Quarterly Report (10-q)

0000834285 REPUBLIC FIRST BANCORP INC false --12-31 Q3 2020 712,369 653,109 11,851 9,266 0.01 0.01 25.00 25.00 10,000,000 10,000,000 2,000,000 0 2,000,000 0 0.01 0.01 100,000,000 100,000,000 59,384,623 59,371,623 58,855,778 58,842,778 503,408 503,408 25,437 25,437 795 720 4,668 5,495 279 520 2,760 1,103 952 393 2,006 1,037 2,000,000 1,675 5,000 2,000,000 1,675 13,000 53,550 1 4 6.25 6.25 5 7 10 3 0 0 0 0 0 0 0 65 3 0 0 0 1 1 0 0 3.49 13.60 10.00 15 7 6.66 13.53 10.75 12 8 0 0 10 20 0 0 0 0 41 19 7 15 6 5 10 20.24 37 17 8 12 5 5 10 The risk-free interest rate is based on the five to seven year Treasury bond. Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The expected volatility was based on the historical volatility of the Company’s common stock price as adjusted for certain historical periods of extraordinary volatility in order to estimate expected volatility. All amounts are net of tax. Amounts in parentheses indicate reductions to other comprehensive income. The expected life reflects an 8 month to 4 year vesting period, the maximum ten year term and review of historical behavior. Forfeiture rate is determined through forfeited and expired options as a percentage of options granted over the current three year period. Fair value is generally determined through independent appraisals of the underlying collateral, which include Level 3 inputs that are not identifiable. The range and weighted average of qualitative factors such as economic conditions and estimated liquidation expenses are presented as a percent of the appraised value. Reclassification amounts are reported as gains on sales of investment securities, impairment losses, and amortization of net unrealized losses on the Consolidated Statement of Operations. 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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended September 30, 2020.

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from ____ to ____.

Commission File Number: 000-17007

Republic First Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2486815
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

50 South 16^th Street, Philadelphia, Pennsylvania	19102
(Address of principal executive offices)	(Zip code)

215-735-4422

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock

FRBK

Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-Accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 per share	58,859,778
Title of Class	Number of Shares Outstanding as of November 6, 2020

REPUBLIC FIRST BANCORP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS

Part I: Financial Information		Page

Item 1.	Financial Statements
	Consolidated balance sheets as of September 30, 2020 and December 31, 2019 (unaudited)	3
	Consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 (unaudited)	4
	Consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019 (unaudited)	5
	Consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 (unaudited)	6
	Consolidated statements of changes in shareholders’ equity for the three and nine months ended September 30, 2020 and 2019 (unaudited)	7

	Notes to consolidated financial statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	67

Item 4.	Controls and Procedures	67

Part II: Other Information

Item 1.	Legal Proceedings	68

Item 1A.	Risk Factors	68

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69

Item 3.	Defaults Upon Senior Securities	69

Item 4.	Mine Safety Disclosures	69

Item 5.	Other Information	69

Item 6.	Exhibits	70

Signatures		71

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2020 and December 31, 2019

(Dollars in thousands, except per share data)

	September 30, 2020 (unaudited)			December 31, 2019
ASSETS
Cash and due from banks	$	43,689		$	41,928
Interest bearing deposits with banks		874,472			126,391
Cash and cash equivalents		918,161			168,319

Investment securities available for sale, at fair value		440,655			539,042
Investment securities held to maturity, at amortized cost (fair value of $712,369 and $653,109, respectively)		688,939			644,842
Restricted stock, at cost		3,789			2,746
Mortgage loans held for sale, at fair value		41,683			10,345
Other loans held for sale		866			3,004
Loans receivable (net of allowance for loan losses of $11,851 and $9,266, respectively)		2,617,547			1,738,929
Premises and equipment, net		124,034			116,956
Other real estate owned, net		1,113			1,730
Accrued interest receivable		15,021			9,934
Operating leases – right-of-use asset		68,423			64,805
Goodwill		-			5,011
Other assets		38,525			35,627
Total Assets	$	4,958,756		$	3,341,290

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Demand – non-interest bearing	$	1,049,169		$	661,431
Demand – interest bearing		1,618,342			1,352,360
Money market and savings		1,034,799			761,793
Time deposits		203,296			223,579
Total Deposits		3,905,606			2,999,163
Short-term borrowings		646,267			-
Accrued interest payable		1,277			1,630
Other liabilities		18,429			11,208
Operating lease liability obligation		72,969			68,856
Subordinated debt		11,270			11,265
Total Liabilities		4,655,818			3,092,122

Shareholders’ Equity
Preferred stock, par value $0.01 per share; liquidation preference $25.00 per share; 10,000,000 shares authorized; share issued 2,000,000 as of September 30, 2020 and no shares as of December 31,2019; shares outstanding 2,000,000 as of September 30, 2020 and no shares as of December 31, 2019		20			-
Common stock, par value $0.01 per share: 100,000,000 shares authorized; shares issued 59,384,623 as of September 30, 2020 and 59,371,623 as of December 31, 2019; shares outstanding 58,855,778 as of September 30, 2020 and 58,842,778 as of December 31, 2019		594			594
Additional paid in capital		321,915			272,039
Accumulated deficit		(11,263	)		(12,216	)
Treasury stock at cost (503,408 shares as of September 30, 2020 and December 31, 2019)		(3,725	)		(3,725	)
Stock held by deferred compensation plan (25,437 shares as of September 30, 2020 and December 31, 2019)		(183	)		(183	)
Accumulated other comprehensive loss		(4,420	)		(7,341	)
Total Shareholders’ Equity		302,938			249,168
Total Liabilities and Shareholders’ Equity	$	4,958,756		$	3,341,290

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2020 and 2019

(Dollars in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Interest income:
Interest and fees on taxable loans	$	24,135		$	18,298		$	65,941		$	53,827
Interest and fees on tax-exempt loans		548			409			1,652			1,249
Interest and dividends on taxable investment securities		3,758			6,652			15,612			21,134
Interest and dividends on tax-exempt investment securities		20			72			59			131
Interest on federal funds sold and other interest-earning assets		99			777			438			1,631
Total interest income		28,560			26,208			83,702			77,972
Interest expense:
Demand- interest bearing		3,056			3,753			9,333			11,897
Money market and savings		1,613			1,813			4,827			4,893
Time deposits		884			1,123			3,138			2,608
Other borrowings		77			137			293			681
Total interest expense		5,630			6,826			17,591			20,079
Net interest income		22,930			19,382			66,111			57,893
Provision for loan losses		850			450			2,800			750
Net interest income after provision for loan losses		22,080			18,932			63,311			57,143
Non-interest income:
Loan and servicing fees		917			257			2,152			1,156
Mortgage banking income		4,962			2,797			10,809			8,048
Gain on sales of SBA loans		649			944			1,567			2,593
Service fees on deposit accounts		2,134			1,990			6,166			5,450
Gain on sale of investment securities		279			520			2,760			1,103
Other non-interest income		1,090			46			1,546			175
Total non-interest income		10,031			6,554			25,000			18,525
Non-interest expenses:
Salaries and employee benefits		14,596			14,314			41,154			40,378
Occupancy		3,560			2,994			10,294			8,270
Depreciation and amortization		1,964			1,740			6,081			4,700
Legal		261			462			810			1,024
Other real estate owned		80			799			437			1,653
Appraisal and other loan expenses		619			476			1,580			1,327
Advertising		386			698			1,055			1,467
Data processing		1,606			1,434			4,747			3,780
Insurance		279			301			836			752
Professional fees		679			661			2,069			1,864
Debit card processing		915			526			2,639			1,689
Regulatory assessments and costs		625			62			1,930			904
Taxes, other		303			288			789			782
Goodwill impairment		5,011			-			5,011			-
Other operating expenses		2,696			3,069			8,084			8,412
Total non-interest expense		33,580			27,824			87,516			77,002
Income (loss) before benefit for income taxes		(1,469	)		(2,338	)		795			(1,334	)
Benefit for income taxes		(503	)		(516	)		(158	)		(319	)
Net income (loss)	$	(966	)	$	(1,822	)	$	953		$	(1,015	)
Basic	$	(0.02	)	$	(0.03	)	$	0.02		$	(0.02	)
Diluted	$	(0.02	)	$	(0.03	)	$	0.02		$	(0.02	)

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

For the Three and Nine Months Ended September 30, 2020 and 2019

(Dollars in thousands)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019

Net income (loss)	$	(966	)	$	(1,822	)	$	953		$	(1,015	)

Other comprehensive income (loss), net of tax
Unrealized gains (losses) on securities (pre-tax ($795), $720, $4,668, and $5,495, respectively)		(593	)		583			3,483			4,456
Reclassification adjustment for securities (gains) (pre-tax ($279), ($520), ($2,760), and ($1,103), respectively)		(208	)		(217	)		(2,060	)		(894	)
Net unrealized gains (losses) on securities		(801	)		366			1,423			3,562
Net unrealized holding losses on securities transferred from available-for-sale to held-to-maturity:
Amortization of net unrealized holding losses to income during the period (pre-tax $952, $393, $2,006, and $1,037 respectively)		710			318			1,498			841

Total other comprehensive income (loss)		(91	)		684			2,921			4,403

Total comprehensive income (loss)	$	(1,057	)	$	(1,138	)	$	3,874		$	3,388

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2020 and 2019

(Dollars in thousands)

(unaudited)

	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities
Net income (loss)	$	953		$	(1,015	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Goodwill impairment		5,011			-
Provision for loan losses		2,800			750
Write down of other real estate owned		31			240
Depreciation and amortization		6,081			4,700
Stock based compensation		1,538			2,005
Net gain on sale of investment securities		(2,760	)		(1,103	)
Amortization of premiums on investment securities		5,573			2,257
Accretion of discounts on retained SBA loans		(655	)		(1,083	)
Fair value adjustments on SBA servicing assets		301			1,106
Proceeds from sales of SBA loans originated for sale		22,999			37,916
SBA loans originated for sale		(19,294	)		(32,395	)
Gains on sales of SBA loans originated for sale		(1,567	)		(2,593	)
Proceeds from sales of mortgage loans originated for sale		289,521			246,816
Mortgage loans originated for sale		(312,150	)		(239,045	)
Fair value adjustment for mortgage loans originated for sale		(1,338	)		285
Gains on sales of mortgage loans originated for sale		(7,590	)		(6,215	)
Amortization of debt issuance costs		5			4
Non-cash expense related to leases		448			924
Increase in accrued interest receivable and other assets		(8,149	)		(4,524	)
Increase in accrued interest payable and other liabilities		6,004			2,996
Net cash (used in) provided by operating activities		(12,238	)		12,026

Cash flows from investing activities
Purchase of investment securities available for sale		(166,622	)		(150,734	)
Purchase of investment securities held to maturity		(208,230	)		-
Proceeds from the sale of securities available for sale		125,222			54,742
Proceeds from the paydown, maturity, or call of securities available for sale		144,057			41,571
Proceeds from the paydown, maturity, or call of securities held to maturity		160,964			73,890
Net (purchase) redemption of restricted stock		(1,043	)		3,383
Net increase in loans		(880,763	)		(133,667	)
Net proceeds from sale of other real estate owned		586			401
Premises and equipment expenditures		(13,159	)		(28,612	)
Net cash used in investing activities		(838,988	)		(139,026	)

Cash flows from financing activities
Net proceeds from issuance of preferred stock		48,325			-
Net proceeds from exercise of stock options		33			261
Net increase in demand, money market and savings deposits		926,726			284,219
Net (decrease) increase in time deposits		(20,283	)		62,946
Net increase (repayment) of short-term borrowings		646,267			(91,422	)
Net cash provided by financing activities		1,601,068			256,004

Net increase in cash and cash equivalents		749,842			129,004
Cash and cash equivalents, beginning of year		168,319			72,473
Cash and cash equivalents, end of period	$	918,161		$	201,477

Supplemental disclosures
Interest paid	$	17,238		$	18,982
Non-cash transfers from loans to other real estate owned	$	-		$	1,071

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

For the Three and Nine Months Ended September 30, 2020 and 2019

(Dollars in thousands)

(unaudited)

	Preferred Stock		Common Stock		Additional Paid in Capital		Accumulated Deficit			Treasury Stock			Stock Held by Deferred Compensation Plan			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity

Balance July 1, 2020	$	-	$	594	$	273,118	$	(10,297	)	$	(3,725	)	$	(183	)	$	(4,329	)	$	255,178

Net loss								(966	)											(966	)
Other comprehensive loss, net of tax																	(91	)		(91	)
Proceeds from shares issued under preferred stock offering (2,000,000 shares) net of offering costs of $1,675		20				48,305														48,325
Stock based compensation						482														482
Options exercised (5,000 shares)						10														10

Balance September 30, 2020	$	20	$	594	$	321,915	$	(11,263	)	$	(3,725	)	$	(183	)	$	(4,420	)	$	302,938

Balance January 1, 2020	$	-	$	594	$	272,039	$	(12,216	)	$	(3,725	)	$	(183	)	$	(7,341	)	$	249,168

Net income								953												953
Other comprehensive income, net of tax																	2,921			2,921
Proceeds from shares issued under preferred stock offering (2,000,000 shares) net of offering costs of $1,675		20				48,305														48,325
Stock based compensation						1,538														1,538
Options exercised (13,000 shares)						33														33

Balance September 30, 2020	$	20	$	594	$	321,915	$	(11,263	)	$	(3,725	)	$	(183	)	$	(4,420	)	$	302,938

Balance July 1, 2019	$	-	$	594	$	270,789	$	(7,909	)	$	(3,725	)	$	(183	)	$	(8,208	)	$	251,358

Net loss								(1,822	)											(1,822	)
Other comprehensive income, net of tax																	684			684
Stock based compensation						623														623

Balance September 30, 2019	$	-	$	594	$	271,412	$	(9,731	)	$	(3,725	)	$	(183	)	$	(7,524	)	$	250,843

Balance January 1, 2019	$	-	$	593	$	269,147	$	(8,716	)	$	(3,725	)	$	(183	)	$	(11,927	)	$	245,189

Net loss								(1,015	)											(1,015	)
Other comprehensive income, net of tax																	4,403			4,403
Stock based compensation						2,005														2,005
Options exercised (53,550 shares)				1		260														261

Balance September 30, 2019	$	-	$	594	$	271,412	$	(9,731	)	$	(3,725	)	$	(183	)	$	(7,524	)	$	250,843

(See notes to consolidated financial statements)

Republic First Bancorp, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

Note 1: Basis of Presentation

Republic First Bancorp, Inc. (the “Company”) is a one-bank holding company organized and incorporated under the laws of the Commonwealth of Pennsylvania. It is comprised of one wholly-owned subsidiary, Republic First Bank, which does business under the name of Republic Bank (“Republic”). Republic is a Pennsylvania state chartered bank that offers a variety of banking services to individuals and businesses throughout the Greater Philadelphia, Southern New Jersey, and New York City markets through its offices and store locations in Philadelphia, Montgomery, Delaware, Bucks, Camden, Burlington, Atlantic, Gloucester, and New York Counties. On July 28, 2016, Republic acquired all of the issued and outstanding limited liability company interests of Oak Mortgage Company, LLC (“Oak Mortgage”) and, as a result, Oak Mortgage became a wholly owned subsidiary of Republic on that date. On January 1, 2018, Oak Mortgage was merged into Republic and restructured as a division of Republic. The Oak Mortgage name is still utilized for marketing and branding purposes. The Company also has two unconsolidated subsidiaries, which are statutory trusts established by the Company in connection with its sponsorship of two separate issuances of trust preferred securities.

The Company and Republic encounter vigorous competition for market share in the geographic areas they serve from bank holding companies, national, regional and other community banks, thrift institutions, credit unions and other non-bank financial organizations, such as mutual fund companies, insurance companies and brokerage companies.

The Company and Republic are subject to federal and state regulations governing virtually all aspects of their activities, including but not limited to, lines of business, liquidity, investments, the payment of dividends and others. Such regulations and the cost of adherence to such regulations can have a significant impact on earnings and financial condition.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Republic. The Company follows accounting standards set by the Financial Accounting Standards Board (“FASB”). The FASB sets accounting principles generally accepted in the United States of America (“US GAAP”) that are followed to ensure consistent reporting of financial condition, results of operations, and cash flows. All material inter-company transactions have been eliminated. Events occurring subsequent to the date of the balance sheet have been evaluated for potential recognition or disclosure in the consolidated financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with US GAAP for interim financial information and with the instructions to United States Securities and Exchange Commission (“SEC”) Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for financial statements for a complete fiscal year. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Note 2: Summary of Significant Accounting Policies

Risks and Uncertainties

The earnings of the Company depend primarily on the earnings of Republic. The earnings of Republic are heavily dependent upon the level of net interest income, which is the difference between interest earned on its interest-earning assets, such as loans and investments, and the interest paid on its interest-bearing liabilities, such as deposits and borrowings. Accordingly, the Company’s results of operations are subject to risks and uncertainties surrounding Republic’s exposure to changes in the interest rate environment. Prepayments on residential real estate mortgage and other fixed rate loans and mortgage-backed securities vary significantly and may cause significant fluctuations in interest margins.

The coronavirus (“COVID-19”) outbreak and the public health response to contain it have resulted in unprecedented economic and financial market conditions during the nine months ended September 30, 2020 that did not exist at December 31, 2019. In response to these evolving conditions, the Board of Governors of the Federal Reserve System (“Federal Reserve”) reduced the federal funds target range by 150 basis points to 0.00% to 0.25% in March 2020. The Federal Reserve has taken additional steps to bolster the economy by promoting liquidity in certain securities markets and providing funding sources for small and mid-sized businesses, as well as, state and local governments as they work through the cash flow stresses caused by the COVID-19 pandemic.

The economic downturn that began in the U.S. as a result of the government-mandated business closures and stay-at-home orders is significantly impacting the labor market, consumer spending, business investment and profitability. As a result, the President signed into law the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which is the largest economic stimulus package in the nation’s history in an effort to lessen the impact of COVID-19 on consumers and businesses. Among other measures, the CARES Act authorized funding for the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) to provide loans to small businesses to keep employees on their payroll and to make other eligible payments to sustain their operation in the near term. We obtained approval from the SBA for more than 5,100 loan applications which has resulted in $683 million in outstanding PPP loans at September 30, 2020. Almost all of these loans have a two year term, an interest rate of 1.00% and included an origination fee paid by the SBA between 1% and 5% of the loan balance. Gross origination fees of approximately $23 million were earned by Republic which will be amortized and reported as interest income over the life of the loans. After deduction of deferred costs and fees related to the PPP program, $15 million of net revenue has been deferred and will be recognized as income in future periods.

Mortgage Banking Activities and Mortgage Loans Held for Sale

Mortgage loans held for sale are originated and held until sold to permanent investors. Management elected to adopt the fair value option in accordance with FASB Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, and record loans held for sale at fair value.

Mortgage loans held for sale originated on or subsequent to the election of the fair value option, are recorded on the balance sheet at fair value. The fair value is determined on a recurring basis by utilizing quoted prices from dealers in such securities. Changes in fair value are reflected in mortgage banking income in the statements of income. Direct loan origination costs are recognized when incurred and are included in non-interest expense in the statements of income.

Interest Rate Lock Commitments (“IRLCs”)

Mortgage loan commitments known as interest rate locks that relate to the origination of a mortgage that will be held for sale upon funding are considered derivative instruments under the derivatives and hedging accounting guidance FASB ASC 815, Derivatives and Hedging. Loan commitments that are classified as derivatives are recognized at fair value on the balance sheet as other assets and other liabilities with changes in their fair values recorded as mortgage banking income and included in non-interest income in the statements of income. Outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of issuance through the date of loan funding, cancellation or expiration. Loan commitments generally range between 30 and 90 days; however, the borrower is not obligated to obtain the loan. Republic is subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Republic uses best efforts commitments to substantially eliminate these risks. The valuation of the IRLCs issued by Republic includes the value of the servicing released premium. Republic sells loans where the servicing is released, and the servicing released premium is included in the market price. See Note 12 Derivatives and Risk Management Activities for further detail of IRLCs.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates are made by management in determining the allowance for loan losses, carrying values of other real estate owned, assessment of other than temporary impairment (“OTTI”) of investment securities, fair value of financial instruments, and the realization of deferred income tax assets. Consideration is given to a variety of factors in establishing these estimates.

In estimating the allowance for loan losses, management considers current economic conditions, past loss experience, diversification of the loan portfolio, delinquency statistics, results of internal loan reviews and regulatory examinations, borrowers’ perceived financial and managerial strengths, the adequacy of underlying collateral, if collateral dependent, or present value of future cash flows, and other relevant and qualitative risk factors. Subsequent to foreclosure, an estimate for the carrying value of other real estate owned is normally determined through valuations that are periodically performed by management and the assets are carried at the lower of carrying amount or fair value, less the cost to sell. Because the allowance for loan losses and carrying value of other real estate owned are dependent, to a great extent, on the general economy and other conditions that may be beyond the Company’s and Republic’s control, the estimates of the allowance for loan losses and the carrying values of other real estate owned could differ materially in the near term.

In estimating OTTI of investment securities, securities are evaluated on at least a quarterly basis and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. To determine whether a loss in value is other-than-temporary, management utilizes criteria such as the reasons underlying the decline, the magnitude and duration of the decline, the intent to hold the security and the likelihood of the Company not being required to sell the security prior to an anticipated recovery in the fair value. The term “other-than-temporary” is not intended to indicate that the decline is permanent, but indicates that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the portion of the decline related to credit impairment is charged to earnings.

In evaluating the Company’s ability to recover deferred tax assets, management considers all available positive and negative evidence, including the past operating results and forecasts of future taxable income. In determining future taxable income, management makes assumptions for the amount of taxable income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require management to make judgments about the future taxable income and are consistent with the plans and estimates used to manage the business. A material reduction in estimated future taxable income may require management to record a valuation allowance against the deferred tax assets. An increase in the valuation allowance would result in additional income tax expense in the period and could have a significant impact on future earnings.

Stock-Based Compensation

The Company has a Stock Option and Restricted Stock Plan (“the 2005 Plan”), under which the Company granted options, restricted stock or stock appreciation rights to the Company’s employees, directors, and certain consultants. The 2005 Plan became effective on November 14, 1995, and was amended and approved at the Company’s 2005 annual meeting of shareholders. Under the terms of the 2005 Plan, 1.5 million shares of common stock, plus an annual increase equal to the number of shares needed to restore the maximum number of shares that could be available for grant under the 2005 Plan to 1.5 million shares, were available for such grants. As of September 30, 2020, the only grants under the 2005 Plan were option grants. The 2005 Plan provided that the exercise price of each option granted equaled the market price of the Company’s stock on the date of the grant. Options granted pursuant to the 2005 Plan vest within one to four years and have a maximum term of 10 years. The 2005 Plan terminated on November 14, 2015 in accordance with the terms and conditions specified in the Plan agreement.

On April 29, 2014 the Company’s shareholders approved the 2014 Republic First Bancorp, Inc. Equity Incentive Plan (the “2014 Plan”), under which the Company may grant options, restricted stock, stock units, or stock appreciation rights to the Company’s employees, directors, independent contractors, and consultants. Under the terms of the 2014 Plan, 2.6 million shares of common stock, plus an annual adjustment to be no less than 10% of the outstanding shares or such lower number as the Board of Directors may determine, are available for such grants. Compensation cost for all option awards is calculated and recognized over the vesting period of the option awards. If the service conditions are not met, the Company reverses previously recorded compensation expense upon forfeiture. The Company’s accounting policy election is to recognize forfeitures as they occur. At September 30, 2020, the maximum number of common shares issuable under the 2014 Plan was 6.4 million shares. During the nine months ended September 30, 2020, 1,248,100 options were granted under the 2014 Plan with a fair value of $1,084,888.

The Company utilizes the Black-Scholes option pricing model to calculate the estimated fair value of each stock option granted on the date of the grant. A summary of the assumptions used in the Black-Scholes option pricing model for 2020 and 2019 are as follows:

	2020			2019
Dividend yield⁽¹⁾		0.0%			0.0%
Expected volatility⁽²⁾		28.61%			28.81%
Risk-free interest rate⁽³⁾	0.36%	to	1.22%	1.42%	to	2.78%
Expected life⁽⁴⁾ (in years)		6.25%			6.25%
Assumed forfeiture rate⁽⁵⁾		5.0%			4.0%

⁽¹⁾ A dividend yield of 0.0% is utilized because cash dividends have never been paid.

⁽²⁾ The expected volatility was based on the historical volatility of the Company’s common stock price as adjusted for certain historical periods of extraordinary volatility in order to estimate expected volatility.

⁽³⁾ The risk-free interest rate is based on the five to seven year Treasury bond.

⁽⁴⁾ The expected life reflects an 8 month to 4 year vesting period, the maximum ten year term and review of historical behavior.

⁽⁵⁾ Forfeiture rate is determined through forfeited and expired options as a percentage of options granted over the current three year period.

During the nine months ended September 30, 2020 and 2019, 907,790 shares and 842,898 shares vested, respectively. Expense is recognized ratably over the period required to vest. At September 30, 2020, the intrinsic value of the 5,993,700 options outstanding was $11,000, while the intrinsic value of the 3,384,500 exercisable (vested) options was $11,000. At September 30, 2019, the intrinsic value of the 5,007,725 options outstanding was $780,000, while the intrinsic value of the 2,645,960 exercisable (vested) options was $753,000. During the nine months ended September 30, 2020, 13,000 options were exercised resulting in cash receipts of $33,000 and 220,875 options were forfeited with a weighted average grant date fair value of $419,999. During the nine months ended September 30, 2019, 53,550 options were exercised resulting in cash receipts of $261,000 and 142,875 options were forfeited with a weighted average grant date fair value of $381,811.

Information regarding stock based compensation for the nine months ended September 30, 2020 and 2019 is set forth below:

	2020		2019
Stock based compensation expense recognized	$	1,538,000	$	2,005,000
Number of unvested stock options		2,609,200		2,361,765
Fair value of unvested stock options	$	4,915,841	$	6,095,468
Amount remaining to be recognized as expense	$	3,121,499	$	4,183,148

The remaining unrecognized expense amount of $3,121,499 will be recognized ratably as expense through September 2024.

Earnings per Share

Earnings per share (“EPS”) consists of two separate components: basic EPS and diluted EPS. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding for each period presented. Diluted EPS is calculated by dividing net income by the weighted average number of common shares outstanding plus dilutive common stock equivalents (“CSEs”). CSEs consist of dilutive stock options granted through the Company’s stock option plans and convertible preferred stock for the nine months ended September 30, 2020. CSEs consist of dilutive stock options granted through the Company’s stock option plans for the nine months September 30, 2019.

The calculation of EPS for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020		2019

Net income (loss) - basic and diluted	$	(966	)	$	(1,822	)	$	953	$	(1,015	)

Weighted average shares outstanding		58,853			58,843			58,851		58,830
Net income per share – basic	$	(0.02	)	$	(0.03	)	$	0.02	$	(0.02	)
Weighted average shares outstanding (including dilutive CSEs)		58,853			58,843			60,751		58,830
Net income per share – diluted	$	(0.02	)	$	(0.03	)	$	0.02	$	(0.02	)

The following is a summary of securities that could potentially dilute basic earnings per common share in future periods. These securities were not included in the computation of diluted earnings per common share because the effect would have been anti-dilutive for the periods presented.

(in thousands)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2020

2019

2020

2019

Anti-dilutive securities

Share based compensation awards

5,994

5,008

5,945

5,008

Recent Accounting Pronouncements

ASU 2016-02

In February 2016, the FASB issued ASU No. 2016-02, Leases. From the Company’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for lessees. From the landlord perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease is treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results. The new standard was effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provided lessees the option to apply the new leasing standard to all open leases as of the adoption date. Prior to this ASU issuance, a modified retrospective transition approach was required.

In December 2018, the FASB issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which provided lessors a policy election to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Additionally, the update requires certain lessors to exclude from variable payments lessor costs paid by lessees directly to third parties.

The Company adopted this ASU on January 1, 2019. The Company recognized an ROU asset of $34.2 million and total operating lease liability obligations of $35.1 million at January 1, 2019. Capital ratios remained in compliance with the regulatory definition of well capitalized. There were no material changes to the recognition of operating lease expense in the consolidated statements of income. The Company adopted certain practical expedients available under the new guidance, which did not require it to (1) reassess whether any expired or existing contracts contain leases, (2) reassess the lease classification for any expired or existing leases, (3) reassess initial direct costs for any existing leases, and (4) evaluate whether certain sales taxes and other similar taxes are lessor costs. The Company elected the use-of-hindsight practical expedient. Additionally, the Company elected to apply the new lease guidance at the adoption date, rather than at the beginning of the earliest period presented.

ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Additionally, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The Company has evaluated the impact of this ASU, continuing its implementation efforts and reviewing the loss modeling requirements consistent with lifetime expected loss estimates. Calculations of expected losses under the new guidance were run parallel to the calculations under existing guidance to assess and evaluate the potential impact to the Company’s financial statements. The new model includes different assumptions used in calculating credit losses, such as estimating losses over the estimated life of a financial asset and considers expected future changes in macroeconomic conditions. The Company expects an initial increase to the allowance for loan losses above the amount recorded on the balance sheet as of December 31, 2019. This one-time increase will be recorded, net of tax, as an adjustment to retained earnings effective January 1, 2020. This increase is expected to be an immaterial amount. When adopted this ASU may result in an increase to the Company's allowance for loan losses which will depend upon the nature and characteristics of the Company's loan portfolio at the adoption date, as well as the macroeconomic conditions and forecasts at that date. The Company has elected to defer the adoption of this ASU as permitted by Section 4014 of the CARES Act, which provides that financial institutions are not required to comply with the ASU during the period beginning on March 27, 2020 until the earlier of (i) the date on which the national emergency concerning the COVID-19 outbreak declared under the National Emergencies Relief Act terminates or (ii) December 31, 2020.

Note 3: Legal Proceedings

The Company and Republic are from time to time a party (plaintiff or defendant) to lawsuits that are in the normal course of business. While any litigation involves an element of uncertainty, management is of the opinion that the liability of the Company and Republic, if any, resulting from such actions will not have a material effect on the financial condition or results of operations of the Company and Republic.

Note 4: Segment Reporting

The Company has one reportable segment: community banking. The community banking segment primarily encompasses the commercial loan and deposit activities of Republic, as well as, residential mortgage and consumer loan products in the area surrounding its stores. Mortgage loans in Delaware and Florida are primarily made to local customers that have second homes (vacation) in Delaware and Florida. Republic does not have loan production offices in those states.

Note 5: Investment Securities

A summary of the amortized cost and market value of securities available for sale and securities held to maturity at September 30, 2020 and December 31, 2019 is as follows:

	At September 30, 2020
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

U.S. Government agencies	$	33,848	$	-	$	(476	)	$	33,372
Collateralized mortgage obligations		200,590		3,275		(63	)		203,802
Agency mortgage-backed securities		130,372		837		(6	)		131,203
Municipal securities		2,635		27		-			2,662
Corporate bonds		73,011		99		(3,494	)		69,616
Total securities available for sale	$	440,456	$	4,238	$	(4,039	)	$	440,655

U.S. Government agencies	$	84,689	$	4,486	$	-		$	89,175
Collateralized mortgage obligations		320,408		14,300		(54	)		334,654
Agency mortgage-backed securities		283,842		4,725		(27	)		288,540
Total securities held to maturity	$	688,939	$	23,511	$	(81	)	$	712,369

	At December 31, 2019
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

U.S. Government agencies	$	38,743	$	1	$	(439	)	$	38,305
Collateralized mortgage obligations		329,492		2,368		(422	)		331,438
Agency mortgage-backed securities		98,953		82		(98	)		98,937
Municipal securities		4,064		18		-			4,082
Corporate bonds		69,499		79		(3,298	)		66,280
Total securities available for sale	$	540,751	$	2,548	$	(4,257	)	$	539,042

U.S. Government agencies	$	94,913	$	482	$	(294	)	$	95,101
Collateralized mortgage obligations		416,177		7,603		(793	)		422,987
Agency mortgage-backed securities		133,752		1,782		(513	)		135,021
Total securities held to maturity	$	644,842	$	9,867	$	(1,600	)	$	653,109

The following table presents investment securities by stated maturity at September 30, 2020. Collateralized mortgage obligations and agency mortgage-backed securities have expected maturities that differ from contractual maturities because borrowers have the right to call or prepay with or without prepayment penalties and, therefore, these securities are classified separately with no specific maturity date.

	Available for Sale				Held to Maturity
(dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in 1 year or less	$	440	$	441	$	757	$	766
After 1 year to 5 years		50,361		49,908		61,794		64,794
After 5 years to 10 years		55,693		52,670		22,138		23,615
After 10 years		3,000		2,631		-		-
Collateralized mortgage obligations		200,590		203,802		320,408		334,654
Agency mortgage-backed securities		130,372		131,203		283,842		288,540
Total	$	440,456	$	440,655	$	688,939	$	712,369

The Company’s investment securities portfolio consists primarily of debt securities issued by U.S. government agencies, U.S. government-sponsored agencies, state governments, local municipalities and certain corporate entities. There were no private label mortgage-backed securities (“MBS”) or collateralized mortgage obligations (“CMO”) held in the investment securities portfolio as of September 30, 2020 and December 31, 2019. There were also no MBS or CMO securities that were rated “Alt-A” or “sub-prime” as of those dates.

The fair value of investment securities is impacted by interest rates, credit spreads, market volatility and liquidity conditions. Net unrealized gains and losses in the available for sale portfolio are included in shareholders’ equity as a component of accumulated other comprehensive income or loss, net of tax. Securities classified as held to maturity are carried at amortized cost. An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.

The Company regularly evaluates investment securities that are in an unrealized loss position in order to determine if the decline in fair value is other than temporary. Factors considered in the evaluation include the current economic climate, the length of time and the extent to which the fair value has been below cost, the current interest rate environment and the rating of each security. An OTTI loss must be recognized for a debt security in an unrealized loss position if the Company intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of the amortized cost basis. The amount of OTTI loss recognized is equal to the difference between the fair value and the amortized cost basis of the security that is attributed to credit deterioration. Accounting standards require the evaluation of the expected cash flows to be received to determine if a credit loss has occurred. In the event of a credit loss, that amount must be recognized against income in the current period. The portion of the unrealized loss related to other factors, such as liquidity conditions in the market or the current interest rate environment, is recorded in accumulated other comprehensive income (loss) for investment securities classified available for sale. There were no impairment charges (credit losses) recorded at September 30, 2020 and December 31, 2019.

The following tables show the fair value and gross unrealized losses associated with the investment portfolio, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position in the available for sale and held to maturity section:

	At September 30, 2020
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

U.S. Government agencies	$	8,254	$	89	$	25,118	$	387	$	33,372	$	476
Collateralized mortgage obligations		44,918		60		15,929		3		60,847		63
Agency mortgage-backed securities		1,787		6		-		-		1,787		6
Municipal securities		-		-		-		-		-		-
Corporate bonds		-		-		54,506		3,494		54,506		3,494
Total Available for Sale	$	54,959	$	155	$	95,553	$	3,884	$	150,512	$	4,039

	At September 30, 2020
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

U.S. Government agencies	$	-	$	-	$	-	$	-	$	-	$	-
Collateralized mortgage obligations		13,625		51		494		3		14,119		54
Agency mortgage-backed securities		4,942		27		-		-		4,942		27
Total Held to Maturity	$	18,567	$	78	$	494	$	3	$	19,061	$	81

	At December 31, 2019
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

U.S. Government agencies	$	28,136	$	439	$	-	$	-	$	28,136	$	439
Collateralized mortgage obligations		63,384		328		6,164		94		69,548		422
Agency mortgage-backed securities		2,924		13		6,411		85		9,335		98
Municipal securities		-		-		-		-		-		-
Corporate bonds		2,820		180		51,882		3,118		54,702		3,298
Total Available for Sale	$	97,264	$	960	$	64,457	$	3,297	$	161,721	$	4,257

	At December 31, 2019
	Less than 12 months				12 months or more				Total
(dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

U.S. Government agencies	$	33,092	$	220	$	3,703	$	74	$	36,795	$	294
Collateralized mortgage obligations		24,211		18		64,324		775		88,535		793
Agency mortgage-backed securities		14,044		33		52,132		480		66,176		513
Total Held to Maturity	$	71,347	$	271	$	120,159	$	1,329	$	191,506	$	1,600

Unrealized losses on securities in the investment portfolio amounted to $4.1 million with a total fair value of $169.6 million as of September 30, 2020 compared to unrealized losses of $5.9 million with a total fair value of $353.2 million as of December 31, 2019. The Company believes the unrealized losses presented in the tables above are temporary in nature and primarily related to market interest rates or limited trading activity in particular type of security rather than the underlying credit quality of the issuers. The Company does not believe that these losses are other than temporary and does not currently intend to sell or believe it will be required to sell securities in an unrealized loss position prior to maturity or recovery of the amortized cost bases.

The Company held four U.S. Government agency securities, fourteen collateralized mortgage obligations and two agency mortgage-backed securities that were in an unrealized loss position at September 30, 2020. Principal and interest payments of the underlying collateral for each of these securities are backed by U.S. Government sponsored agencies and carry minimal credit risk. Management found no evidence of OTTI on any of these securities and believes the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary as of September 30, 2020.

All municipal securities held in the investment portfolio are reviewed on least a quarterly basis for impairment. Each bond carries an investment grade rating by either Moody’s or Standard & Poor’s. In addition, the Company periodically conducts its own independent review on each issuer to ensure the financial stability of the municipal entity. The largest geographic concentration was in Pennsylvania and New Jersey and consisted of either general obligation or revenue bonds backed by the taxing power of the issuing municipality. At September 30, 2020, the investment portfolio included no municipal securities that were in an unrealized loss position.

At September 30, 2020, the investment portfolio included seven corporate bonds that were in an unrealized loss position. Management believes the unrealized losses on these securities were also driven by changes in market interest rates and not a result of credit deterioration. The seven corporate bonds are with five of the largest U.S. financial institutions. Each financial institution is well capitalized.

Proceeds associated with the sale of securities available for sale during the three months ended September 30, 2020 were $32.4 million. The tax provision applicable to the net gains of $279,000 for the three months ended September 30, 2020 amounted to $71,000. Proceeds associated with the sale of securities available for sale during the nine months ended September 30, 2020 were $125.2 million. The tax provision applicable to the net gains of $2.8 million for the nine months ended September 30, 2020 amounted to $700,000.

Proceeds associated with the sale of securities during the three months ended September 30, 2019 were $11.5 million. The tax provision applicable to the net gains of $520,000 for the three months ended September 30, 2019 amounted to $132,000. Proceeds associated with the sale of securities during the nine months ended September 30, 2019 were $54.7 million. Gross gains of $1.2 million and gross losses of $67,000 were realized on these sales. The tax provision applicable to the net gains of $1.1 million for the nine months ended September 30, 2019 amounted to $280,000.

Note 6: Loans Receivable and Allowance for Loan Losses

The following table sets forth the Company’s gross loans by major category as of September 30, 2020 and December 31, 2019:

(dollars in thousands)	September 30, 2020			December 31, 2019

Commercial real estate	$	676,460		$	613,631
Construction and land development		164,671			121,395
Commercial and industrial		228,145			223,906
Owner occupied real estate		427,026			424,400
Consumer and other		100,035			101,320
Residential mortgage		365,279			263,444
Paycheck protection program		683,398			-
Total loans receivable		2,645,014			1,748,096
Deferred (fees) costs		(15,616	)		99
Allowance for loan losses		(11,851	)		(9,266	)
Net loans receivable	$	2,617,547		$	1,738,929

The Company disaggregates its loan portfolio into groups of loans with similar risk characteristics for purposes of estimating the allowance for loan losses. The Company’s loan groups include commercial real estate, construction and land development, commercial and industrial, owner occupied real estate, consumer, residential mortgages, and PPP loans. PPP loans are fully guaranteed by the U.S. Government and as such have no allowance associated with them. The loan groups are also considered classes for purposes of monitoring and assessing credit quality based on certain risk characteristics.

The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the three months ended September 30, 2020 and 2019:

(dollars in thousands)	Commercial Real Estate		Construction and Land Development			Commercial and Industrial			Owner Occupied Real Estate			Consumer and Other			Residential Mortgage			Paycheck Protection Program		Unallocated		Total

*Three months ended September 30, 2020*
*Allowance for loan losses:*
Beginning balance:	$	3,732	$	952		$	1,431		$	1,995		$	675		$	2,255		$	-	$	-	$	11,040
Charge-offs		-		-			(33	)		-			(2	)		(17	)		-		-		(52	)
Recoveries		-		-			11			-			2			-			-		-		13
Provisions (credits)		235		112			74			(8	)		6			429			-		2		850
Ending balance	$	3,967	$	1,064		$	1,483		$	1,987		$	681		$	2,667		$	-	$	2	$	11,851

Three months ended September 30, 2019
*Allowance for loan losses:*
Beginning balance:	$	2,673	$	631		$	875		$	2,158		$	562		$	1,124		$	-	$	33	$	8,056
Charge-offs		-		-			(72	)		-			(29	)		-			-		-		(101	)
Recoveries		-		-			59			1			2			-			-		-		62
Provisions (credits)		198		(10	)		(79	)		31			36			205			-		69		450
Ending balance	$	2,871	$	621		$	783		$	2,190		$	571		$	1,329		$	-	$	102	$	8,467

The following tables provide the activity in and ending balances of the allowance for loan losses by loan portfolio class at and for the nine months ended September 30, 2020 and 2019:

(dollars in thousands)	Commercial Real Estate		Construction and Land Development			Commercial and Industrial			Owner Occupied Real Estate			Consumer and Other			Residential Mortgage			Paycheck Protection Program		Unallocated			Total

*Nine months ended September 30, 2020*
*Allowance for loan losses:*

Beginning balance:	$	3,043	$	688		$	931		$	2,292		$	590		$	1,705		$	-	$	17		$	9,266
Charge-offs		-		-			(84	)		(48	)		(67	)		(67	)		-		-			(266	)
Recoveries		-		2			38			1			10			-			-		-			51
Provisions (credits)		924		374			598			(258	)		148			1,029			-		(15	)		2,800
Ending balance	$	3,967	$	1,064		$	1,483		$	1,987		$	681		$	2,667		$	-	$	2		$	11,851

Nine months ended September 30, 2019
*Allowance for loan losses:*

Beginning balance:	$	2,462	$	777		$	1,754		$	2,033		$	577		$	894		$	-	$	118		$	8,615
Charge-offs		-		-			(1,002	)		-			(117	)		-			-		-			(1,119	)
Recoveries		-		-			213			1			7			-			-		-			221
Provisions (credits)		409		(156	)		(182	)		156			104			435			-		(16	)		750
Ending balance	$	2,871	$	621		$	783		$	2,190		$	571		$	1,329		$	-	$	102		$	8,467

The following tables provide a summary of the allowance for loan losses and balance of loans receivable by loan class and by impairment method as of September 30, 2020 and December 31, 2019:

(dollars in thousands)	Commercial Real Estate		Construction and Land Development		Commercial and Industrial		Owner Occupied Real Estate		Consumer and Other		Residential Mortgage		Paycheck Protection Program		Unallocated		Total
September 30, 2020
Allowance for loan losses:
Individually evaluated for impairment	$	426	$	-	$	51	$	122	$	-	$	-	$	-	$	-	$	599
Collectively evaluated for impairment		3,541		1,064		1,432		1,865		681		2,667		-		2		11,252
Total allowance for loan losses	$	3,967	$	1,064	$	1,483	$	1,987	$	681	$	2,667	$	-	$	2	$	11,851

Loans receivable:
Loans evaluated Individually	$	10,737	$	-	$	2,972	$	4,305	$	1,095	$	701	$	-	$	-

FRBK

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