The Company’s loan portfolio consisted of the following at December 31 (in thousands):

	Principal Amount Outstanding		Net Deferred Loan (Fees) Costs			Loans, Net
2020
Commercial business	$	798,409	$	(4,261	)	$	794,148
Commercial mortgage		1,256,525		(2,624	)		1,253,901
Residential real estate loans		586,537		13,263			599,800
Residential real estate lines		86,708		3,097			89,805
Consumer indirect		812,816		27,605			840,421
Other consumer		16,913		150			17,063
Total	$	3,557,908	$	37,230			3,595,138
Allowance for credit losses - loans							(52,420	)
Total loans, net						$	3,542,718

2019
Commercial business	$	571,222	$	818		$	572,040
Commercial mortgage		1,108,315		(2,032	)		1,106,283
Residential real estate loans		560,717		11,633			572,350
Residential real estate lines		101,048		3,070			104,118
Consumer indirect		822,179		27,873			850,052
Other consumer		15,984		160			16,144
Total	$	3,179,465	$	41,522			3,220,987
Allowance for loan losses							(30,482	)
Total loans, net						$	3,190,505

The CARES Act was passed by Congress and signed into law on March 27, 2020. The CARES Act established the PPP, an expansion of the SBA’s 7(a) loan program and the EIDL, administered directly by the SBA. The Company had $253.1 million of PPP loans, principal amount outstanding (included in Commercial business above) as of December 31, 2020. In addition, the CARES Act provides that a financial institution may elect to suspend (1) the application of GAAP for certain loan modifications related to COVID-19 that would otherwise be categorized as a TDR and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Accordingly, the Company had $532.4 million of loans with modifications related to COVID-19 during 2020, with $113.0 million still on deferral as of December 31, 2020.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2020 and December 31, 2019, AIR for loans totaled $13.6 million and $9.1 million, respectively, and is included in other assets on the Company’s consolidated statements of financial condition.

The Company’s significant concentrations of credit risk in the loan portfolio relate to a geographic concentration in the communities that the Company serves.

Certain executive officers, directors and their business interests are customers of the Company. Transactions with these parties are based on the same terms as similar transactions with unrelated third parties and do not carry more than normal credit risk. Borrowings by these related parties amounted to $32.8 million and $18.6 million at December 31, 2020 and 2019, respectively. During 2020, new borrowings amounted to $16.3 million (including borrowings of executive officers and directors that were outstanding at the time of their appointment), and repayments and other reductions were $2.1 million.

The Company’s recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of December 31 (in thousands):

	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Nonaccrual		Current		Total Loans		Nonaccrual with no allowance
2020
Commercial business	$	264	$	87	$	-	$	351	$	1,975	$	796,083	$	798,409	$	1,502
Commercial mortgage		822		26		-		848		2,906		1,252,771		1,256,525		2,709
Residential real estate loans		984		60		-		1,044		2,587		582,906		586,537		2,587
Residential real estate lines		40		15		-		55		323		86,330		86,708		323
Consumer indirect		3,966		1,348		-		5,314		1,495		806,007		812,816		1,495
Other consumer		133		18		231		382		-		16,531		16,913		-
Total loans, gross	$	6,209	$	1,554	$	231	$	7,994	$	9,286	$	3,540,628	$	3,557,908	$	8,616

2019
Commercial business	$	361	$	-	$	-	$	361	$	1,177	$	569,684	$	571,222
Commercial mortgage		531		-		-		531		3,146		1,104,638		1,108,315
Residential real estate loans		929		114		-		1,043		2,484		557,190		560,717
Residential real estate lines		231		37		-		268		102		100,678		101,048
Consumer indirect		3,729		1,019		-		4,748		1,725		815,706		822,179
Other consumer		116		8		6		130		-		15,854		15,984
Total loans, gross	$	5,897	$	1,178	$	6	$	7,081	$	8,634	$	3,163,750	$	3,179,465

There were no loans past due greater than 90 days and still accruing interest as of December 31, 2020 and 2019. There were $231 thousand and $6 thousand in consumer overdrafts which were past due greater than 90 days as of December 31, 2020 and 2019, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the years ended December 31, 2020, 2019 and 2018. For the years ended December 31, 2020, 2019 and 2018, estimated interest income of $430 thousand, $508 thousand, and $294 thousand, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

A modification of a loan constitutes a troubled debt restructuring (“TDR”) when a borrower is experiencing financial difficulty and the modification constitutes a concession. Commercial loans modified in a TDR may involve temporary interest-only payments, term extensions, reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, collateral concessions, forgiveness of principal, forbearance agreements, or substituting or adding a new borrower or guarantor.

There were no loans modified as a TDR during the years ended December 31, 2020 and 2019.

There were no loans modified as a TDR during the years ended December 31, 2020 and 2019 that defaulted during the year ended December 31, 2020. For purposes of this disclosure, a loan modified as a TDR is considered to have defaulted when the borrower becomes 90 days past due.

Management has determined that specific commercial loans on nonaccrual status, all loans that have had their terms restructured in a troubled debt restructuring and other loans deemed appropriate by management where repayment is expected to be provided substantially through the operation or sale of the collateral to be collateral dependent loans. Collateral dependent loans at December 31, 2020 included certain criticized COVID-19 bridge loans not otherwise classified as nonaccrual. The following table presents the amortized cost basis of collateral dependent loans by collateral type as of December 31, 2020 (in thousands):

Prior to the adoption of ASC 326, management determined that specific commercial loans on nonaccrual status and all loans that have had their terms restructured in a troubled debt restructuring are impaired loans. The following table presents the recorded investment, unpaid principal balance and related allowance of impaired loans as well as average recorded investment and interest income recognized on impaired loans at December 31, 2019 (in thousands):

	Recorded Investment ⁽¹⁾		Unpaid Principal Balance ⁽¹⁾		Related Allowance		Average Recorded Investment		Interest Income Recognized
2019
With no related allowance recorded:
Commercial business	$	563	$	775	$	-	$	411	$	-
Commercial mortgage		973		1,749		-		1,701		-
		1,536		2,524		-		2,112		-
With an allowance recorded:
Commercial business		614		614		214		1,207		-
Commercial mortgage		2,173		2,173		479		1,825		-
		2,787		2,787		693		3,032		-
	$	4,323	$	5,311	$	693	$	5,144	$	-

⁽¹⁾ Difference between recorded investment and unpaid principal balance represents partial charge-offs.

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 such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:

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.

Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered “uncriticized” or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.

The following table sets forth the Company’s commercial loan portfolio, categorized by internally assigned asset classification, as of December 31 (in thousands):

	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2020
Commercial Business
Uncriticized	$	350,992	$	112,469	$	82,029	$	31,990	$	8,195	$	16,600	$	179,770	$	-	$	782,045
Special mention		-		360		21		709		41		1,025		2,995		-		5,151
Substandard		193		211		1,183		464		202		309		4,390		-		6,952
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	351,185	$	113,040	$	83,233	$	33,163	$	8,438	$	17,934	$	187,155	$	-	$	794,148
Commercial Mortgage
Uncriticized	$	310,364	$	227,406	$	163,839	$	161,771	$	74,915	$	154,399	$	731	$	-	$	1,093,425
Special mention		14,299		42,305		19,505		27,530		12,256		28,744		43		-		144,682
Substandard		189		2,521		1,890		1,648		3		9,344		199		-		15,794
Doubtful		-		-		-		-		-		-		-		-		-
Total	$	324,852	$	272,232	$	185,234	$	190,949	$	87,174	$	192,487	$	973	$	-	$	1,253,901

The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following table sets forth the Company’s retail loan portfolio, categorized by payment status, as of December 31 (in thousands):

	Term Loans Amortized Cost Basis by Origination Year
	2020		2019		2018		2017		2016		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
December 31, 2020
Residential Real Estate Loans
Performing	$	137,926	$	103,923	$	87,153	$	66,446	$	67,473	$	134,292	$	-	$	-	$	597,213
Nonperforming		-		199		765		665		233		725		-		-		2,587
Total	$	137,926	$	104,122	$	87,918	$	67,111	$	67,706	$	135,017	$	-	$	-	$	599,800
Residential Real Estate Lines
Performing	$	-	$	-	$	-	$	-	$	-	$	-	$	79,257	$	10,225	$	89,482
Nonperforming		-		-		-		-		-		-		65		258		323
Total	$	-	$	-	$	-	$	-	$	-	$	-	$	79,322	$	10,483	$	89,805
Consumer Indirect
Performing	$	295,216	$	202,187	$	166,773	$	111,008	$	47,793	$	15,949	$	-	$	-	$	838,926
Nonperforming		70		652		319		287		132		35		-		-		1,495
Total	$	295,286	$	202,839	$	167,092	$	111,295	$	47,925	$	15,984	$	-	$	-	$	840,421
Other Consumer
Performing	$	6,774	$	3,177	$	1,765	$	907	$	369	$	508	$	3,563	$	-	$	17,063
Nonperforming		-		-		-		-		-		-		-		-		-
Total	$	6,774	$	3,177	$	1,765	$	907	$	369	$	508	$	3,563	$	-	$	17,063

The following tables set forth the changes in the allowance for credit losses - loans for the years ended December 31 (in thousands):

	Commercial Business			Commercial Mortgage			Residential Real Estate Loans			Residential Real Estate Lines			Consumer Indirect			Other Consumer			Total
2020
Allowance for credit losses - loans:
Beginning balance, prior to adoption of ASC 326	$	11,358		$	5,681		$	1,059		$	118		$	11,852		$	414		$	30,482
Impact of adopting ASC 326		(246	)		7,310			3,290			607			(1,234	)		(133	)	$	9,594
Beginning balance, after adoption of ASC 326		11,112			12,991			4,349			725			10,618			281			40,076
Charge-offs		(9,093	)		(1,792	)		(100	)		-			(9,959	)		(681	)		(21,625	)
Recoveries		1,709			37			28			3			5,681			352			7,810
Provision (credit)		9,852			10,527			(353	)		(54	)		5,825			362			26,159
Ending balance	$	13,580		$	21,763		$	3,924		$	674		$	12,165		$	314		$	52,420

2019
Allowance for loan losses:
Beginning balance	$	14,312		$	5,219		$	1,112		$	210		$	12,572		$	489		$	33,914
Charge-offs		(2,481	)		(2,997	)		(340	)		(13	)		(10,810	)		(1,170	)		(17,811	)
Recoveries		492			17			43			6			5,390			387			6,335
Provision (credit)		(965	)		3,442			244			(85	)		4,700			708			8,044
Ending balance	$	11,358		$	5,681		$	1,059		$	118		$	11,852		$	414		$	30,482
Evaluated for impairment:
Individually	$	214		$	479		$	-		$	-		$	-		$	-		$	693
Collectively	$	11,144		$	5,202		$	1,059		$	118		$	11,852		$	414		$	29,789

Loans:
Ending balance	$	571,222		$	1,108,315		$	560,717		$	101,048		$	822,179		$	15,984		$	3,179,465
Evaluated for impairment:
Individually	$	1,177		$	3,146		$	-		$	-		$	-		$	-		$	4,323
Collectively	$	570,045		$	1,105,169		$	560,717		$	101,048		$	822,179		$	15,984		$	3,175,142

	Commercial Business			Commercial Mortgage			Residential Mortgage			Home Equity			Consumer Indirect			Other Consumer			Total
2018
Allowance for loan losses:
Beginning balance	$	15,668		$	3,696		$	1,322		$	180		$	13,415		$	391			34,672
Charge-offs		(2,319	)		(1,020	)		(95	)		(142	)		(10,850	)		(1,308	)		(15,734	)
Recoveries		509			13			159			20			5,024			317			6,042
Provision		454			2,530			(274	)		152			4,983			1,089			8,934
Ending balance	$	14,312		$	5,219		$	1,112		$	210		$	12,572		$	489		$	33,914
Evaluated for impairment:
Individually	$	205		$	1		$	-		$	-		$	-		$	-		$	206
Collectively	$	14,107		$	5,218		$	1,112		$	210		$	12,572		$	489		$	33,708

Loans:
Ending balance	$	557,040		$	960,265		$	514,981		$	106,712		$	888,732		$	16,590		$	3,044,320
Evaluated for impairment:
Individually	$	1,044		$	2,034		$	-		$	-		$	-		$	-		$	3,078
Collectively	$	555,996		$	958,231		$	514,981		$	106,712		$	888,732		$	16,590		$	3,041,242

Commercial business loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions, including the impact of the COVID-19 pandemic on small to mid-sized business in our market area, and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, potentially resulting in higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events, including the impact of the COVID-19 pandemic on the ability of the tenants to pay rent at these properties, or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company’s commercial real estate loans and on the value of such properties.

Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines (comprised of home equity lines) are generally made based on the borrower’s ability to make repayment from his or her employment and other income but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, including the impact of the COVID-19 pandemic on the employment income of these borrowers, the characteristics of individual borrowers, and the nature of the loan collateral.

Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances such as job loss, illness or personal bankruptcy, including the heightened risk that such circumstances may arise as a result of the COVID-19 pandemic. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.