The composition of the loan portfolio is as follows as of the periods indicated:

Included in consumer and other loans are overdrafts of $19,000 and $26,000 at March 31, 2020 and December 31, 2019, respectively. The Company has pledged loans totaling $168,864,000 and $163,522,000 at March 31, 2020 and December 31, 2019, respectively, for borrowing lines at the FHLB and Federal Reserve Bank (“FRB”).

The balance of SBA and United States Department of Agriculture (“USDA”) loans was $34,434,000 and $36,592,000 at March 31, 2020 and December 31, 2019, respectively. Included in these totals is SBA and USDA loans serviced for others totaling $20,928,000 and $21,498,000 at March 31, 2020 and December 31, 2019, respectively.

The Company, at times, purchases individual loans at fair value as of the acquisition date. Purchased loans with remaining balances totaled $30,418,000 and $32,937,000 as of March 31, 2020 and December 31, 2019, respectively. Unamortized premiums totaled $484,000 and $527,000 as of March 31, 2020 and December 31, 2019, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $32,876,000 and $31,352,000 as of March 31, 2020 and December 31, 2019, respectively.

Commercial and industrial loans - Commercial and industrial loans are secured by business assets including inventory, receivables and machinery and equipment of businesses located generally in our primary market area. Loan types include revolving lines of credit, term loans, and loans secured by liquid collateral such as cash deposits or marketable securities. The Company also issues letters of credit on behalf of its customers. Risk arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.

Construction, land and land development loans – The Company originates loans for the construction of 1-4 family, multifamily, and Commercial Real Estate (“CRE”) properties in our market area. Construction loans are considered to have higher risks due to construction completion and timing risk, the ultimate repayment being sensitive to interest rate changes, government regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. The Company occasionally originates land loans for the purpose of facilitating the ultimate construction of a home or commercial building. The primary risks include the borrower’s ability to pay and the inability of the Company to recover its investment due to a material decline in the fair value of the underlying collateral.

Residential real estate loans - Residential real estate loans include various types of loans for which the Company holds real property as collateral. Included in this segment are first lien single family loans, which are occasionally purchased to diversify the Company’s loan portfolio, and rental portfolios secured by one-to-four family homes. The primary risks of residential real estate loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates which may make the loan unprofitable.

Commercial real estate (includes owner occupied and nonowner occupied) loans - Commercial real estate loans include various types of loans for which the Company holds real property as collateral. The primary risks of commercial real estate loans include the borrower’s inability to pay, material decreases in the value of the collateralized real estate and significant increases in interest rates, which may make the real estate loan unprofitable. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

Consumer and other loans – The Company originates a limited number of consumer loans, generally for banking customers only, which consist primarily of home equity lines of credit, saving account secured loans, and auto loans. This loan category also includes overdrafts. Repayment of these loans is dependent on the borrower’s ability to pay and the fair value of the underlying collateral.

The following table illustrates an age analysis of past due loans as of the dates indicated:

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
March 31, 2020
Commercial and industrial loans	$	4	$	699	$	703	$	121,964	$	122,667		$	-
Real estate loans:
Construction, land and land development		-		-		-		119,668		119,668			-
Residential real estate		-		64		64		117,757		117,821			-
Commercial real estate		414		-		414		643,074		643,488			-
Consumer and other loans		-		-		-		3,695		3,695			-
	$	418	$	763	$	1,181	$	1,006,158	$	1,007,339		$	-
Less net deferred origination fees and premiums										(2,159	)
Loans receivable									$	1,005,180

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
December 31, 2019
Commercial and industrial loans	$	143	$	965	$	1,108	$	110,293	$	111,401		$	-
Real estate loans:
Construction, land and land development		-		-		-		97,034		97,034			-
Residential real estate		-		65		65		114,946		115,011			-
Commercial real estate		417		-		417		612,981		613,398			-
Consumer and other loans		4		-		4		4,210		4,214			-
	$	564	$	1,030	$	1,594	$	939,464		941,058		$	-
Less net deferred origination fees and premiums										(1,955	)
Loans receivable									$	939,103

A summary of information pertaining to impaired loans as of the period indicated:

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
	(dollars in thousands)
March 31, 2020
Commercial and industrial loans	$	1,099	$	699	$	-	$	699	$	-
Real estate loans:
Residential real estate		72		64		-		64		-
Total	$	1,171	$	763	$	-	$	763	$	-

December 31, 2019
Commercial and industrial loans	$	1,431	$	965	$	-	$	965	$	-
Real estate loans:
Residential real estate		73		65		-		65		-
Consumer		2		-		2		2		2
Total	$	1,506	$	1,030	$	2	$	1,032	$	2

The following tables summarize our average recorded investment and interest income recognized on impaired loans by loan class for the three months ended March 31, 2020 and 2019:

The Company grants restructurings in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms. The restructured loans on accrual status represent the only impaired loans accruing interest. In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

No loans were restructured in the three months ended March 31, 2020 and March 31, 2019 that qualified as TDRs. The Company has no commitments to loan additional funds to borrowers whose loans were classified as troubled debt restructurings at March 31, 2020, as there were no outstanding troubled debt restructurings at March 31, 2020.

The Company is in contact with borrowers with existing loans that have been impacted by COVID-19. The Company is working on restructuring payments for loan customers during this uncertain time to help alleviate financial hardships, deferring payments on 52 loans, representing $37,862,000, as of March 31, 2020. In accordance with GAAP and interagency guidance issued on March 22, 2020, these short-term modifications, made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief, are not considered troubled debt restructurings.

When loans are placed on nonaccrual status, all accrued interest is reversed from current period earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is removed, the Company will recognize interest on a cash basis only. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual.

An analysis of nonaccrual loans by category consisted of the following at the periods indicated:

Federal regulations require that the Company periodically evaluate the risks inherent in its loan portfolio. In addition, the Company’s regulatory agencies have authority to identify problem loans and, if appropriate, require them to be reclassified. There are three classifications for problem loans: Substandard, Doubtful, and Loss. Substandard loans have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful loans have the weaknesses of loans classified as Substandard, with additional characteristics that suggest the weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts, conditions, and values. There is a high possibility of loss in loans classified as Doubtful. A loan classified as Loss is considered uncollectible and of such little value that continued classification of the credit as a loan is not warranted. If a loan or a portion thereof is classified as Loss, it must be charged-off, meaning the amount of the loss is charged against the allowance for loan losses, thereby reducing that reserve. The Company also classifies some loans as Watch or Other Loans Especially Mentioned (“OLEM”). Loans classified as Watch are performing assets and classified as pass credits but have elements of risk that require more monitoring than other performing loans and are reported in the OLEM column in the following table. Loans classified as OLEM are assets that continue to perform but have shown deterioration in credit quality and require close monitoring.

	Pass		Other Loans Especially Mentioned		Sub- Standard		Doubtful		Total
	(dollars in thousands)
March 31, 2020
Commercial and industrial loans	$	115,982	$	1,182	$	5,503	$	-	$	122,667
Real estate loans:
Construction, land, and land development		119,668		-		-		-		119,668
Residential real estate		117,284		473		64		-		117,821
Commercial real estate		637,297		6,191		-		-		643,488
Consumer and other loans		3,695		-		-		-		3,695
	$	993,926	$	7,846	$	5,567	$	-		1,007,339
Less net deferred origination fees										(2,159	)
Loans receivable									$	1,005,180

December 31, 2019
Commercial and industrial loans	$	104,911	$	4,740	$	1,750	$	-	$	111,401
Real estate loans:
Construction, land, and land development		97,034		-		-		-		97,034
Residential real estate		114,823		123		65		-		115,011
Commercial real estate		608,773		4,625		-		-		613,398
Consumer and other loans		4,212		-		2				4,214
	$	929,753	$	9,488	$	1,817	$	-		941,058
Less net deferred origination fees										(1,955	)
Loans receivable									$	939,103

The Company’s allowance for loan losses (“ALLL”) covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated probable losses inherent in the remainder of the loan portfolio. The ALLL is prepared using the information provided by the Company’s credit review process together with economic information gathered from published sources. Qualitative factors that are included in the analysis include industry data and data from peer institutions.

The loan portfolio is segmented into groups of loans with similar risk profiles. Each segment possesses varying degrees of risk based on the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. An estimated loss rate calculated the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

The Company’s provision for credit losses of $1.6 million during the quarter ended March 31, 2020 is related to the growth in the loan portfolio along with an increase in qualitative factors primarily related to the uncertainties in the economic outlook from the COVID-19 pandemic. The Company is not required to implement the provisions of the Current Expected Credit Loss (“CECL”) accounting standard until January 1, 2023 and is continuing to account for the allowance for loan losses under the incurred loss model.

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2020:

	Commercial and Industrial			Construction, Land, and Land Development		Residential Real Estate		Commercial Real Estate		Consumer and Other			Unallocated			Total
	(dollars in thousands)
Three Months Ended March 31, 2020
ALLL balance, December 31, 2019	$	2,366		$	2,745	$	2,069	$	3,126	$	104		$	1,060		$	11,470
Provision for loan losses or (recapture)		589			902		163		763		(3	)		(836	)		1,578
		2,955			3,647		2,232		3,889		101			224			13,048
Loans charged-off		(119	)		-		-		-		(5	)		-			(124	)
Recoveries of loans previously charged-off		1			-		-		-		-			-			1
Net (charge-offs) recoveries		(118	)		-		-		-		(5	)		-			(123	)
ALLL balance, March 31, 2020	$	2,837		$	3,647	$	2,232	$	3,889	$	96		$	224		$	12,925

As of March 31, 2020
ALLL amounts allocated to
Individually evaluated for impairment	$	-		$	-	$	-	$	-	$	-		$	-		$	-
Collectively evaluated for impairment		2,837			3,647		2,232		3,889		96			224			12,925
ALLL balance, March 31, 2020	$	2,837		$	3,647	$	2,232	$	3,889	$	96		$	224		$	12,925
Loans individually evaluated for impairment	$	699		$	-	$	64	$	-	$	-					$	763
Loans collectively evaluated for impairment		121,968			119,668		117,757		643,488		3,695						1,006,576
Loan balance, March 31, 2020	$	122,667		$	119,668	$	117,821	$	643,488	$	3,695					$	1,007,339

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate			Commercial Real Estate			Consumer and Other			Unallocated		Total
	(dollars in thousands)
Three Months Ended March 31, 2019
ALLL balance, December 31, 2019	$	2,039	$	1,806	$	1,647		$	2,648		$	77		$	1,190	$	9,407
Provision for loan losses or (recapture)		29		46		(24	)		131			6			352		540
		2,068		1,852		1,623			2,779			83			1,542		9,947
Loans charged-off		-		-		-			(29	)		(5	)		-		(34	)
Recoveries of loans previously charged-off		1		-		-			-			1			-		2
Net (charge-offs) recoveries		1		-		-			(29	)		(4	)		-		(32	)
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915

As of March 31, 2019
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-		$	-		$	-		$	-	$	-
Collectively evaluated for impairment		2,069		1,852		1,623			2,750			79			1,542		9,915
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915
Loans individually evaluated for impairment	$	493	$	-	$	71		$	-		$	-				$	564
Loans collectively evaluated for impairment		91,755		65,686		94,672			535,896			3,583					791,592
Loan balance, March 31, 2019	$	92,248	$	65,686	$	94,743		$	535,896		$	3,583				$	792,156

The following table summarizes the allocation of the ALLL attributed to various segments in the loan portfolio as of December 31, 2019.

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate		Commercial Real Estate		Consumer and Other		Unallocated		Total
	(dollars in thousands)
As of December 31, 2019
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	2	$	-	$	2
Collectively evaluated for impairment		2,366		2,745		2,069		3,126		102		1,060		11,468
ALLL balance, December 31, 2019	$	2,366	$	2,745	$	2,069	$	3,126	$	104	$	1,060	$	11,470
Loans individually evaluated for impairment	$	965	$	-	$	65	$	-	$	2			$	1,032
Loans collectively evaluated for impairment		110,436		97,034		114,946		613,398		4,212				940,026
Loan balance, December 31, 2019	$	111,401	$	97,034	$	115,011	$	613,398	$	4,214			$	941,058