10. Non-Performing Assets Including Troubled Debt Restructurings (TDR)

The following table presents information concerning non-performing assets including TDR (in thousands, except percentages):


	September 30, 2020			December 31, 2019
Non-accrual loans:
Commercial and industrial	$	20		$	—
Commercial loans secured by non-owner occupied real estate		8			8
Real estate – residential mortgage		1,696			1,479
Total		1,724			1,487

Other real estate owned:
Real estate – residential mortgage		40			37
Total		40			37

TDR’s not in non-accrual:
Commercial and industrial		839			815
Total		839			815
Total non-performing assets including TDR	$	2,603		$	2,339
Total non-performing assets as a percent of loans, net of unearned income, and other real estate owned		0.27	%		0.26	%

The Company had no loans past due 90 days or more for the periods presented which were accruing interest.

The following table sets forth, for the periods indicated, (1) the gross interest income that would have been recorded if non-accrual loans had been current in accordance with their original terms and had been outstanding throughout the period or since origination if held for part of the period, (2) the amount of interest income actually recorded on such loans, and (3) the net reduction in interest income attributable to such loans (in thousands).


	Three months ended				Nine months ended
	September 30,				September 30,
	2020		2019		2020		2019
Interest income due in accordance with original terms	$	22	$	14	$	60	$	43
Interest income recorded		—		—		—		—
Net reduction in interest income	$	22	$	14	$	60	$	43

Consistent with accounting and regulatory guidance, the Bank recognizes a TDR when the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not normally be considered. Regardless of the form of concession granted, the Bank’s objective in offering a TDR is to increase the probability of repayment of the borrower’s loan.

The following table details the loan modified as a TDR during the three month period ending September 30, 2020 (dollars in thousands).


Loans in accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	47	Extension of maturity date with a below market interest rate

The following table details the loans modified as TDR’s during the nine month period ended September 30, 2020 (dollars in thousands).


Loans in accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	750	Subsequent modification of a TDR - Extension of maturity date with a below market interest rate
Commercial and industrial	1		47	Extension of maturity date with a below market interest rate

The following table details the loan modified as a TDR during the three month period ended September 30, 2019 (dollars in thousands).


Loans in accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	1	$	70	Extension of maturity date with a below market interest rate

The following table details the loans modified as TDR’s during the nine month period ended September 30, 2019 (dollars in thousands).


Loans in accrual status	# of Loans	Current Balance		Concession Granted
Commercial and industrial	2	$	820	Extension of maturity date with a below market interest rate

All TDRs are individually evaluated for impairment and a related allowance is recorded, as needed. The specific ALL reserve for loans modified as TDRs was $104,000 and $92,000 as of September 30, 2020 and December 31, 2019, respectively.

The Company had no loans that were classified as TDRs or were subsequently modified during each 12-month period prior to the current reporting periods, which begin January 1, 2019 and 2018 (nine month periods) and July 1, 2019 and 2018 (three month periods), respectively, and that subsequently defaulted during these reporting periods.

The Company is unaware of any additional loans which are required to either be charged-off or added to the non-performing asset totals disclosed above.

Loan Modifications Related to COVID-19

Under section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 modifications. A financial institution can then suspend the requirements under GAAP for loan modifications related to COVID-19 that would otherwise be categorized as a TDR, and suspend any determination of a loan modified as a result of COVID-19 as being a TDR, including the requirement to determine impairment for accounting purposes and reporting the loan as past due. Financial institutions wishing to utilize this authority must make a policy election, which applies to any COVID-19 modification made between March 1, 2020 and the earlier of either December 31, 2020 or the 60th day after the end of the COVID-19 national emergency so long as the loan was current on payments as of December 31, 2019. Similarly, the Financial Accounting Standards Board has confirmed that short-term modifications made on a good-faith basis in response to COVID-19 to loan customers who were current prior to any relief are not TDRs.

In response to the COVID-19 pandemic, the Company has prudently executed loan modifications for existing loan customers. The following table presents information comparing loans which were subject to a loan modification related to COVID-19, as of September 30, 2020 and June 30, 2020. Note that the percentage of outstanding loans presented below was calculated based on loan totals excluding PPP loans. Management believes that this method more accurately reflects the concentration of COVID-19 related modifications within the loan portfolio.


	At September 30, 2020				At June 30, 2020
			% of Outstanding				% of Outstanding
	Balance		Non-PPP Loans		Balance		Non-PPP Loans
	(in thousands)				(in thousands)
CRE/Commercial	$	140,132	21.8	%	$	190,276	30.4	%
Home Equity/Consumer		160	0.2			5,890	6.0
Residential Mortgage		4,069	2.9			3,839	2.8
Total	$	144,361	16.4		$	200,005	23.2

The balance of loan modifications related to COVID-19 at September 30, 2020 represents a decrease of $55.6 million, or 27.8%, from the balance of loans modified for COVID-19 reported in the second quarter 2020 10-Q which totaled $200 million. Additionally, the balance of loan modifications related to COVID-19 decreased further as of October 31, 2020 and totaled $80.9 million. This represents a decrease of $63.4 million, or 43.9%, from the September 30, 2020 balance. As a result of these loan modifications, the Company has recorded $2.4 million of accrued interest income that has not been received as of September 30, 2020.

Requested modifications primarily consist of the deferral of principal and/or interest payments for a period of three to six months and maturity date extensions. The following table presents the composition of the types of payment relief that have been granted.


	At September 30, 2020			At June 30, 2020
	Number of Loans	Balance		Number of Loans	Balance
		(in thousands)			(in thousands)
Type of Payment Relief
Interest only payments	67	$	74,680	83	$	87,881
Complete payment deferrals	127		69,681	296		103,378
Maturity date extensions	—		—	4		8,746
Total	194	$	144,361	383	$	200,005

Management is carefully monitoring asset quality with a particular focus on customers that have requested payment deferrals during this difficult economic time. The Asset Quality Task Force is meeting monthly to review these particular relationships, receiving input from the business lenders regarding their ongoing discussions with the borrowers. It is expected that a significant number of the remaining loans with payment modifications will return to normal payment status during the fourth quarter of 2020. Deferral extension requests will be considered based upon the customer’s needs and their impacted industry, borrower and guarantor capacity to service debt, and current as well as any additional regulatory guidance. As of September 30, 2020, the Company has granted one deferral extension request related to a $2.5 million commercial real estate loan within the hotel industry. The additional deferral period, three months of principal and interest payments, was approved in conjunction with an SBA program that will allow the borrower to receive payment relief on a separate SBA 504 Debenture which holds a second lien position on the collateral securing the Company’s loan. In order to properly reflect the increased credit risk, the loan has been downgraded into the special mention risk rating.