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Loans and Allowance for Loan Losses | 9 Months Ended
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Sep. 30, 2020
Accounts, Notes, Loans and Financing Receivable, Gross, Allowance, and Net [Abstract] |
Loans and Allowance for Loan Losses | NOTE 4 – Loans and Allowance for Loan Losses The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $3.6 million as of September 30, 2020 and $3.3 million as of December 31, 2019.
|  | September 30, 2020 |  |  | December 31, 2019 |
(dollars in thousands) |  | Amount |  |  | % of Total |  |  | Amount |  |  | % of Total |
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 419,316 |  |  |  | 20.2 | % |  | $ | 407,851 |  |  |  | 21.0 | %
Non-owner occupied RE |  |  | 570,139 |  |  |  | 27.4 | % |  |  | 501,878 |  |  |  | 25.8 | %
Construction |  |  | 64,063 |  |  |  | 3.1 | % |  |  | 80,486 |  |  |  | 4.1 | %
Business |  |  | 303,760 |  |  |  | 14.6 | % |  |  | 308,123 |  |  |  | 15.9 | %
Total commercial loans |  |  | 1,357,278 |  |  |  | 65.3 | % |  |  | 1,298,338 |  |  |  | 66.8 | %
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 496,684 |  |  |  | 23.9 | % |  |  | 398,245 |  |  |  | 20.5 | %
Home equity |  |  | 161,795 |  |  |  | 7.8 | % |  |  | 179,738 |  |  |  | 9.3 | %
Construction |  |  | 39,355 |  |  |  | 1.9 | % |  |  | 41,471 |  |  |  | 2.1 | %
Other |  |  | 23,428 |  |  |  | 1.1 | % |  |  | 25,733 |  |  |  | 1.3 | %
Total consumer loans |  |  | 721,262 |  |  |  | 34.7 | % |  |  | 645,187 |  |  |  | 33.2 | %
Total gross loans, net of deferred fees |  |  | 2,078,540 |  |  |  | 100.0 | % |  |  | 1,943,525 |  |  |  | 100.0 | %
Less—allowance for loan losses |  |  | (42,219 | ) |  |  |  |  |  |  | (16,642 | ) |  |  |  |
Total loans, net |  | $ | 2,036,321 |  |  |  |  |  |  | $ | 1,926,883 |  |  |  |  |
Maturities and Sensitivity of Loans to Changes in Interest Rates The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.
|  | September 30, 2020
|  |  |  |  |  | After one |  |  |  |  |  |  |  |
|  | One year |  |  | but within |  |  | After five |  |  |  |
(dollars in thousands) |  | or less |  |  | five years |  |  | years |  |  | Total
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 20,585 |  |  |  | 136,345 |  |  |  | 262,386 |  |  |  | 419,316
Non-owner occupied RE |  |  | 47,848 |  |  |  | 312,776 |  |  |  | 209,515 |  |  |  | 570,139
Construction |  |  | 19,699 |  |  |  | 23,221 |  |  |  | 21,143 |  |  |  | 64,063
Business |  |  | 72,291 |  |  |  | 145,878 |  |  |  | 85,591 |  |  |  | 303,760
Total commercial loans |  |  | 160,423 |  |  |  | 618,220 |  |  |  | 578,635 |  |  |  | 1,357,278
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 12,314 |  |  |  | 63,182 |  |  |  | 421,188 |  |  |  | 496,684
Home equity |  |  | 5,339 |  |  |  | 24,279 |  |  |  | 132,177 |  |  |  | 161,795
Construction |  |  | 5,053 |  |  |  | 325 |  |  |  | 33,977 |  |  |  | 39,355
Other |  |  | 6,810 |  |  |  | 12,604 |  |  |  | 4,014 |  |  |  | 23,428
Total consumer loans |  |  | 29,516 |  |  |  | 100,390 |  |  |  | 591,356 |  |  |  | 721,262
Total gross loans, net of deferred fees |  | $ | 189,939 |  |  |  | 718,610 |  |  |  | 1,169,991 |  |  |  | 2,078,540
Loans maturing after one year with: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed interest rates |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,536,279
Floating interest rates |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 352,322
13
|  | December 31, 2019
|  |  |  |  |  | After one |  |  |  |  |  |  |  |
|  | One year |  |  | but within |  |  | After five |  |  |  |
(dollars in thousands) |  | or less |  |  | five years |  |  | years |  |  | Total
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 40,476 |  |  |  | 147,945 |  |  |  | 219,430 |  |  |  | 407,851
Non-owner occupied RE |  |  | 55,187 |  |  |  | 267,879 |  |  |  | 178,812 |  |  |  | 501,878
Construction |  |  | 31,035 |  |  |  | 19,278 |  |  |  | 30,173 |  |  |  | 80,486
Business |  |  | 84,452 |  |  |  | 146,051 |  |  |  | 77,620 |  |  |  | 308,123
Total commercial loans |  |  | 211,150 |  |  |  | 581,153 |  |  |  | 506,035 |  |  |  | 1,298,338
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 16,663 |  |  |  | 82,445 |  |  |  | 299,137 |  |  |  | 398,245
Home equity |  |  | 9,921 |  |  |  | 25,828 |  |  |  | 143,989 |  |  |  | 179,738
Construction |  |  | 13,405 |  |  |  | 1,222 |  |  |  | 26,844 |  |  |  | 41,471
Other |  |  | 6,422 |  |  |  | 15,022 |  |  |  | 4,289 |  |  |  | 25,733
Total consumer |  |  | 46,411 |  |  |  | 124,517 |  |  |  | 474,259 |  |  |  | 645,187
Total gross loan, net of deferred fees |  | $ | 257,561 |  |  |  | 705,670 |  |  |  | 980,294 |  |  |  | 1,943,525
Loans maturing after one year with: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed interest rates |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,310,744
Floating interest rates |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 375,220
Paycheck Protection Program (“PPP”) On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act or the “Act”) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The Small Business Administration (“SBA”) received funding and authority through the Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency. The Act temporarily permits the SBA to guarantee 100% of certain loans under a new program titled the “Paycheck Protection Program” and also provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP. In an effort to assist our clients as best we could through the pandemic, we became an approved SBA lender in March 2020 and processed 853 loans under the PPP for a total of $97.5 million, receiving SBA lender fee income of $3.9 million. As the regulations and guidance for PPP loans and the forgiveness process continued to change and evolve, management recognized the operational risk and complexity associated with this portfolio and decided to pursue the sale of the PPP loan portfolio to a third party better suited to support and serve our PPP clients through the loan forgiveness process. The loan sale allowed our team to focus on serving our clients and proactively monitoring and addressing credit risk brought on by the pandemic. On June 26, 2020, we completed the sale of our PPP loan portfolio to The Loan Source Inc., together with its servicing partner, ACAP SME LLC, and immediately recognized SBA lender fee income of $2.2 million, net of sale and processing costs, which is included in other noninterest income in the consolidated financial statements. Portfolio Segment Methodology Commercial Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. The Company applies historic grade-specific loss factors to each loan class. In the development of statistically derived loan grade loss factors, the Company observes historical losses over 20 quarters for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status. Consumer For consumer loans, the Company determines the allowance on a collective basis utilizing historical losses over 20 quarters to represent its best estimate of inherent loss. The Company pools loans, generally by loan class with similar risk characteristics. The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status. Credit Quality Indicators Commercial We manage a consistent process for assessing commercial loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our risk categories include Pass, Special Mention, Substandard, and Doubtful, each of which is defined by our banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses. We categorize our loans into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows: • Pass—These loans range from minimal credit risk to average credit risk; however, still have acceptable credit risk. 14 • Special mention—A special mention loan has 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 the institution’s credit position at some future date. • Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. • Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status as well as accruing TDRs.
|  | September 30, 2020
|  | Owner |  |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |
(dollars in thousands) |  | occupied RE |  |  | occupied RE |  |  | Construction |  |  | Business |  |  | Total
Current |  | $ | 418,765 |  |  |  | 569,552 |  |  |  | 64,063 |  |  |  | 303,248 |  |  |  | 1,355,628
30-59 days past due |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 475 |  |  |  | 475
60-89 days past due |  |  | - |  |  |  | 355 |  |  |  | - |  |  |  | - |  |  |  | 355
Greater than 90 Days |  |  | 551 |  |  |  | 232 |  |  |  | - |  |  |  | 37 |  |  |  | 820
|  | $ | 419,316 |  |  |  | 570,139 |  |  |  | 64,063 |  |  |  | 303,760 |  |  |  | 1,357,278
|  | December 31, 2019
|  | Owner |  |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |
(dollars in thousands) |  | occupied RE |  |  | occupied RE |  |  | Construction |  |  | Business |  |  | Total
Current |  | $ | 406,594 |  |  |  | 501,676 |  |  |  | 80,486 |  |  |  | 307,710 |  |  |  | 1,296,466
30-59 days past due |  |  | 706 |  |  |  | 151 |  |  |  | - |  |  |  | 178 |  |  |  | 1,035
60-89 days past due |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
Greater than 90 Days |  |  | 551 |  |  |  | 51 |  |  |  | - |  |  |  | 235 |  |  |  | 837
|  | $ | 407,851 |  |  |  | 501,878 |  |  |  | 80,486 |  |  |  | 308,123 |  |  |  | 1,298,338
As of September 30, 2020 and December 31, 2019, loans 30 days or more past due represented 0.26% and 0.23% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.08% and 0.10% of the Company’s total loan portfolio as of September 30, 2020 and December 31, 2019, respectively. The tables below provide a breakdown of outstanding commercial loans by risk category.
|  | September 30, 2020
|  | Owner |  |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |
(dollars in thousands) |  | occupied RE |  |  | occupied RE |  |  | Construction |  |  | Business |  |  | Total
Pass |  | $ | 415,899 |  |  |  | 560,896 |  |  |  | 63,920 |  |  |  | 297,179 |  |  |  | 1,337,894
Special mention |  |  | 359 |  |  |  | 6,078 |  |  |  | - |  |  |  | 2,596 |  |  |  | 9,033
Substandard |  |  | 3,058 |  |  |  | 3,165 |  |  |  | 143 |  |  |  | 3,985 |  |  |  | 10,351
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
|  | $ | 419,316 |  |  |  | 570,139 |  |  |  | 64,063 |  |  |  | 303,760 |  |  |  | 1,357,278
|  | December 31, 2019
|  | Owner |  |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |
(dollars in thousands) |  | occupied RE |  |  | occupied RE |  |  | Construction |  |  | Business |  |  | Total
Pass |  | $ | 404,237 |  |  |  | 492,941 |  |  |  | 80,486 |  |  |  | 301,504 |  |  |  | 1,279,168
Special mention |  |  | 1,312 |  |  |  | 744 |  |  |  | - |  |  |  | 3,108 |  |  |  | 5,164
Substandard |  |  | 2,302 |  |  |  | 8,193 |  |  |  | - |  |  |  | 3,511 |  |  |  | 14,006
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
|  | $ | 407,851 |  |  |  | 501,878 |  |  |  | 80,486 |  |  |  | 308,123 |  |  |  | 1,298,338
15 Consumer The Company manages a consistent process for assessing consumer loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. The Company’s categories include Pass, Special Mention, Substandard, and Doubtful, which are defined above. Delinquency statistics are also an important indicator of credit quality in the establishment of the allowance for loan losses. The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.
|  | September 30, 2020
(dollars in thousands) |  | Real estate |  |  | Home equity |  |  | Construction |  |  | Other |  |  | Total
Current |  | $ | 494,202 |  |  |  | 160,605 |  |  |  | 39,355 |  |  |  | 23,428 |  |  |  | 717,590
30-59 days past due |  |  | 857 |  |  |  | 399 |  |  |  | - |  |  |  | - |  |  |  | 1,256
60-89 days past due |  |  | - |  |  |  | 494 |  |  |  | - |  |  |  | - |  |  |  | 494
Greater than 90 Days |  |  | 1,625 |  |  |  | 297 |  |  |  | - |  |  |  | - |  |  |  | 1,922
|  | $ | 496,684 |  |  |  | 161,795 |  |  |  | 39,355 |  |  |  | 23,428 |  |  |  | 721,262
|  | December 31, 2019
(dollars in thousands) |  | Real estate |  |  | Home equity |  |  | Construction |  |  | Other |  |  | Total
Current |  | $ | 396,445 |  |  |  | 179,051 |  |  |  | 41,471 |  |  |  | 25,650 |  |  |  | 642,617
30-59 days past due |  |  | 799 |  |  |  | 369 |  |  |  | - |  |  |  | 83 |  |  |  | 1,251
60-89 days past due |  |  | - |  |  |  | 118 |  |  |  | - |  |  |  | - |  |  |  | 118
Greater than 90 Days |  |  | 1,001 |  |  |  | 200 |  |  |  | - |  |  |  | - |  |  |  | 1,201
|  | $ | 398,245 |  |  |  | 179,738 |  |  |  | 41,471 |  |  |  | 25,733 |  |  |  | 645,187
Consumer loans 30 days or more past due were 0.18% and 0.13% of total loans as of September 30, 2020 and December 31, 2019, respectively. The tables below provide a breakdown of outstanding consumer loans by risk category.
|  | September 30, 2020
(dollars in thousands) |  | Real estate |  |  | Home equity |  |  | Construction |  |  | Other |  |  | Total
Pass |  | $ | 489,923 |  |  |  | 156,496 |  |  |  | 39,355 |  |  |  | 23,287 |  |  |  | 709,061
Special mention |  |  | 2,182 |  |  |  | 1,351 |  |  |  | - |  |  |  | 107 |  |  |  | 3,640
Substandard |  |  | 4,579 |  |  |  | 3,948 |  |  |  | - |  |  |  | 34 |  |  |  | 8,561
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
|  | $ | 496,684 |  |  |  | 161,795 |  |  |  | 39,355 |  |  |  | 23,428 |  |  |  | 721,262
|  | December 31, 2019
(dollars in thousands) |  | Real estate |  |  | Home equity |  |  | Construction |  |  | Other |  |  | Total
Pass |  | $ | 392,572 |  |  |  | 176,532 |  |  |  | 41,471 |  |  |  | 25,421 |  |  |  | 635,996
Special mention |  |  | 2,267 |  |  |  | 775 |  |  |  | - |  |  |  | 261 |  |  |  | 3,303
Substandard |  |  | 3,406 |  |  |  | 2,431 |  |  |  | - |  |  |  | 51 |  |  |  | 5,888
Doubtful |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
|  | $ | 398,245 |  |  |  | 179,738 |  |  |  | 41,471 |  |  |  | 25,733 |  |  |  | 645,187
Nonperforming assets The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when the Company believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. 16 Following is a summary of our nonperforming assets, including nonaccruing TDRs.
(dollars in thousands) |  | September 30, 2020 |  |  | December 31, 2019 |
Commercial |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | - |  |  |  | - |
Non-owner occupied RE |  |  | 1,059 |  |  |  | 188 |
Construction |  |  | 143 |  |  |  | - |
Business |  |  | 201 |  |  |  | 235 |
Consumer |  |  |  |  |  |  |  |
Real estate |  |  | 2,518 |  |  |  | 1,829 |
Home equity |  |  | 632 |  |  |  | 431 |
Construction |  |  | - |  |  |  | - |
Other |  |  | - |  |  |  | - |
Nonaccruing troubled debt restructurings |  |  | 4,198 |  |  |  | 4,111 |
Total nonaccrual loans, including nonaccruing TDRs |  |  | 8,751 |  |  |  | 6,794 |
Other real estate owned |  |  | 1,684 |  |  |  | - |
Total nonperforming assets |  | $ | 10,435 |  |  |  | 6,794 |
Nonperforming assets as a percentage of: |  |  |  |  |  |  |  |
Total assets |  |  | 0.42 | % |  |  | 0.30 | %
Gross loans |  |  | 0.50 | % |  |  | 0.35 | %
Total loans over 90 days past due |  | $ | 2,742 |  |  |  | 2,038 |
Loans over 90 days past due and still accruing |  |  | - |  |  |  | - |
Accruing troubled debt restructurings |  |  | 5,277 |  |  |  | 5,219 |
Impaired Loans The table below summarizes key information for impaired loans. The Company’s impaired loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans may have estimated impairment which is included in the allowance for loan losses. The Company’s commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.
|  |  |  |  |  | September 30, 2020
|  |  |  |  |  | Recorded investment |  |  |  |
|  |  |  |  |  |  |  |  |  | Impaired loans |  |  | Impaired loans |  |  |  |
|  | Unpaid |  |  |  |  |  |  | with no related |  |  | with related |  |  | Related
|  | Principal |  |  | Impaired |  |  | allowance for |  |  | allowance for |  |  | allowance for
(dollars in thousands) |  | Balance |  |  | loans |  |  | loan losses |  |  | loan losses |  |  | loan losses
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,316 |  |  |  | 2,296 |  |  |  | 1,843 |  |  |  | 453 |  |  |  | 92
Non-owner occupied RE |  |  | 3,114 |  |  |  | 2,143 |  |  |  | 610 |  |  |  | 1,533 |  |  |  | 455
Construction |  |  | 143 |  |  |  | 143 |  |  |  | 143 |  |  |  | - |  |  |  | -
Business |  |  | 2,919 |  |  |  | 2,483 |  |  |  | 281 |  |  |  | 2,202 |  |  |  | 910
Total commercial |  |  | 8,492 |  |  |  | 7,065 |  |  |  | 2,877 |  |  |  | 4,188 |  |  |  | 1,457
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 4,206 |  |  |  | 4,031 |  |  |  | 3,152 |  |  |  | 879 |  |  |  | 75
Home equity |  |  | 2,982 |  |  |  | 2,794 |  |  |  | 2,439 |  |  |  | 355 |  |  |  | 252
Construction |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
Other |  |  | 138 |  |  |  | 138 |  |  |  | - |  |  |  | 138 |  |  |  | 18
Total consumer |  |  | 7,326 |  |  |  | 6,963 |  |  |  | 5,591 |  |  |  | 1,372 |  |  |  | 345
Total |  | $ | 15,818 |  |  |  | 14,028 |  |  |  | 8,468 |  |  |  | 5,560 |  |  |  | 1,802
17
|  |  |  |  |  | December 31, 2019
|  |  |  |  |  | Recorded investment |  |  |  |
|  |  |  |  |  |  |  |  |  | Impaired loans |  |  | Impaired loans |  |  |  |
|  | Unpaid |  |  |  |  |  |  | with no related |  |  | with related |  |  | Related
|  | Principal |  |  | Impaired |  |  | allowance for |  |  | allowance for |  |  | allowance for
(dollars in thousands) |  | Balance |  |  | loans |  |  | loan losses |  |  | loan losses |  |  | loan losses
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,791 |  |  |  | 2,726 |  |  |  | 2,270 |  |  |  | 456 |  |  |  | 75
Non-owner occupied RE |  |  | 4,512 |  |  |  | 4,051 |  |  |  | 2,419 |  |  |  | 1,632 |  |  |  | 465
Construction |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
Business |  |  | 1,620 |  |  |  | 1,531 |  |  |  | 558 |  |  |  | 973 |  |  |  | 452
Total commercial |  |  | 8,923 |  |  |  | 8,308 |  |  |  | 5,247 |  |  |  | 3,061 |  |  |  | 992
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 2,727 |  |  |  | 2,720 |  |  |  | 1,638 |  |  |  | 1,082 |  |  |  | 364
Home equity |  |  | 885 |  |  |  | 838 |  |  |  | 459 |  |  |  | 379 |  |  |  | 66
Construction |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
Other |  |  | 147 |  |  |  | 147 |  |  |  | - |  |  |  | 147 |  |  |  | 16
Total consumer |  |  | 3,759 |  |  |  | 3,705 |  |  |  | 2,097 |  |  |  | 1,608 |  |  |  | 446
Total |  | $ | 12,682 |  |  |  | 12,013 |  |  |  | 7,344 |  |  |  | 4,669 |  |  |  | 1,438
The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.
|  | Three months ended September 30, 2020 |  |  |  | Three months ended September 30, 2019
|  | Average |  |  | Recognized |  |  | Average |  |  | Recognized
|  | recorded |  |  | interest |  |  | recorded |  |  | interest
(dollars in thousands) |  | investment |  |  | income |  |  | investment |  |  | income
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,985 |  |  |  | 40 |  |  |  | 2,728 |  |  |  | 27
Non-owner occupied RE |  |  | 3,880 |  |  |  | 63 |  |  |  | 4,077 |  |  |  | 74
Construction |  |  | 72 |  |  |  | 2 |  |  |  | - |  |  |  | -
Business |  |  | 2,506 |  |  |  | 51 |  |  |  | 1,738 |  |  |  | 14
Total commercial |  |  | 9,443 |  |  |  | 156 |  |  |  | 8,543 |  |  |  | 115
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 3,063 |  |  |  | 58 |  |  |  | 2,876 |  |  |  | 30
Home equity |  |  | 2,540 |  |  |  | 22 |  |  |  | 1,668 |  |  |  | 30
Construction |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
Other |  |  | 139 |  |  |  | 1 |  |  |  | 151 |  |  |  | 2
Total consumer |  |  | 5,742 |  |  |  | 81 |  |  |  | 4,695 |  |  |  | 62
Total |  | $ | 15,185 |  |  |  | 237 |  |  |  | 13,238 |  |  |  | 177
|  | Nine months ended |  |  |  | Nine months ended |  |  |  | Year ended
|  | September 30, 2020 |  |  |  | September 30, 2019 |  |  |  | December 31, 2019
|  | Average |  |  | Recognized |  |  | Average |  |  | Recognized |  |  | Average |  |  | Recognized
|  | recorded |  |  | interest |  |  | recorded |  |  | interest |  |  | recorded |  |  | interest
(dollars in thousands) |  | investment |  |  | income |  |  | investment |  |  | income |  |  | investment |  |  | income
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,617 |  |  |  | 73 |  |  |  | 2,742 |  |  |  | 96 |  |  |  | 2,739 |  |  |  | 128
Non-owner occupied RE |  |  | 4,724 |  |  |  | 165 |  |  |  | 4,139 |  |  |  | 202 |  |  |  | 4,161 |  |  |  | 255
Construction |  |  | 36 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
Business |  |  | 2,270 |  |  |  | 98 |  |  |  | 1,766 |  |  |  | 61 |  |  |  | 1,582 |  |  |  | 79
Total commercial |  |  | 9,647 |  |  |  | 338 |  |  |  | 8,647 |  |  |  | 359 |  |  |  | 8,482 |  |  |  | 462
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 3,207 |  |  |  | 98 |  |  |  | 3,062 |  |  |  | 97 |  |  |  | 2,771 |  |  |  | 131
Home equity |  |  | 2,067 |  |  |  | 39 |  |  |  | 1,688 |  |  |  | 82 |  |  |  | 853 |  |  |  | 42
Construction |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | -
Other |  |  | 143 |  |  |  | 3 |  |  |  | 154 |  |  |  | 4 |  |  |  | 153 |  |  |  | 5
Total consumer |  |  | 5,417 |  |  |  | 140 |  |  |  | 4,904 |  |  |  | 183 |  |  |  | 3,777 |  |  |  | 178
Total |  | $ | 15,064 |  |  |  | 478 |  |  |  | 13,551 |  |  |  | 542 |  |  |  | 12,259 |  |  |  | 640
Allowance for Loan Losses The allowance for loan loss is management’s estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. 18 The Company has an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in the portfolio. While the Company attributes portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The Company’s process involves procedures to appropriately consider the unique risk characteristics of the commercial and consumer loan portfolio segments. For each portfolio segment, impairment is measured individually for each impaired loan. The Company’s allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions. The following table summarizes the activity related to the allowance for loan losses by commercial and consumer portfolio segments:
|  | Three months ended September 30, 2020
|  | Commercial |  |  | Consumer |  |
|  | Owner |  |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | occupied |  |  | occupied |  |  |  |  |  |  |  |  |  | Real |  |  | Home |  |  |  |  |  |  |  |  |  |  |  |  |
(dollars in thousands) |  | RE |  |  | RE |  |  | Construction |  |  | Business |  |  | Estate |  |  | equity |  |  | Construction |  |  | Other |  |  | Total |
Balance, beginning of period |  | $ | 5,800 |  |  |  | 8,791 |  |  |  | 977 |  |  |  | 5,841 |  |  |  | 6,538 |  |  |  | 2,641 |  |  |  | 615 |  |  |  | 399 |  |  |  | 31,602 |
Provision for loan losses |  |  | 2,105 |  |  |  | 2,461 |  |  |  | 217 |  |  |  | 2,274 |  |  |  | 2,936 |  |  |  | 850 |  |  |  | 87 |  |  |  | 170 |  |  |  | 11,100 |
Loan charge-offs |  |  | - |  |  |  | (375 | ) |  |  | - |  |  |  | (564 | ) |  |  | - |  |  |  | (100 | ) |  |  | - |  |  |  | (25 | ) |  |  | (1,064 | )
Loan recoveries |  |  | - |  |  |  | 554 |  |  |  | - |  |  |  | 14 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | 11 |  |  |  | 581 |
Net loan charge-offs |  |  | - |  |  |  | 179 |  |  |  | - |  |  |  | (550 | ) |  |  | 2 |  |  |  | (100 | ) |  |  | - |  |  |  | (14 | ) |  |  | (483 | )
Balance, end of period |  | $ | 7,905 |  |  |  | 11,431 |  |  |  | 1,194 |  |  |  | 7,565 |  |  |  | 9,476 |  |  |  | 3,391 |  |  |  | 702 |  |  |  | 555 |  |  |  | 42,219 |
Net charge-offs to average loans (annualized) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.09 | %
Allowance for loan losses to gross loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2.03 | %
Allowance for loan losses to nonperforming loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 482.43 | %
|  | Three months ended September 30, 2019
|  | Commercial |  | Consumer |  |  |  |
(dollars in thousands) |  | Owner occupied RE |  | Non-owner occupied RE |  | Construction |  | Business |  | Real Estate |  | Home equity |  | Construction |  |  | Other |  | Total
Balance, beginning of period |  | $ | 2,808 |  |  |  | 4,016 |  |  |  | 569 |  |  |  | 3,623 |  |  |  | 3,104 |  |  |  | 1,409 |  |  |  | 318 |  |  |  | 297 |  |  |  | 16,144 |
Provision for loan losses |  |  | (75 | ) |  |  | 237 |  |  |  | (63 | ) |  |  | 588 |  |  |  | (93 | ) |  |  | 14 |  |  |  | 8 |  |  |  | 34 |  |  |  | 650 |
Loan charge-offs |  |  | - |  |  |  | (225 | ) |  |  | - |  |  |  | (709 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (29 | ) |  |  | (963 | )
Loan recoveries |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8 |  |  |  | 7 |  |  |  | 1 |  |  |  | - |  |  |  | 1 |  |  |  | 17 |
Net loan charge-offs |  |  | - |  |  |  | (225 | ) |  |  | - |  |  |  | (701 | ) |  |  | 7 |  |  |  | 1 |  |  |  | - |  |  |  | (28 | ) |  |  | (946 | )
Balance, end of period |  | $ | 2,733 |  |  |  | 4,028 |  |  |  | 506 |  |  |  | 3,510 |  |  |  | 3,018 |  |  |  | 1,424 |  |  |  | 326 |  |  |  | 303 |  |  |  | 15,848 |
Net charge-offs to average loans (annualized) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.21 | %
Allowance for loan losses to gross loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.86 | %
Allowance for loan losses to nonperforming loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 225.51 | %
|  | Nine months ended September 30, 2020
|  | Commercial |  |  | Consumer |  |  |  |
(dollars in thousands) |  | Owner occupied RE |  |  | Non-owner occupied RE |  |  | Construction |  |  | Business |  |  | Real Estate |  | Home equity |  | Construction |  |  |  | Other |  | Total
Balance, beginning of period |  | $ | 2,835 |  |  |  | 4,304 |  |  |  | 541 |  |  |  | 3,692 |  |  |  | 3,278 |  |  |  | 1,447 |  |  |  | 268 |  |  |  | 277 |  |  |  | 16,642 |
Provision for loan losses |  |  | 5,070 |  |  |  | 8,081 |  |  |  | 653 |  |  |  | 4,562 |  |  |  | 6,187 |  |  |  | 1,976 |  |  |  | 434 |  |  |  | 337 |  |  |  | 27,300 |
Loan charge-offs |  |  | - |  |  |  | (1,508 | ) |  |  | - |  |  |  | (735 | ) |  |  | - |  |  |  | (100 | ) |  |  | - |  |  |  | (70 | ) |  |  | (2,413 | )
Loan recoveries |  |  | - |  |  |  | 554 |  |  |  | - |  |  |  | 46 |  |  |  | 11 |  |  |  | 68 |  |  |  | - |  |  |  | 11 |  |  |  | 690 |
Net loan charge-offs |  |  | - |  |  |  | (954 | ) |  |  | - |  |  |  | (689 | ) |  |  | 11 |  |  |  | (32 | ) |  |  | - |  |  |  | (59 | ) |  |  | (1,723 | )
Balance, end of period |  | $ | 7,905 |  |  |  | 11,431 |  |  |  | 1,194 |  |  |  | 7,565 |  |  |  | 9,476 |  |  |  | 3,391 |  |  |  | 702 |  |  |  | 555 |  |  |  | 42,219 |
Net charge-offs to average loans (annualized) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.11 | %
|  | Nine months ended September 30, 2019
|  | Commercial |  |  | Consumer |  |  |  |
|  | Owner occupied RE |  | Non-owner occupied RE |  | Construction |  |  | Business |  | Real Estate |  |  | Home equity |  | Construction |  |  | Other |  | Total
Balance, beginning of period |  | $ | 2,726 |  |  |  | 3,811 |  |  |  | 615 |  |  |  | 3,616 |  |  |  | 3,081 |  |  |  | 1,348 |  |  |  | 275 |  |  |  | 290 |  |  |  | 15,762 |
Provision for loan losses |  |  | 117 |  |  |  | 454 |  |  |  | (109 | ) |  |  | 577 |  |  |  | (99 | ) |  |  | 174 |  |  |  | 51 |  |  |  | 85 |  |  |  | 1,250 |
Loan charge-offs |  |  | (110 | ) |  |  | (239 | ) |  |  | - |  |  |  | (709 | ) |  |  | - |  |  |  | (100 | ) |  |  | - |  |  |  | (82 | ) |  |  | (1,240 | )
Loan recoveries |  |  | - |  |  |  | 2 |  |  |  | - |  |  |  | 26 |  |  |  | 36 |  |  |  | 2 |  |  |  | - |  |  |  | 10 |  |  |  | 76 |
Net loan charge-offs |  |  | (110 | ) |  |  | (237 | ) |  |  | - |  |  |  | (683 | ) |  |  | 36 |  |  |  | (98 | ) |  |  | - |  |  |  | (72 | ) |  |  | (1,164 | )
Balance, end of period |  | $ | 2,733 |  |  |  | 4,028 |  |  |  | 506 |  |  |  | 3,510 |  |  |  | 3,018 |  |  |  | 1,424 |  |  |  | 326 |  |  |  | 303 |  |  |  | 15,848 |
Net charge-offs to average loans (annualized) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.09 | %
The following table disaggregates the allowance for loan losses and recorded investment in loans by impairment methodology.
|  | September 30, 2020
|  | Allowance for loan losses |  | Recorded investment in loans
(dollars in thousands) |  | Commercial |  | Consumer |  | Total |  | Commercial |  | Consumer |  | Total
Individually evaluated |  | $ | 1,457 |  | 345 |  | 1,802 |  | 7,065 |  | 6,963 |  | 14,028
Collectively evaluated |  |  | 26,638 |  | 13,779 |  | 40,417 |  | 1,350,213 |  | 714,299 |  | 2,064,512
Total |  | $ | 28,095 |  | 14,124 |  | 42,219 |  | 1,357,278 |  | 721,262 |  | 2,078,540
|  | December 31, 2019
|  | Allowance for loan losses |  | Recorded investment in loans
(dollars in thousands) |  | Commercial |  | Consumer |  | Total |  | Commercial |  | Consumer |  | Total
Individually evaluated |  | $ | 992 |  | 446 |  | 1,438 |  | 8,308 |  | 3,705 |  | 12,013
Collectively evaluated |  |  | 10,380 |  | 4,824 |  | 15,204 |  | 1,290,030 |  | 641,482 |  | 1,931,512
Total |  | $ | 11,372 |  | 5,270 |  | 16,642 |  | 1,298,338 |  | 645,187 |  | 1,943,525

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 + Details
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