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Loans

9 Months Ended

Sep. 30, 2021

8. Loans

The loan portfolio of the Company consists of the following (in thousands):


	September 30, 2021		December 31, 2020
Commercial:
Commercial and industrial	$	136,891	$	151,162
Paycheck Protection Program (PPP)		29,260		58,344
Commercial loans secured by owner occupied real estate		100,028		95,486
Commercial loans secured by non-owner occupied real estate		432,529		400,751
Real estate − residential mortgage		281,711		249,989
Consumer		15,610		16,363
Loans, net of unearned income	$	996,029	$	972,095

Loan balances at September 30, 2021 and December 31, 2020 are net of unearned income of $1,062,000 and $1,202,000, respectively. The unearned income balance at September 30, 2021 includes $602,000 of unrecognized fee income from the PPP loan originations compared to $755,000 at December 31, 2020. Real estate construction loans comprised 5.9% and 7.0% of total loans, net of unearned income at September 30, 2021 and December 31, 2020, respectively.

The ongoing COVID-19 pandemic is a fluid situation and continues to evolve, impacting the way many businesses operate. The pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, and consumer spending has resulted in less economic activity and significant volatility and disruption. Certain loans within our commercial and commercial real estate portfolios have been disproportionately adversely affected by the pandemic. Due to mandatory lockdowns and travel restrictions, certain industries, such as hospitality, travel, food service and restaurants and bars, have suffered as a result of COVID-19. The following table provides information regarding our potential COVID-19 risk concentrations for commercial and commercial real estate loans by industry type at September 30, 2021 and December 31, 2020 (in thousands).

September 30, 2021

Paycheck

Commercial loans

Commercial

Protection

secured by owner

secured by non-owner

and industrial

Program

occupied real estate

Total

1-4 unit residential

1,291

—

7,266

8,655

Multifamily/apartments/student housing

—

120

76,341

76,461

Office

31,051

965

9,184

33,486

74,686

Retail

11,993

487

20,733

144,603

177,816

Industrial/manufacturing/warehouse

77,770

12,674

21,279

44,816

156,539

Hotels

197

1,764

—

42,420

44,381

Eating and drinking places

555

8,544

4,269

1,785

15,153

Amusement and recreation

109

7,706

7,891

Mixed use

—

3,271

61,281

64,552

Other

13,925

4,769

33,368

20,512

72,574

Total

136,891

29,260

100,028

432,529

698,708


	December 31, 2020
			Paycheck		Commercial loans		Commercial loans
	Commercial		Protection		secured by owner		secured by non-owner
	and industrial		Program		occupied real estate		occupied real estate		Total
1-4 unit residential	$	1,450	$	—	$	105	$	6,139	$	7,694
Multifamily/apartments/student housing		—		—		469		66,879		67,348
Office		33,525		6,872		10,095		37,164		87,656
Retail		8,080		1,542		21,180		124,325		155,127
Industrial/manufacturing/warehouse		87,021		26,222		18,255		38,814		170,312
Hotels		329		837		—		41,779		42,945
Eating and drinking places		769		13,479		4,390		1,925		20,563
Amusement and recreation		190		46		3,307		38		3,581
Mixed use		—		—		2,411		65,585		67,996
Other		19,798		9,346		35,274		18,103		82,521
Total	$	151,162	$	58,344	$	95,486	$	400,751	$	705,743

Paycheck Protection Program

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provides emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act and subsequent legislation authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) program called the Paycheck Protection Program (PPP). As a qualified SBA lender, the Company was automatically authorized to originate PPP loans.

An eligible business could apply for a PPP loan up to the lesser of: (1) 2.5 times its average monthly payroll costs; or (2) $10.0 million. PPP loans have: (a) an interest rate of 1.0%; (b) a two-year (if originated prior to June 5, 2020) or five-year (if originated after June 5, 2020) loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers pursuant to standards as defined by the SBA. The entire principal amount of the borrower’s PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and at least 60% of the loan proceeds are used for payroll expenses, with the remaining loan proceeds being used for other qualifying expenses such as interest on mortgages, rent, and utilities.

In addition, PPP allows certain eligible borrowers that previously received a PPP loan to apply for a second draw loan with the same general loans terms described above. The maximum loan amount of a second draw PPP loan is 2.5 times, or 3.5 times for borrowers within the hospitality industry, the average monthly 2019 or 2020 payroll costs up to $2.0 million. Eligibility for a second draw PPP loan is based on the following criteria: (a) borrower previously received a first draw PPP loan and used the full amount for only authorized expenditures; (b) borrower has 300 or less employees; and (c) borrower can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. The PPP loan program expired on May 31, 2021 for originating new loans.

As of September 30, 2021, the Company had 208 PPP loans outstanding totaling $29.3 million and has recorded a total of $273,000 and $1.9 million of processing fee income and interest income from PPP lending activity in the third quarter and first nine months of 2021, respectively. Also, there is approximately $602,000 of PPP processing fees that will be amortized into income over the time period that the loans remain on our balance sheet or until the PPP loan is forgiven, at which time the remaining fee will be recognized immediately as income.