¹Purchased Credit Impaired loans (“PCI loans”) are loans with evidence of credit deterioration at purchase.

For purposes of the disclosures required pursuant to the adoption of ASC 310, the loan portfolio was disaggregated into segments. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are five loan portfolio segments that include commercial real estate, consumer real estate, construction and land development, commercial and industrial, and consumer and other.

As previously mentioned in Note 1 – Presentation of Financial Information, the CARES Act established the PPP, administered directly by the SBA. The PPP provides loans of up to $10 million to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll

(including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during the COVID-19 emergency. PPP loans carry an interest rate of one percent, and a maturity of two or five years. These loans are fully guaranteed by the SBA and are not included in the Company’s loan loss allowance calculations. The loans may be eligible for forgiveness by the SBA to the extent that the proceeds are used to cover eligible payroll costs, interest costs, rent, and utility costs over a period of up to 24 weeks after the loan is made as long as certain conditions are met regarding employee retention and compensation levels. PPP loans deemed eligible for forgiveness by the SBA will be repaid by the SBA to the Company. The SBA pays the Company fees for processing PPP loans in the following amounts: (1) five percent for loans of not more than $350,000; (2) three percent for loans of more than $350,000 and less than $2,000,000; and (3) one percent for loans of at least $2,000,000. These processing fees are accounted for as loan origination fees and recognized over the contractual loan term as a yield adjustment on the loans. PPP loans are included in the Commercial and Industrial loan class. As of September 30, 2020, the Company had approximately 2,950 PPP loans outstanding, with an outstanding principal balance of $300.8 million.

The composition of loans by loan classification for impaired and performing loan status is summarized in the tables below (in thousands):


					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
	Real Estate		Real Estate		Development		Industrial		and Other		Total
September 30, 2020:
Performing loans	$	1,013,631	$	428,514	$	268,763	$	643,581	$	13,339	$	2,367,828
Impaired loans		551		995		—		600		—		2,146
		1,014,182		429,509		268,763		644,181		13,339		2,369,974
PCI loans		16,469		10,801		6,409		317		87		34,083
Total loans	$	1,030,651	$	440,310	$	275,172	$	644,498	$	13,426	$	2,404,057

December 31, 2019:
Performing loans	$	889,795	$	409,394	$	222,621	$	336,508	$	9,577	$	1,867,895
Impaired loans		256		1,547		547		160		—		2,510
		890,051		410,941		223,168		336,668		9,577		1,870,405
PCI loans		15,255		6,541		4,458		407		326		26,987
Total loans	$	905,306	$	417,482	$	227,626	$	337,075	$	9,903	$	1,897,392

The following tables show the allowance for loan losses allocation by loan classification for impaired, PCI, and performing loans (in thousands):


					Construction		Commercial		Consumer
	Commercial		Consumer		and Land		and		and
	Real Estate		Real Estate		Development		Industrial		Other		Total
September 30, 2020:
Performing loans	$	7,729	$	3,366	$	2,060	$	5,055	$	121	$	18,331
Impaired loans		—		78		—		408		—		486
		7,729		3,444		2,060		5,463		121		18,817
PCI loans		—		—		—		—		—		—
Total loans	$	7,729	$	3,444	$	2,060	$	5,463	$	121	$	18,817

December 31, 2019:
Performing loans	$	4,491	$	2,159	$	1,127	$	1,766	$	69	$	9,612
Impaired loans		—		343		—		132		—		475
		4,491		2,502		1,127		1,898		69		10,087
PCI loans		17		74		—		59		6		156
Total loans	$	4,508	$	2,576	$	1,127	$	1,957	$	75	$	10,243

The following tables detail the changes in the allowance for loan losses by loan classification (in thousands):


	Three Months Ended September 30, 2020
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	6,595	$	3,313	$	1,795	$	4,443	$	108	$	16,254
Charged-off loans		—		(21)		—		(60)		(89)		(170)
Recoveries of charge-offs		11		17		—		55		16		99
Provision (reallocation) charged to expense		1,123		135		265		1,025		86		2,634
Ending balance	$	7,729	$	3,444	$	2,060	$	5,463	$	121	$	18,817


	Three Months Ended September 30, 2019
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	4,102	$	2,189	$	946	$	1,746	$	114	$	9,097
Charged-off loans		(36)		(1)		—		(20)		(50)		(107)
Recoveries of charge-offs		39		17		3		12		7		78
Provision (reallocation) charged to expense		155		65		94		410		—		724
Ending balance	$	4,260	$	2,270	$	1,043	$	2,148	$	71	$	9,792


	Nine Months Ended September 30, 2020
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	4,508	$	2,576	$	1,127	$	1,957	$	75	$	10,243
Loans charged-off		—		(23)		—		(77)		(231)		(331)
Recoveries of loans charged-off		16		34		2		103		67		222
Provision (reallocation) charged to expense		3,205		857		931		3,480		210		8,683
Ending balance	$	7,729	$	3,444	$	2,060	$	5,463	$	121	$	18,817


	Nine Months Ended September 30, 2019
			Consumer		Construction		Commercial
	Commercial		Real		and Land		and		Consumer
	Real Estate		Estate		Development		Industrial		and Other		Total
Beginning balance	$	3,639	$	1,789	$	795	$	1,746	$	306	$	8,275
Loans charged-off		(36)		(3)		—		(353)		(260)		(652)
Recoveries of loans charged-off		63		37		7		66		82		255
Provision (reallocation) charged to expense		594		447		241		689		(57)		1,914
Ending balance	$	4,260	$	2,270	$	1,043	$	2,148	$	71	$	9,792

We maintain the allowance at a level that we deem appropriate to adequately cover the probable losses inherent in the loan portfolio. Our provision for loan losses for the nine months ended September 30, 2020, is $8.7 million compared to $1.9 million in the same period of 2019, an increase of $6.8 million. As of September 30, 2020, and December 31, 2019, our allowance for loan losses was $18.8 million and $10.2 million, respectively, which we deemed to be adequate at each of the respective dates. The increase in the allowance for loan losses at September 30, 2020, as compared to December 31, 2019, is primarily attributable to the ongoing economic uncertainties related to the COVID-19 pandemic. Also, during 2020, the Company updated the Allowance for Loan Loss policy to increase the additional basis points allowed for the unallocated risk portion from 100 basis points to 125 basis points. In addition, the Company added a new qualitative factor based on the percentage of COVID modified loans / total loans. The qualitative factors were also expanded to provide additional granularity related to the hospitality and restaurant industries which are most impacted by the pandemic within our footprint. The changes in our economic factors and the addition of the COVID modified factors equated to an additional $8.3 million in reserve. Our allowance for loan loss as a percentage of total loans was 0.78% at September 30, 2020 and 0.54% at December 31, 2019.

The following tables outline the amount of each loan classification and the amount categorized into each risk rating (in thousands):


	September 30, 2020
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
Non PCI Loans:	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	666,865	$	394,794	$	247,424	$	619,308	$	13,004	$	1,941,395
Watch		336,122		32,578		21,269		23,655		294		413,918
Special mention		10,547		463		—		385		—		11,395
Substandard		648		1,588		70		728		17		3,051
Doubtful		—		86		—		105		24		215
Total		1,014,182		429,509		268,763		644,181		13,339		2,369,974

PCI Loans:
Pass		8,248		8,974		1,383		222		70		18,897
Watch		6,819		255		4,491		—		12		11,577
Special mention		19		56		—		—		—		75
Substandard		1,383		1,516		535		95		5		3,534
Doubtful		—		—		—		—		—		—
Total		16,469		10,801		6,409		317		87		34,083
Total loans	$	1,030,651	$	440,310	$	275,172	$	644,498	$	13,426	$	2,404,057


	December 31, 2019
					Construction		Commercial
	Commercial		Consumer		and Land		and		Consumer
Non PCI Loans:	Real Estate		Real Estate		Development		Industrial		and Other		Total
Pass	$	860,447	$	407,336	$	216,459	$	328,564	$	9,462	$	1,822,268
Watch		25,180		989		6,089		6,786		40		39,084
Special mention		4,057		738		—		1,033		—		5,828
Substandard		367		1,713		620		228		51		2,979
Doubtful		—		165		—		57		24		246
Total		890,051		410,941		223,168		336,668		9,577		1,870,405

PCI Loans:
Pass		12,473		5,258		902		41		300		18,974
Watch		2,234		38		3,556		—		13		5,841
Special mention		139		60		—		—		—		199
Substandard		409		1,185		—		366		13		1,973
Doubtful		—		—		—		—		—		—
Total		15,255		6,541		4,458		407		326		26,987
Total loans	$	905,306	$	417,482	$	227,626	$	337,075	$	9,903	$	1,897,392

Past Due Loans:

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan on nonaccrual when there is a clear indicator that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

The following tables present an aging analysis of our loan portfolio (in thousands):


	September 30, 2020
	30-60 Days		61-89 Days		Past Due 90				Total
	Past Due and		Past Due and		Days or More				Past Due and		PCI		Current		Total
	Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		Loans		Loans		Loans
Commercial real estate	$	561	$	616	$	—	$	418	$	1,595	$	16,469	$	1,012,587	$	1,030,651
Consumer real estate		975		124		—		1,586		2,685		10,801		426,824		440,310
Construction and land development		10		—		—		—		10		6,409		268,753		275,172
Commercial and industrial		16		6		—		204		226		317		643,955		644,498
Consumer and other		70		522		—		40		632		87		12,707		13,426
Total	$	1,632	$	1,268	$	—	$	2,248	$	5,148	$	34,083	$	2,364,826	$	2,404,057


	December 31, 2019
	30-60 Days		61-89 Days		Past Due 90				Total
	Past Due and		Past Due and		Days or More				Past Due and		PCI		Current		Total
	Accruing		Accruing		and Accruing		Nonaccrual		Nonaccrual		Loans		Loans		Loans
Commercial real estate	$	466	$	22	$	—	$	124	$	612	$	15,255	$	889,439	$	905,306
Consumer real estate		1,564		30		—		1,872		3,466		6,541		407,475		417,482
Construction and land development		507		—		607		620		1,734		4,458		221,434		227,626
Commercial and industrial		559		53		—		57		669		407		335,999		337,075
Consumer and other		86		14		—		70		170		326		9,407		9,903
Total	$	3,182	$	119	$	607	$	2,743	$	6,651	$	26,987	$	1,863,754	$	1,897,392

Impaired Loans:

The following is an analysis of the impaired loan portfolio, including PCI loans, detailing the related allowance recorded (in thousands):


	September 30, 2020						December 31, 2019
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans without a valuation allowance:
Commercial real estate	$	551	$	551	$	—	$	256	$	261	$	—
Consumer real estate		795		795		—		553		553		—
Construction and land development		—		—		—		547		547		—
Commercial and industrial		—		—		—		—		—		—
Consumer and other		—		—		—		—		—		—
		1,346		1,346		—		1,356		1,361		—

Impaired loans with a valuation allowance:
Commercial real estate		—		—		—		—		—		—
Consumer real estate		200		200		78		994		994		343
Construction and land development		—		—		—		—		—		—
Commercial and industrial		600		600		408		160		160		132
Consumer and other		—		—		—		—		—		—
		800		800		486		1,154		1,154		475
PCI loans:
Commercial real estate		—		—		—		17		99		17
Consumer real estate		1,852		2,113		—		1,205		1,371		74
Construction and land development		—		—		—		—		—		—
Commercial and industrial		279		242		—		396		534		59
Consumer and other		26		24		—		45		51		6
		2,157		2,379		—		1,663		2,055		156

Total impaired loans	$	4,303	$	4,525	$	486	$	4,173	$	4,570	$	631


	Three Months Ended September 30,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans without a valuation allowance:
Commercial real estate	$	552	$	3	$	258	$	3
Consumer real estate		758		3		568		4
Construction and land development		—		—		701		3
Commercial and industrial		—		—		—		—
Consumer and other		—		—		—		—
		1,310		6		1,527		10
Impaired loans with a valuation allowance:
Commercial real estate		198		—		—		—
Consumer real estate		440		4		396		4
Construction and land development		—		—		—		—
Commercial and industrial		379		2		352		1
Consumer and other		—		—		—		—
		1,017		6		748		5
PCI loans:
Commercial real estate		8		—		2,520		—
Consumer real estate		1,869		38		1,151		—
Construction and land development		—		—		—		—
Commercial and industrial		305		2		—		—
Consumer real estate		27		—		—		—
		2,209		40		3,671		—

Total impaired loans	$	4,536	$	52	$	5,946	$	15


	Nine Months Ended September 30,
	2020				2019
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized		Investment		Recognized
Impaired loans without a valuation allowance:
Commercial real estate	$	374	$	7	$	435	$	28
Consumer real estate		653		17		768		8
Construction and land development		289		—		637		5
Commercial and industrial		—		—		25		1
Consumer and other		—		—		14		1
		1,316		24		1,879		43
Impaired loans with a valuation allowance:
Commercial real estate		198		2		12		1
Consumer real estate		712		18		248		6
Construction and land development		—		—		14		—
Commercial and industrial		269		7		498		10
Consumer and other		—		—		28		—
		1,179		27		800		17
PCI loans:
Commercial real estate		250		1		1,894		(10)
Consumer real estate		1,344		77		851		3
Construction and land development		58		—		—		—
Commercial and industrial		343		5		—		—
Consumer and other		29		—		—		—
		2,024		83		2,745		(7)

Total impaired loans	$	4,519	$	134	$	5,424	$	53

Troubled Debt Restructurings:

At September 30, 2020, and December 31, 2019, impaired loans included loans that were classified as TDRs. The restructuring of a loan is considered a TDR if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession.

In assessing whether or not a borrower is experiencing financial difficulties, the Company considers information currently available regarding the financial condition of the borrower. This information includes, but is not limited to, whether (i) the debtor is currently in payment default on any of its debt; (ii) a payment default is probable in the foreseeable future without the modification; (iii) the debtor has declared or is in the process of declaring bankruptcy; and (iv) the debtor’s projected cash flow is sufficient to satisfy contractual payments due under the original terms of the loan without a modification.

The Company considers all aspects of the modification to loan terms to determine whether or not a concession has been granted to the borrower. Key factors considered by the Company include the debtor’s ability to access funds at a market rate for debt with similar risk characteristics, the significance of the modification relative to unpaid principal balance or collateral value of the debt, and the significance of a delay in the timing of payments relative to the original contractual terms of the loan.

The most common concessions granted by the Company generally include one or more modifications to the terms of the debt, such as (i) a reduction in the interest rate for the remaining life of the debt; (ii) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk; (iii) a temporary period of interest-only payments; and (iv) a reduction in the contractual payment amount for either a short period or remaining term of the loan.

As of September 30, 2020, and December 31, 2019, management had approximately $8 thousand and $61 thousand, respectively, in loans that met the criteria for TDR, none of which were on nonaccrual. A loan is placed back on accrual status when both principal and interest are current and it is probable that the Company will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement.

There was one loan that was modified as a TDR during the nine month period ended September 30, 2020, and no loans were modified during the nine month period ended September 30, 2019. There were no loans that were modified as TDRs during the past nine months and for which there was a subsequent payment default.

The Company began offering short-term loan modifications to assist borrowers during the COVID-19 national emergency. The Coronavirus Aid Relief and Economic Security (“CARES”) Act along with a joint agency statement issued by banking agencies, provides that short-term modifications made in response to COVID-19 does not need to be accounted for as a TDR. Accordingly, the Company does not account for such loan modifications as TDRs. See Note 1 Presentation of Financial Information for more information. At September 30, 2020, the Company had 289 loans remaining under COVID-19 modifications that amounted to $232.5 million, or 9.7% of the total loans outstanding.

Foreclosure Proceedings and Balances:

As of September 30, 2020, there was only one residential property secured by real estate included in other real estate owned and there was one consumer mortgage loan collateralized by residential real estate property that was in the process of foreclosure.

Purchased Credit Impaired Loans:

The Company has acquired loans where there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The carrying amount of those loans are as follows (in thousands):


	September 30,		December 31,
	2020		2019
Commercial real estate	$	24,179	$	21,570
Consumer real estate		13,353		8,411
Construction and land development		1,910		5,394
Commercial and industrial		7,567		2,540
Consumer and other		199		504
Total loans		47,208		38,419
Less: Remaining purchase discount		(13,125)		(11,432)
Total loans, net of purchase discount		34,083		26,987
Less: Allowance for loan losses		—		(156)
Carrying amount, net of allowance	$	34,083	$	26,831

Activity related to the accretable yield on loans acquired with deteriorated credit quality is as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Accretable yield, beginning of period	$	11,777	$	8,280	$	8,454	$	7,052
Additions		—		—		2,515		—
Accretion income		(1,267)		(1,073)		(4,401)		(3,353)
Reclassification		265		1,033		2,428		2,392
Other changes, net		7,405		390		9,184		2,539
Accretable yield, end of period	$	18,180	$	8,630	$	18,180	$	8,630