455,675	$	5,957	$	1,365	$	3,410	$	1,466,407
December 31, 2019
Commercial real estate	$	597,892	$	3,630	$	1,286	$	1,838	$	604,646
Commercial and industrial	407,692		377		1,275		884		410,228
Residential real estate	206,002		3,286		1,429		1,122		211,839
Consumer	892		4		—		—		896
Total	$	1,212,478	$	7,297	$	3,990	$	3,844	$	1,227,609

Impaired Loans:

Information as to impaired loans, excluding purchased credit impaired loans, was as follows:



(Dollars in thousands)	March 31, 2020		December 31, 2019
Nonaccrual loans	$	15,224	$	18,529
Performing troubled debt restructurings:
Commercial and industrial	541		547
Residential real estate	599		359
Total performing troubled debt restructurings	1,140		906
Total impaired loans, excluding purchase credit impaired loans	$	16,364	$	19,435

Troubled Debt Restructurings:

The Company assesses loan modifications to determine whether a modification constitutes a troubled debt restructuring ("TDR"). This applies to all loan modifications except for modifications to loans accounted for in pools under ASC 310-30, which are not subject to TDR accounting/classification. For loans excluded from ASC 310-30 accounting, a modification is considered a TDR when a borrower is experiencing financial difficulties and the Company grants a concession to the borrower. For loans accounted for individually under ASC 310-30, a modification is considered a TDR when a borrower is experiencing financial difficulties and the effective yield after the modification is less than the effective yield at the time the loan was acquired or less than the effective yield of any re-estimation of cash flows subsequent to acquisition in association with consideration of qualitative factors included within ASC 310-40. All TDRs are considered impaired loans. The nature and extent of impairment of TDRs, including those which have experienced a subsequent default, are considered in the determination of an appropriate level of allowance for loan losses.

As a result of the COVID-19 pandemic, the Company is currently working with borrowers to provide short-term payment modifications. Any short-term modifications made on a good-faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not considered TDRs based on Interagency guidance. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program was implemented. The Company’s modification programs are designed to provide temporary relief for current borrowers affected by COVID-19 pandemic. The Company has presumed that borrowers that are current on payments are not experiencing financial difficulties at the time of the modification for purposes of determining TDR status, and thus no further TDR analysis is required for each loan modification in the program.

As of March 31, 2020 and December 31, 2019, the Company had a recorded investment in troubled debt restructurings of $3.7 million and $3.9 million, respectively. The Company allocated a specific reserve of $221 thousand for those loans at March 31, 2020 and a specific reserve of $384 thousand for those loans at December 31, 2019. The Company has not committed to lend additional amounts to borrowers whose loans have been modified. As of March 31, 2020, there were $2.6 million of nonperforming TDRs and $1.1 million of performing TDRs included in impaired loans. As of December 31, 2019, there were $906 thousand of nonperforming TDRs and $3.0 million of performing TDRs included in impaired loans.

All TDRs are considered impaired loans in the calendar year of their restructuring. A loan that has been modified can return to performing status if it satisfies a six-month performance requirement; however, it will continue to be reported as a TDR and considered impaired.

The following table presents the recorded investment of loans modified as TDRs during the three months ended March 31, 2019 by type of concession granted. There were no loans modified as TDRs during the three months ended March 31, 2020. In cases where more than one type of concession was granted, the loans were categorized based on the most significant concession.



	Concession type									Financial effects of modification
(Dollars in thousands)	Principal deferral		Interest rate		Forbearance agreement		Total number of loans	Total recorded investment		Net charge-offs		Provision for loan losses
For the three months ended March 31, 2019
Commercial and industrial	$	—	$	—	$	335	1	$	335	$	—	$	158
Total	$	—	$	—	$	335	1	$	335	$	—	$	158

On an ongoing basis, the Company monitors the performance of TDRs to their modified terms. The following table presents the number of loans modified as TDRs during the twelve months ended March 31, 2020 and 2019 for which there was a subsequent payment default, including the recorded investment as of the period end. A payment on a TDR is considered to be in default once it is greater than 30 days past due.



	For the three months ended March 31, 2020
(Dollars in thousands)	Total number of loans	Total recorded investment		Provision for loan losses following a subsequent default
Commercial and industrial	1	$	—	$	12
Total	1	$	—	$	12



	For the three months ended March 31, 2019
(Dollars in thousands)	Total number of loans	Total recorded investment		Provision for loan losses following a subsequent default
Residential real estate	1	$	115	$	5
Total	1	$	115	$	5

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes commercial and industrial and commercial real estate loans and is performed on an annual basis. The Company uses the following definitions for risk ratings:

Pass. Loans classified as pass are higher quality loans that do not fit any of the other categories described below. This category includes loans risk rated with the following ratings: cash/stock secured, excellent credit risk, superior credit risk, good credit risk, satisfactory credit risk, and marginal credit risk.

Special Mention. Loans classified as special mention have a potential weakness that deserves management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company's credit position at some future date.

Substandard. Loans classified as substandard are 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 Company will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful 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.

Based on the most recent analysis performed, the risk category of loans by class of loans was as follows:



(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2020
Commercial real estate	$	715,292	$	9,828	$	2,932	$	858	$	728,910
Commercial and industrial	441,179		11,995		15,197		856		469,227
Total	$	1,156,471	$	21,823	$	18,129	$	1,714	$	1,198,137
December 31, 2019
Commercial real estate	$	591,419	$	8,325	$	4,042	$	860	$	604,646
Commercial and industrial	383,756		8,967		16,527		978		410,228
Total	$	975,175	$	17,292	$	20,569	$	1,838	$	1,014,874

For residential real estate loans and consumer loans, the Company evaluates credit quality based on the aging status of the loan and by payment activity. Residential real estate loans and consumer loans are considered nonperforming if they are 90 days or more past due. Consumer loan types are continuously monitored for changes in delinquency trends and other asset quality indicators.

The following presents residential real estate and consumer loans by credit quality:



(Dollars in thousands)	Performing		Nonperforming		Total
March 31, 2020
Residential real estate	$	260,770	$	2,124	$	262,894
Consumer	5,361		15		5,376
Total	$	266,131	$	2,139	$	268,270
December 31, 2019
Residential real estate	$	209,270	$	2,569	$	211,839
Consumer	880		16		896
Total	$	210,150	$	2,585	$	212,735

Purchased Credit Impaired Loans:

As part of the Company's previous five acquisitions, the Company acquired purchase credit impaired ("PCI") loans for which there was evidence of credit quality deterioration since origination, and we determined that it was probable that the Company would be unable to collect all contractually required principal and interest payments. The total balance of all PCI loans from these acquisitions was as follows:



(Dollars in thousand)	Unpaid Principal Balance		Recorded Investment
March 31, 2020
Commercial real estate	$	6,558	$	2,990
Commercial and industrial	1,348		779
Residential real estate	4,192		2,969
Total PCI loans	$	12,098	$	6,738
December 31, 2019
Commercial real estate	$	6,597	$	2,884
Commercial and industrial	556		135
Residential real estate	4,215		2,954
Total PCI loans	$	11,368	$	5,973

The following table reflects the activity in the accretable yield of PCI loans from past acquisitions, which includes total expected cash flows, including interest, in excess of the recorded investment.



	For the three months ended March 31,
(Dollars in thousands)	2020			2019
Accretable yield at beginning of period	$	9,141		$	10,947
Additions due to acquisitions	35			—
Accretion of income	(443		)	(584		)
Accretable yield at end of period	$	8,733		$	10,363

"Additions due to acquisitions" represents the accretable yield added as a result of the AAB acquisition. "Accretion of income" represents the income earned on these loans for the year.