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LOANS AND ALLOWANCE FOR LOAN LOSSES
9 Months Ended
Sep. 30, 2020
Receivables [Abstract]  
LOANS AND ALLOWANCE FOR LOAN LOSSES LOANS AND ALLOWANCE FOR LOAN LOSSES
The Company’s loan portfolio is grouped into classes to allow management to monitor the performance by the borrower and to monitor the yield on the portfolio. Consistent with ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Loan Losses, the segments are further broken down into classes to allow for differing risk characteristics within a segment.
The risks associated with lending activities differ among the various loan classes and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions. All of these factors may adversely impact both the borrower’s ability to repay its loans and associated collateral.
The Company has various types of commercial real estate loans, which have differing levels of credit risk. Owner occupied commercial real estate loans are generally dependent upon the successful operation of the borrower’s business, with the cash flows generated from the business being the primary source of repayment of the loan. If the business suffers a downturn in sales or profitability, the borrower’s ability to repay the loan could be in jeopardy.
Non-owner occupied and multi-family commercial real estate loans and non-owner occupied residential loans present a different credit risk to the Company than owner occupied commercial real estate loans, as the repayment of the loan is dependent upon the borrower’s ability to generate a sufficient level of occupancy to produce rental income that exceeds debt service requirements and operating expenses. Lower occupancy or lease rates may result in a reduction in cash flows, which hinders the ability of the borrower to meet debt service requirements, and may result in lower collateral values. The Company generally recognizes that greater risk is inherent in these credit relationships as compared to owner occupied loans mentioned above.
Acquisition and development loans consist of 1-4 family residential construction and commercial and land development loans. The risk of loss on these loans is largely dependent on the Company’s ability to assess the property’s value at the completion of the project, which should exceed the property’s construction costs. During the construction phase, a number of factors could potentially negatively impact the collateral value, including cost overruns, delays in completing the project, competition, and real estate market conditions which may change based on the supply of similar properties in the area. In the event the collateral value at the completion of the project is not sufficient to cover the outstanding loan balance, the Company must rely upon other repayment sources, including, if any, the guarantors of the project or other collateral securing the loan.
Commercial and industrial loans include advances to local and regional businesses for general commercial purposes and include permanent and short-term working capital, machinery and equipment financing, and may be either in the form of lines of credit or term loans. Although commercial and industrial loans may be unsecured to our highest-rated borrowers, the majority of these loans are secured by the borrower’s accounts receivable, inventory and machinery and equipment. In a significant number of these loans, the collateral also includes the business real estate or the business owner’s personal real estate or assets. Commercial and industrial loans present credit exposure to the Company, as they are more susceptible to risk of loss during a downturn in the economy as borrowers may have greater difficulty in meeting their debt service requirements and the value of the collateral may decline. The Company attempts to mitigate this risk through its underwriting standards, including evaluating the creditworthiness of the borrower and, to the extent available, credit ratings on the business. Additionally, monitoring of the loans through annual renewals and meetings with the borrowers are typical. However, these procedures cannot eliminate the risk of loss associated with commercial and industrial lending. At September 30, 2020 and December 31, 2019, commercial and industrial loans include $458.1 million and $0, respectively, of loans, net of deferred fees and costs, originated through the U.S. Small Business Administration Paycheck Protection Program ("SBA PPP").
Municipal loans consist of extensions of credit to municipalities and school districts within the Company’s market area. These loans generally present a lower risk than commercial and industrial loans, as they are generally secured by the municipality’s full taxing authority, by revenue obligations, or by its ability to raise assessments on its customers for a specific utility.
The Company originates loans to its retail customers, including fixed-rate and adjustable first lien mortgage loans with the underlying 1-4 family owner occupied residential property securing the loan. The Company’s risk exposure is minimized in these types of loans through the evaluation of the creditworthiness of the borrower, including credit scores and debt-to-income ratios, and underwriting standards which limit the loan-to-value ratio to generally no more than 80% upon loan origination, unless the borrower obtains private mortgage insurance.
Home equity loans, including term loans and lines of credit, present a slightly higher risk to the Company than 1-4 family first liens, as these loans can be first or second liens on 1-4 family owner occupied residential property, but can have loan-to-
value ratios of no greater than 90% of the value of the real estate taken as collateral. The creditworthiness of the borrower is also considered, including credit scores and debt-to-income ratios.
Installment and other loans’ credit risk are mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets. These loans can be unsecured or secured by assets the value of which may depreciate quickly or may fluctuate, and may present a greater risk to the Company than 1-4 family residential loans.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted. The CARES Act established the SBA PPP. The SBA PPP is intended to provide economic relief to small businesses nationwide adversely impacted under the COVID-19 Emergency Declaration issued on March 13, 2020. The SBA PPP, which began on April 3, 2020, provides small businesses with funds to cover up to 24 weeks of payroll costs and other expenses, including benefits. It also provides for forgiveness of up to the full principal amount of qualifying loans. The Bank closed and funded almost 3,200 PPP loans for a total loan amount of $467.7 million in the nine months ended September 30, 2020. As these loans are 100% guaranteed by the SBA, there is no associated allowance for loan losses at September 30, 2020. These loans resulted in net fee income of $13.5 million to be recognized through net interest income over the life of the loans, which is between two and five years. During the three and nine months ended September 30, 2020, the Company recognized $2.2 million and $4.0 million, respectively, of net deferred SBA PPP fees, included in interest income on loans on the condensed consolidated statements of income. At September 30, 2020, the Bank had $9.5 million of unrecognized SBA PPP net deferred fees. The timing of the recognition of these fees is dependent upon the forgiveness process established by the SBA. The Bank continues to closely monitor the SBA guidance regarding this process. The Bank is working on implementing the SBA's recently announced, streamlined forgiveness approval process, which is anticipated to make the forgiveness process easier for both borrowers and lenders.
In an effort to assist clients which were negatively impacted by the COVID-19 pandemic, the Bank offered various mitigation options, including a loan payment deferral program. Under this program, most commercial deferrals were for a 90-day period, while most consumer deferrals were for a 180-day period. Commercial and consumer deferrals totaled $61.6 million and $16.8 million, respectively, at September 30, 2020. In accordance with the revised Interagency Statement on Loan Modifications by Financial Institutions Working with Customers Affected by the Coronavirus issued on April 7, 2020, these deferrals are exempt from TDR status as they meet the specified requirements.
The following table presents the loan portfolio by segment and class, excluding residential mortgage LHFS, at September 30, 2020 and December 31, 2019:
September 30, 2020December 31, 2019
Commercial real estate:
Owner occupied$166,623 $170,884 
Non-owner occupied403,138 361,050 
Multi-family110,153 106,893 
Non-owner occupied residential111,958 120,038 
Acquisition and development:
1-4 family residential construction9,627 15,865 
Commercial and land development37,850 41,538 
Commercial and industrial (1)
690,330 214,554 
Municipal28,867 47,057 
Residential mortgage:
First lien273,149 336,372 
Home equity - term11,108 14,030 
Home equity - lines of credit158,106 165,314 
Installment and other loans28,961 50,735 
Total loans $2,029,870 $1,644,330 

(1) This balance includes $458.1 million and $0 of SBA PPP loans, net of deferred fees and costs, at September 30, 2020 and December 31, 2019, respectively.
In order to monitor ongoing risk associated with its loan portfolio and specific loans within the segments, management uses an internal grading system. The first several rating categories, representing the lowest risk to the Bank, are combined and given a “Pass” rating. Management generally follows regulatory definitions in assigning criticized ratings to loans, including "Special Mention," "Substandard," "Doubtful" or "Loss." The Special Mention category includes loans that have potential weaknesses that may, if not monitored or corrected, weaken the asset or inadequately protect the Bank's position at some future date. These assets pose elevated risk, but their weakness does not yet justify a more severe, or classified rating. Substandard loans are classified as they have a well-defined weakness, or weaknesses that jeopardize liquidation of the debt. These loans are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Substandard loans include loans that management has determined not to be impaired, as well as loans considered to be impaired. A Doubtful loan has a high probability of total or substantial loss, but because of specific pending events that may strengthen the asset, its classification as Loss is deferred. Loss loans are considered uncollectible, as the borrowers are often in bankruptcy, have suspended debt repayments, or have ceased business operations. Once a loan is classified as Loss, there is little prospect of collecting the loan’s principal or interest and it is charged-off.
The Company has a loan review policy and program which is designed to identify and monitor risk in the lending function. The Management ERM Committee, comprised of executive officers and loan department personnel, is charged with the oversight of overall credit quality and risk exposure of the Company's loan portfolio. This includes the monitoring of the lending activities of all Company personnel with respect to underwriting and processing new loans and the timely follow-up and corrective action for loans showing signs of deterioration in quality. A loan review program provides the Company with an independent review of the commercial loan portfolio on an ongoing basis. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as extended delinquencies, bankruptcy, repossession or death of the borrower occurs, which heightens awareness as to a possible credit event.
Internal loan reviews are completed annually on all commercial relationships with a committed loan balance in excess of $1.0 million, which includes confirmation of risk rating by an independent credit officer. In addition, all commercial relationships greater than $500 thousand rated Substandard, Doubtful or Loss are reviewed quarterly and corresponding risk ratings are reaffirmed by the Company's Problem Loan Committee, with subsequent reporting to the Management ERM Committee and the Board of Directors.
The following table summarizes the Company’s loan portfolio ratings based on its internal risk rating system at September 30, 2020 and December 31, 2019:
PassSpecial MentionNon-Impaired SubstandardImpaired - SubstandardDoubtfulPCI LoansTotal
September 30, 2020
Commercial real estate:
Owner occupied$142,294 $8,654 $7,750 $3,341 $ $4,584 $166,623 
Non-owner occupied347,253 55,552    333 403,138 
Multi-family88,896 20,530 653 74   110,153 
Non-owner occupied residential105,159 3,678 1,455 275  1,391 111,958 
Acquisition and development:
1-4 family residential construction9,341 286     9,627 
Commercial and land development35,818 662 533 837   37,850 
Commercial and industrial660,538 16,724 9,439 755  2,874 690,330 
Municipal28,867      28,867 
Residential mortgage:
First lien264,761   2,835  5,553 273,149 
Home equity - term11,009  70 11  18 11,108 
Home equity - lines of credit157,206 170 34 696   158,106 
Installment and other loans28,868   20  73 28,961 
$1,880,010 $106,256 $19,934 $8,844 $ $14,826 $2,029,870 
December 31, 2019
Commercial real estate:
Owner occupied$151,161 $4,513 $3,163 $5,872 $— $6,175 $170,884 
Non-owner occupied342,753 17,152 — — — 1,145 361,050 
Multi-family100,361 4,822 682 345 — 683 106,893 
Non-owner occupied residential111,697 4,534 1,115 235 — 2,457 120,038 
Acquisition and development:
1-4 family residential construction15,865 — — — — — 15,865 
Commercial and land development39,939 206 1,393 — — — 41,538 
Commercial and industrial198,951 1,133 8,899 1,763 — 3,808 214,554 
Municipal42,649 4,408 — — — — 47,057 
Residential mortgage:
First lien323,040 978 — 2,590 — 9,764 336,372 
Home equity - term13,774 74 149 13 — 20 14,030 
Home equity - lines of credit164,469 74 38 733 — — 165,314 
Installment and other loans50,497 — — 85 — 153 50,735 
$1,555,156 $37,894 $15,439 $11,636 $— $24,205 $1,644,330 

For commercial real estate, acquisition and development and commercial and industrial loans, a loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Generally, loans that are more than 90 days past due are deemed impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed to determine if the loan should be placed on nonaccrual status. Nonaccrual loans in the commercial and commercial real estate portfolios and any TDRs are, by definition, deemed to be impaired. Impairment is measured on a loan-by-loan basis for commercial, construction and restructured loans by either the present value of the expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the underlying collateral. For loans that are deemed to be impaired for extended periods of time, periodic updates on fair values are obtained, which may include updated appraisals. Updated fair values are incorporated into the impairment analysis in the next reporting period.
Loan charge-offs, which may include partial charge-offs, are taken on an impaired loan that is collateral dependent if the loan’s carrying balance exceeds its collateral’s appraised value, the loan has been identified as uncollectible, and it is deemed to be a confirmed loss. Typically, impaired loans with a charge-off or partial charge-off will continue to be considered impaired, unless the note is split into two, and management expects the performing note to continue to perform and is adequately secured. The second, or non-performing note, would be charged-off. Generally, an impaired loan with a partial charge-off may continue to have an impairment reserve on it after the partial charge-off, if factors warrant.
At September 30, 2020 and December 31, 2019, nearly all of the Company’s loan impairments were measured based on the estimated fair value of the collateral securing the loan, except for TDRs. By definition, TDRs are considered impaired. All TDR impairment analyses are initially based on discounted cash flows for those loans. For real estate loans, collateral generally consists of commercial real estate, but in the case of commercial and industrial loans, it could also consist of accounts receivable, inventory, equipment or other business assets. Commercial and industrial loans may also have real estate collateral.
Updated appraisals are generally required every 18 months for classified commercial loans in excess of $250 thousand. The “as is" value provided in the appraisal is often used as the fair value of the collateral in determining impairment, unless circumstances, such as subsequent improvements, approvals, or other circumstances, dictate that another value than that provided by the appraiser is more appropriate.
Generally, impaired commercial loans secured by real estate, other than performing TDRs, are measured at fair value using certified real estate appraisals that had been completed within the last 18 months. Appraised values are discounted for estimated costs to sell the property and other selling considerations to arrive at the property’s fair value. In those situations in which it is determined an updated appraisal is not required for loans individually evaluated for impairment, fair values are based on either an existing appraisal or a discounted cash flow analysis as determined by management. The approaches are discussed below:
Existing appraisal – if the existing appraisal provides a strong loan-to-value ratio (generally 70% or lower) and, after consideration of market conditions and knowledge of the property and area, it is determined by the Credit Administration staff that there has not been a significant deterioration in the collateral value, the existing certified appraised value may be used. Discounts to the appraised value, as deemed appropriate for selling costs, are factored into the fair value.
Discounted cash flows – in limited cases, discounted cash flows may be used on projects in which the collateral is liquidated to reduce the borrowings outstanding, and is used to validate collateral values derived from other approaches.
Collateral on certain impaired loans is not limited to real estate, and may consist of accounts receivable, inventory, equipment or other business assets. Estimated fair values are determined based on borrowers’ financial statements, inventory ledgers, accounts receivable aging or appraisals from individuals with knowledge in the business. Stated balances are generally discounted for the age of the financial information or the quality of the assets. In determining fair value, liquidation discounts are applied to this collateral based on existing loan evaluation policies.
The Company distinguishes substandard loans on both an impaired and non-impaired basis, as it places less emphasis on a loan’s classification, and increased reliance on whether the loan was performing in accordance with the contractual terms. A substandard classification does not automatically meet the definition of impaired. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual extensions of credit classified as substandard. As a result, the Company’s methodology includes an evaluation of certain accruing commercial real estate, acquisition and development, and commercial and industrial loans rated substandard to be collectively evaluated for impairment. Although the Company believes
these loans meet the definition of substandard, they are generally performing and management has concluded that it is likely the Company will be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.
Larger groups of smaller balance homogeneous loans are collectively evaluated for impairment. Generally, the Company does not separately identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.
The following table, which excludes PCI loans, summarizes impaired loans by segment and class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at September 30, 2020 and December 31, 2019. The recorded investment in loans excludes accrued interest receivable due to insignificance. Related allowances established generally pertain to those loans in which loan forbearance agreements were in the process of being negotiated or updated appraisals were pending, and any partial charge-off will be recorded when final information is received.

Impaired Loans with a Specific AllowanceImpaired Loans with No Specific Allowance
Recorded Investment (Book Balance)Unpaid Principal Balance (Legal Balance)Related AllowanceRecorded Investment (Book Balance)Unpaid Principal Balance (Legal Balance)
September 30, 2020
Commercial real estate:
Owner-occupied$ $ $ $3,341 $4,112 
Non-owner occupied    457 
Multi-family   74 309 
Non-owner occupied residential   275 396 
Acquisition and development:
Commercial and land development   837 875 
Commercial and industrial   755 1,668 
Residential mortgage:
First lien452 452 35 2,383 3,450 
Home equity—term   11 14 
Home equity—lines of credit   696 939 
Installment and other loans   20 20 
$452 $452 $35 $8,392 $12,240 
December 31, 2019
Commercial real estate:
Owner-occupied$— $— $— $5,872 $8,086 
Multi-family— — — 345 569 
Non-owner occupied residential— — — 235 422 
Commercial and industrial— — — 1,763 3,361 
Residential mortgage:
First lien425 425 36 2,165 3,164 
Home equity—term— — — 13 15 
Home equity—lines of credit— — — 733 1,077 
Installment and other loans— — — 85 97 
$425 $425 $36 $11,211 $16,791 
The following table, which excludes accruing PCI loans, summarizes the average recorded investment in impaired loans and related recognized interest income for the three and nine months ended September 30, 2020 and 2019:
20202019
Average
Impaired
Balance
Interest
Income
Recognized
Average
Impaired
Balance
Interest
Income
Recognized
Three Months Ended September 30,
Commercial real estate:
Owner-occupied$4,424 $ $2,126 $— 
Non-owner occupied102  150 — 
Multi-family141  110 — 
Non-owner occupied residential433  173 — 
Acquisition and development:
Commercial and land development837  — — 
Commercial and industrial1,044  765 — 
Residential mortgage:
First lien3,209 12 2,392 12 
Home equity – term12  12 — 
Home equity - lines of credit645  768 — 
Installment and other loans17  — 
$10,864 $12 $6,504 $12 
Nine Months Ended September 30,
Commercial real estate:
Owner occupied$5,033 $1 $1,950 $
Non-owner occupied108  60 — 
Multi-family259  118 — 
Non-owner occupied residential422  246 — 
Acquisition and development:
Commercial and land development586  — — 
Commercial and industrial1,316  469 — 
Residential mortgage:
First lien3,050 36 2,574 41 
Home equity - term12  13 — 
Home equity - lines of credit699 1 752 
Installment and other loans29  — 
$11,514 $38 $6,190 $43 
The following table presents impaired loans that are TDRs, with the recorded investment at September 30, 2020 and December 31, 2019:

September 30, 2020December 31, 2019
Number of
Contracts
Recorded
Investment
Number of
Contracts
Recorded
Investment
Accruing:
Commercial real estate:
Owner occupied1 $28 $30 
Residential mortgage:
First lien9 908 931 
Home equity - lines of credit1 9 18 
11 945 11 979 
Nonaccruing:
Commercial real estate:
Owner occupied  1,909 
Residential mortgage:
First lien5 329 359 
5 329 2,268 
16 $1,274 20 $3,247 

There were no new TDR's for the three and nine months ended September 30, 2020 or 2019.
Management further monitors the performance and credit quality of the loan portfolio by analyzing the length of time a portfolio is past due, by aggregating loans based on its delinquencies. The following table presents the classes of loan portfolio summarized by aging categories of performing loans and nonaccrual loans at September 30, 2020 and December 31, 2019:
Days Past Due
Current30-5960-8990+
(still accruing)
Total
Past Due
Non-
Accrual
Total
Loans
September 30, 2020
Commercial real estate:
Owner occupied$157,456 $1,090 $180 $ $1,270 $3,313 $162,039 
Non-owner occupied402,805      402,805 
Multi-family110,079     74 110,153 
Non-owner occupied residential110,292     275 110,567 
Acquisition and development:
1-4 family residential construction9,627      9,627 
Commercial and land development36,940 73   73 837 37,850 
Commercial and industrial686,537 107 57  164 755 687,456 
Municipal28,867      28,867 
Residential mortgage:
First lien264,989 646 34  680 1,927 267,596 
Home equity - term11,067 1 11  12 11 11,090 
Home equity - lines of credit157,143 276   276 687 158,106 
Installment and other loans28,758 99 11  110 20 28,888 
Subtotal2,004,560 2,292 293  2,585 7,899 2,015,044 
Loans acquired with credit deterioration:
Commercial real estate:
Owner occupied4,584      4,584 
Non-owner occupied333      333 
Non-owner occupied residential1,234   157 157  1,391 
Commercial and industrial2,857   17 17  2,874 
Residential mortgage:
First lien4,868 298 40 347 685  5,553 
Home equity - term18      18 
Installment and other loans72  1  1  73 
Subtotal13,966 298 41 521 860  14,826 
$2,018,526 $2,590 $334 $521 $3,445 $7,899 $2,029,870 
Days Past Due
Current30-5960-8990+
(still accruing)
Total
Past Due
Non-
Accrual
Total
Loans
December 31, 2019
Commercial real estate:
Owner occupied$158,723 $144 $— $— $144 $5,842 $164,709 
Non-owner occupied359,425 480 — — 480 — 359,905 
Multi-family105,865 — — — — 345 106,210 
Non-owner occupied residential116,370 841 66 69 976 235 117,581 
Acquisition and development:
1-4 family residential construction15,587 278 — — 278 — 15,865 
Commercial and land development40,403 1,135 — — 1,135 — 41,538 
Commercial and industrial208,668 315 — — 315 1,763 210,746 
Municipal47,057 — — — — — 47,057 
Residential mortgage:
First lien314,473 9,092 1,234 150 10,476 1,659 326,608 
Home equity - term13,993 — — 13 14,010 
Home equity - lines of credit163,907 417 275 — 692 715 165,314 
Installment and other loans50,224 236 37 — 273 85 50,582 
Subtotal1,594,695 12,938 1,616 219 14,773 10,657 1,620,125 
Loans acquired with credit deterioration:
Commercial real estate:
Owner occupied6,015 — 129 31 160 — 6,175 
Non-owner occupied564 — — 581 581 — 1,145 
Multi-family683 — — — — — 683 
Non-owner occupied residential1,710 105 111 531 747 — 2,457 
Commercial and industrial3,792 — — 16 16 — 3,808 
Residential mortgage:
First lien6,308 1,857 745 854 3,456 — 9,764 
Home equity - term16 — — — 20 
Installment and other loans131 22 — — 22 — 153 
Subtotal19,219 1,988 985 2,013 4,986 — 24,205 
$1,613,914 $14,926 $2,601 $2,232 $19,759 $10,657 $1,644,330 
The Company maintains its ALL at a level management believes adequate for probable incurred credit losses. The ALL is established and maintained through a provision for loan losses charged to earnings. Quarterly, management assesses the adequacy of the ALL utilizing a defined methodology which considers specific credit evaluation of impaired loans as discussed above, past loan loss historical experience, and qualitative factors. Management believes its approach properly addresses relevant accounting guidance for loans individually identified as impaired and for loans collectively evaluated for impairment, and other bank regulatory guidance.
In connection with its quarterly evaluation of the adequacy of the ALL, management reviews its methodology to determine if it properly addresses the current risk in the loan portfolio. For each loan class, general allowances based on quantitative factors, principally historical loss trends, are provided for loans that are collectively evaluated for impairment. An
adjustment to historical loss factors may be incorporated for delinquency and other potential risk not elsewhere defined within the ALL methodology.
In addition to this quantitative analysis, adjustments to the ALL requirements are allocated on loans collectively evaluated for impairment based on additional qualitative factors, including:
Nature and Volume of Loans – including loan growth in the current and subsequent quarters based on the Company’s targeted growth and strategic plan, coupled with the types of loans booked based on risk management and credit culture; the number of exceptions to loan policy; and supervisory loan to value exceptions.
Concentrations of Credit and Changes within Credit Concentrations – including the composition of the Company’s overall portfolio makeup and management's evaluation related to concentration risk management and the inherent risk associated with the concentrations identified.
Underwriting Standards and Recovery Practices – including changes to underwriting standards and perceived impact on anticipated losses; trends in the number of exceptions to loan policy; supervisory loan to value exceptions; and administration of loan recovery practices.
Delinquency Trends – including delinquency percentages noted in the portfolio relative to economic conditions; severity of the delinquencies; and whether the ratios are trending upwards or downwards.
Classified Loans Trends – including internal loan ratings of the portfolio; severity of the ratings; whether the loan segment’s ratings show a more favorable or less favorable trend; and underlying market conditions and impact on the collateral values securing the loans.
Experience, Ability and Depth of Management/Lending staff – including the years’ experience of senior and middle management and the lending staff; turnover of the staff; and instances of repeat criticisms of ratings.
Quality of Loan Review – including the years of experience of the loan review staff; in-house versus outsourced provider of review; turnover of staff and the perceived quality of their work in relation to other external information.
National and Local Economic Conditions – including trends in the consumer price index, unemployment rates, the housing price index, housing statistics compared to the prior year, bankruptcy rates, regulatory and legal environment risks and competition. During the nine months ended September 30, 2020, this factor was increased for the commercial and consumer portfolios to account for the negative economic impact of the COVID-19 pandemic.
COVID-19 – during the nine months ended September 30, 2020, a qualitative allocation was implemented associated with the potential impact of the COVID-19 pandemic on the Company's commercial loan portfolio. The factor assumes downgrades of loans with identified hardships resulting from the shutdown driven by the pandemic.
The following table presents the activity in the ALL for the three and nine months ended September 30, 2020 and 2019:
CommercialConsumer
Commercial
Real Estate
Acquisition
and
Development
Commercial
and
Industrial
MunicipalTotalResidential
Mortgage
Installment
and Other
TotalUnallocatedTotal
Three Months Ended
September 30, 2020
Balance, beginning of period$9,347 $1,069 $2,916 $75 $13,407 $3,552 $386 $3,938 $172 $17,517 
Provision for loan losses1,520 (219)963 (19)2,245 (71)18 (53)8 2,200 
Charge-offs(3) (193) (196) (31)(31) (227)
Recoveries171  45  216 6 13 19  235 
Balance, end of period$11,035 $850 $3,731 $56 $15,672 $3,487 $386 $3,873 $180 $19,725 
September 30, 2019
Balance, beginning of period$6,847 $1,008 $2,120 $94 $10,069 $3,734 $209 $3,943 $448 $14,460 
Provision for loan losses465 (188)269 (1)545 27 50 77 (322)300 
Charge-offs— — (50)— (50)(24)(49)(73)— (123)
Recoveries111 — 33 — 144 23 28 — 172 
Balance, end of period$7,423 $820 $2,372 $93 $10,708 $3,742 $233 $3,975 $126 $14,809 
Nine Months Ended
September 30, 2020
Balance, beginning of period$7,634 $959 $2,356 $100 $11,049 $3,147 $319 $3,466 $140 $14,655 
Provision for loan losses2,780 (117)1,875 (44)4,494 329 162 491 40 5,025 
Charge-offs(3) (689) (692)(109)(117)(226) (918)
Recoveries624 8 189  821 120 22 142  963 
Balance, end of period$11,035 $850 $3,731 $56 $15,672 $3,487 $386 $3,873 $180 $19,725 
September 30, 2019
Balance, beginning of period$6,876 $817 $1,656 $98 $9,447 $3,753 $244 $3,997 $570 $14,014 
Provision for loan losses347 753 (5)1,096 184 64 248 (444)900 
Charge-offs(25)— (140)— (165)(295)(121)(416)— (581)
Recoveries225 103 — 330 100 46 146 — 476 
Balance, end of period$7,423 $820 $2,372 $93 $10,708 $3,742 $233 $3,975 $126 $14,809 
The following table summarizes the ending loan balance individually evaluated for impairment based upon loan segment, as well as the related ALL loss allocation for each at September 30, 2020 and December 31, 2019. PCI loans are excluded from loans individually evaluated for impairment.
 CommercialConsumer  
Commercial
Real Estate
Acquisition
and
Development
Commercial
and
Industrial
MunicipalTotalResidential
Mortgage
Installment
and Other
TotalUnallocatedTotal
September 30, 2020
Loans allocated by:
Individually evaluated for impairment
$3,690 $837 $755 $ $5,282 $3,542 $20 $3,562 $ $8,844 
Collectively evaluated for impairment
788,182 46,640 689,575 28,867 1,553,264 438,821 28,941 467,762  2,021,026 
$791,872 $47,477 $690,330 $28,867 $1,558,546 $442,363 $28,961 $471,324 $ $2,029,870 
ALL allocated by:
Individually evaluated for impairment
$ $ $ $ $ $35 $ $35 $ $35 
Collectively evaluated for impairment
11,035 850 3,731 56 15,672 3,452 386 3,838 180 19,690 
$11,035 $850 $3,731 $56 $15,672 $3,487 $386 $3,873 $180 $19,725 
December 31, 2019
Loans allocated by:
Individually evaluated for impairment
$6,452 $— $1,763 $— $8,215 $3,336 $85 $3,421 $— $11,636 
Collectively evaluated for impairment
752,413 57,403 212,791 47,057 1,069,664 512,380 50,650 563,030 — 1,632,694 
$758,865 $57,403 $214,554 $47,057 $1,077,879 $515,716 $50,735 $566,451 $— $1,644,330 
ALL allocated by:
Individually evaluated for impairment
$— $— $— $— $— $36 $— $36 $— $36 
Collectively evaluated for impairment
7,634 959 2,356 100 11,049 3,111 319 3,430 140 14,619 
$7,634 $959 $2,356 $100 $11,049 $3,147 $319 $3,466 $140 $14,655 

The following table provides activity for the accretable yield of PCI loans for the three and nine months ended September 30, 2020 and 2019:
Three Months EndedNine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
Accretable yield, beginning of period$4,182 $4,988 $6,950 $2,065 
Additions (1)
 — 570 3,497 
Accretion of income(546)(422)(2,459)(1,814)
Reclassifications from nonaccretable difference due to improvement in expected cash flows139 825 1,260 1,441 
Other changes, net (2)
(231)319 (2,777)521 
Accretable yield, end of period$3,544 $5,710 $3,544 $5,710 
(1) The amount for the nine months ended September 30, 2020 reflects a measurement period adjustment for Hamilton loans that should have been in the PCI pool at the acquisition date.
(2) The amount for the nine months ended September 30, 2020 represents the impact of purchased credit impaired loans sold during that period