3. Loans and Allowance for Loan Losses

A summary of the Company’s loan portfolio is as follows:


	September 30,		December 31,
	2020		2019
Commercial real estate loans:
Construction	$	9,456	$	20,354
Non-residential		245,415		228,157
Multi-family		29,991		20,129
Residential real estate loans		40,605		43,726
Commercial and industrial loans(1)		170,663		90,554
Consumer loans:
Indirect automobile		372,863		360,569
Home equity		14,961		16,276
Other consumer		9,186		9,752
Total gross loans		893,140		789,517
Net deferred loan costs		7,918		9,908
Allowance for loan losses		(10,563)		(5,954)
Total net loans	$	890,495	$	793,471

(1)Includes $91,729 in U.S. Small Business Administration (“SBA”), paycheck protection program (“PPP”) loans at September 30, 2020.

At September 30, 2020 and December 31, 2019, the unpaid principal balances of loans held for sale, included in the residential real estate category above, were $2,295 and $2,684, respectively.

The following tables present the classes of the loan portfolio summarized by the pass category and the criticized and classified categories of special mention and substandard within the internal risk system:


	September 30, 2020
	Pass		Special Mention		Substandard		Total
Commercial real estate:
Construction	$	9,456	$	—	$	—	$	9,456
Non-residential		240,491		2,803		2,121		245,415
Multifamily		29,991		—		—		29,991
Residential real estate		37,921		—		2,684		40,605
Commercial and industrial		168,838		1,068		757		170,663
Consumer:
Indirect automobile		371,963		—		900		372,863
Home equity		14,465		—		496		14,961
Other consumer		9,121		—		65		9,186
Total	$	882,246	$	3,871	$	7,023	$	893,140


	December 31, 2019
	Pass		Special Mention		Substandard		Total
Commercial real estate:
Construction	$	20,354	$	—	$	—	$	20,354
Non-residential		219,485		4,285		4,387		228,157
Multifamily		19,744		—		385		20,129
Residential real estate		41,385		—		2,341		43,726
Commercial and industrial		88,874		597		1,083		90,554
Consumer:
Indirect automobile		359,616		—		953		360,569
Home equity		15,861		—		415		16,276
Other consumer		9,741		—		11		9,752
Total	$	775,060	$	4,882	$	9,575	$	789,517

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The past due status of all classes of loans is determined based on contractual due dates for loan payments.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans:


	September 30, 2020
							Greater Than
			30-59 Days		60-89 Days		90 Days Past		Total Loans
	Current		Past Due		Past Due		Due		Receivable		Non-accrual
Commercial real estate:
Construction	$	9,456	$	—	$	—	$	—	$	9,456	$	—
Non-residential		242,332		212		1,580		1,291		245,415		1,291
Multifamily		29,991		—		—		—		29,991		—
Residential real estate		38,779		644		—		1,182		40,605		2,684
Commercial and industrial		170,152		285		—		226		170,663		422
Consumer:
Indirect automobile		365,445		5,473		1,049		896		372,863		900
Home equity		14,374		4		185		398		14,961		496
Other consumer		9,061		38		23		64		9,186		65
Total	$	879,590	$	6,656	$	2,837	$	4,057	$	893,140	$	5,858


	December 31, 2019
							Greater Than
			30-59 Days		60-89 Days		90 Days Past		Total Loans
	Current		Past Due		Past Due		Due		Receivable		Non-accrual
Commercial real estate:
Construction	$	20,354	$	—	$	—	$	—	$	20,354	$	—
Non-residential		222,953		409		884		3,911		228,157		3,911
Multifamily		19,744		—		—		385		20,129		385
Residential real estate		42,403		427		116		780		43,726		2,341
Commercial and industrial		89,401		288		198		667		90,554		905
Consumer:
Indirect automobile		351,840		6,494		1,294		941		360,569		953
Home equity		15,726		142		91		317		16,276		415
Other consumer		9,492		201		48		11		9,752		11
Total	$	771,913	$	7,961	$	2,631	$	7,012	$	789,517	$	8,921

The following tables summarize information in regard to impaired loans by loan portfolio class:


	September 30, 2020
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Non-residential	$	1,291	$	2,206	$	—	$	3,579
Multifamily		—		—		—		281
Residential real estate		2,684		3,102		—		2,479
Commercial and industrial		373		608		—		566
Consumer:								—
Indirect automobile		155		190		—		345
Home equity		496		529		—		466
Other consumer		63		63		—		23
Total	$	5,062	$	6,698	$	—	$	7,739
With an allowance recorded:
Commercial and industrial	$	49	$	49	$	24	$	25
Consumer:
Indirect automobile		745		787		204		529
Other consumer		2		2		2		1
Total	$	796	$	838	$	230	$	555
Total:
Commercial real estate:
Non-residential	$	1,291	$	2,206	$	—	$	3,579
Multifamily		—		—		—		281
Residential real estate		2,684		3,102		—		2,479
Commercial and industrial		422		657		24		591
Consumer:
Indirect automobile		900		977		204		874
Home equity		496		529		—		466
Other consumer		65		65		2		24
Total	$	5,858	$	7,536	$	230	$	8,294


	December 31, 2019
	Recorded		Unpaid Principal		Related		Average Recorded
	Investment		Balance		Allowance		Investment
With no related allowance recorded:
Commercial real estate:
Non-residential	$	3,911	$	5,733	$	—	$	3,209
Multifamily		385		409		—		192
Residential real estate		2,341		2,850		—		2,313
Commercial and industrial		905		1,109		—		601
Consumer:
Indirect automobile		607		740		—		441
Home equity		415		467		—		307
Other consumer		11		11		—		10
Total	$	8,575	$	11,319	$	—	$	7,073
With an allowance recorded:
Consumer:
Indirect automobile		346	$	376	$	107	$	262
Total	$	346	$	376	$	107	$	262
Total:
Commercial real estate:
Non-residential	$	3,911	$	5,733	$	—	$	3,209
Multifamily		385		409		—		192
Residential real estate		2,341		2,850		—		2,313
Commercial and industrial		905		1,109		—		601
Consumer:
Indirect automobile		953		1,116		107		703
Home equity		415		467		—		307
Other consumer		11		11		—		10
Total	$	8,921	$	11,695	$	107	$	7,335

A loan is considered impaired when based on current information and events it is probable that the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan. Impaired loans include nonperforming loans and loans modified as troubled debt restructurings (“TDRs”). Loan modifications, which resulted in these loans being considered TDRs, are primarily in the form of rate concessions and extensions of maturity dates that are made specifically due to hardships experienced by the customer. The Company does not generally recognize interest income on a loan in an impaired status. At September 30, 2020 and December 31, 2019, the same three loans totaling $1,600 and $1,659, included in impaired loans, were identified as TDRs. There were no new TDRs in 2019 or the first nine months of 2020. At September 30, 2020 and December 31, 2019, all TDR loans were performing in accordance with their restructured terms. At September 30, 2020 and December 31, 2019, the Company had no commitments to advance additional funds to borrowers under TDR loans.

The Company services certain loans that it has sold without recourse to third parties. The aggregate balances of loans serviced for others were $289,538 and $270,730 as of September 30, 2020 and December 31, 2019, respectively.

The balance of capitalized servicing rights, included in other assets at September 30, 2020 and December 31, 2019, were $2,319 and $2,226, respectively. Fair value exceeds carrying value. No impairment charges related to servicing rights were recognized during the period ended September 30, 2020 or the year ended December 31, 2019.

The following tables summarize the segments of the loan portfolio and the allowance for loan losses, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment and the activity in the allowance for loan losses for the periods then ended:


	Commercial				Commercial
	Real Estate		Residential		and Industrial		Indirect		Consumer		Totals
	Three months ended September 30, 2020
Allowance for loan losses:
Beginning balance	$	2,673	$	125	$	859	$	4,779	$	136	$	8,572
Provision for loan losses		1,217		4		366		653		10		2,250
Loans charged-off		—		—		(88)		(499)		(3)		(590)
Recoveries		4		—		(3)		325		5		331
Ending balance	$	3,894	$	129	$	1,134	$	5,258	$	148	$	10,563


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial			Indirect	Consumer		Totals
	Three months ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	1,252	$	305	$	1,895	$	3,606	$	800	$	7,858
Provision for loan losses		(79)		(49)		(276)		898		(44)		450
Loans charged-off		—		—		(43)		(494)		(67)		(604)
Recoveries		—		—		14		173		12		199
Ending balance	$	1,173	$	256	$	1,590	$	4,183	$	701	$	7,903


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals
	Nine months ended September 30, 2020

Allowance for loan losses:
Beginning balance	$	2,009	$	99	$	603	$	3,117	$	126	$	5,954
Provision for loan losses		1,881		30		651		3,114		29		5,705
Loans charged-off		—		—		(127)		(1,688)		(21)		(1,836)
Recoveries		4		—		7		715		14		740
Ending balance	$	3,894	$	129	$	1,134	$	5,258	$	148	$	10,563
Ending balance:
Loans deemed impaired	$	—	$	—	$	24	$	204	$	2	$	230
Loans not deemed impaired	$	3,894	$	129	$	1,110	$	5,054	$	146	$	10,333
Loan receivables:
Ending balance	$	284,862	$	40,605	$	170,663	$	372,863	$	24,147	$	893,140
Ending balance:
Loans deemed impaired	$	1,291	$	2,684	$	422	$	900	$	561	$	5,858
Loans not deemed impaired	$	283,571	$	37,921	$	170,241	$	371,963	$	23,586	$	887,282


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial			Indirect	Consumer		Totals
	Nine months ended September 30, 2019
Allowance for loan losses:
Beginning balance	$	1,080	$	320	$	1,542	$	2,915	$	789	$	6,646
Provision for loan losses		93		(67)		89		1,930		(35)		2,010
Loans charged-off		—		—		(55)		(1,413)		(82)		(1,550)
Recoveries		—		3		14		751		29		797
Ending balance	$	1,173	$	256	$	1,590	$	4,183	$	701	$	7,903
Ending balance:
Loans deemed impaired	$	—	$	—	$	—	$	118	$	6	$	124
Loans not deemed impaired	$	1,173	$	256	$	1,590	$	4,065	$	695	$	7,779
Loan receivables:
Ending balance	$	245,704	$	41,344	$	88,187	$	354,394	$	27,469	$	757,098
Ending balance:
Loans deemed impaired	$	4,238	$	2,657	$	674	$	673	$	531	$	8,773
Loans not deemed impaired	$	241,466	$	38,687	$	87,513	$	353,721	$	26,938	$	748,325


	Commercial		Residential		Commercial
	Real Estate		Real Estate		and Industrial		Indirect		Consumer		Totals
	December 31, 2019
Allowance for loan losses:
Ending balance:
Loans deemed impaired	$	—	$	—	$	—	$	107	$	—	$	107
Loans not deemed impaired	$	2,009	$	99	$	603	$	3,010	$	126	$	5,847
Loan receivables:
Ending balance	$	268,640	$	43,726	$	90,554	$	360,569	$	26,028	$	789,517
Ending balance:
Loans deemed impaired	$	4,296	$	2,341	$	905	$	953	$	426	$	8,921
Loans not deemed impaired	$	264,344	$	41,385	$	89,649	$	359,616	$	25,602	$	780,596

In the normal course of business, the Company grants loans to officers, directors and other related parties. Balances and activity of such loans during the periods presented were not material.