Loans and Leases	12 Months Ended
Dec. 31, 2021
Loans and Leases [Abstract]
Loans and Leases	5.LOANS AND LEASESThe classifications of loans and leases at December 31, 2021 and 2020 are summarized as follows: (dollars in thousands)December 31, 2021 December 31, 2020Commercial and industrial$ 236,304 $ 280,757Commercial real estate: Non-owner occupied 312,848 192,143Owner occupied 248,755 179,923Construction 21,147 10,231Consumer: Home equity installment 47,571 40,147Home equity line of credit 54,878 49,725Auto loans 118,029 98,386Direct finance leases 26,232 20,095Other 8,013 7,602Residential: Real estate 325,861 218,445Construction 34,919 23,357Total 1,434,557 1,120,811Less: Allowance for loan losses (15,624) (14,202)Unearned lease revenue (1,429) (1,159)Loans and leases, net$ 1,417,504 $ 1,105,450 As of December 31, 2021, total loans of $1.4 billion were reflected net of deferred loan costs of $3.0 million, including $1.2 million in deferred fee income from Paycheck Protection Program (PPP) loans and $4.2 million in deferred loan costs. As of December 31, 2020, total loans of $1.1 billion were reflected net of deferred loan costs of $1.7 million, including $2.2 million in deferred fee income from PPP loans and $3.9 million in deferred loan costs.Commercial and industrial (C&I) loan balances were $237.6 million at December 31, 2021 and $280.8 million on December 31, 2020. As of December 31, 2021, the commercial and industrial loan balance included $39.9 million in PPP loans (net of deferred fees), including $7.9 million in PPP loans acquired from Landmark, compared to $129.9 million as of December 31, 2020. Excluding PPP loans, the balance of C&I loans at December 31, 2021 increased $46.9 million primarily from loans acquired from Landmark during the third quarter of 2021.Direct finance leases include the lease receivable and the guaranteed lease residual. Unearned lease revenue represents the difference between the lessor’s investment in the property and the gross investment in the lease. Unearned revenue is accrued over the life of the lease using the effective interest method.The Company services real estate loans for investors in the secondary mortgage market which are not included in the accompanying consolidated balance sheets. The approximate unpaid principal balance of mortgages serviced for others amounted to $430.9 million as of December 31, 2021 and $366.5 million as of December 31, 2020. Mortgage servicing rights amounted to $1.7 million and $1.3 million as of December 31, 2021 and 2020, respectively.Management is responsible for conducting the Company’s credit risk evaluation process, which includes credit risk grading of individual commercial and industrial and commercial real estate loans. Commercial and industrial and commercial real estate loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted. The Company utilizes an external independent loan review firm that reviews and validates the credit risk program on at least an annual basis. Results of these reviews are presented to management and the board of directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.Paycheck Protection Program LoansThe Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (PPP). As a qualified SBA lender, the Company was automatically authorized to originate PPP loans. The SBA guaranteed 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrowers’ PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP.On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) was enacted, extending the authority to make PPP loans through May 31, 2021, revising certain PPP requirements, and permitting second draw PPP loans. On March 11, 2021, the American Rescue Plan Act of 2021 (American Rescue Plan Act) was enacted expanding eligibility for first and second draw PPP loans and revising the exclusions from payroll costs for purposes of loan forgiveness.Acquired loans Acquired loans are marked to fair value on the date of acquisition. For detailed information on calculating the fair value of acquired loans, see Footnote 20, “Acquisition.”The carryover of allowance for loan losses related to acquired loans is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. The allowance for loan losses on acquired loans reflects only those losses incurred after acquisition and represents the present value of cash flows expected at acquisition that is no longer expected to be collected. The Company reported provisional fair value adjustments regarding the acquired Landmark loan portfolio. Therefore, the Company did not record an allowance on the acquired non-purchased credit impaired loans. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan losses, the Company performs an analysis on acquired loans to determine whether there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Company will include these loans in the calculation of the allowance for loan losses after the initial valuation and provide reserves accordingly.Upon acquisition, in accordance with U.S. GAAP, the Company has individually determined whether each acquired loan is within the scope of ASC 310-30 deemed as purchased credit impaired (PCI). As part of this process, the Company’s senior management and other relevant individuals reviewed the seller’s loan portfolio on a loan-by-loan basis to determine if any loans met the two-part definition of an impaired loan as defined by ASC 310-30: 1) Credit deterioration on the loan from its inception until the acquisition date, and 2) It is probable that not all contractual cash flows will be collected on the loan.With regards to ASC 310-30 loans, for external disclosure purposes, the aggregate contractual cash flows less the aggregate expected cash flows result in a credit related non-accretable yield amount. The aggregate expected cash flows less the acquisition date fair value result in an accretable yield amount. The accretable yield reflects the contractual cash flows management expects to collect above the loan's acquisition date fair value and will be recognized over the life of the loan on a level-yield basis as a component of interest income.Over the life of the acquired ASC 310-30 loan, the Company continues to estimate cash flows expected to be collected. Decreases in expected cash flows, other than from prepayments or rate adjustments, are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for credit losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized after acquisition, if any, and next, an increase in the amount of accretable yield to be subsequently recognized on a prospective basis over the loan’s remaining life.Acquired ASC 310-30 loans that met the criteria for non-accrual of interest prior to acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of expected cash flows on such loans. Accordingly, the Company does not consider acquired contractually delinquent loans to be non-accruing and continues to recognize accretable yield on these loans which is recognized as interest income on a level yield method over the life of the loan.Acquired ASC 310-20 loans, which are loans that did not meet the criteria above, were pooled into groups of similar loans based on various factors including borrower type, loan purpose, and collateral type. For these pools, the Company used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average margin, and weighted average interest rate along with estimated prepayment rates, expected lifetime losses, and environment factors to estimate the expected cash flow for each loan pool.Within the ASC 310-20 loans, the Company identified certain loans that have higher risk. Although performing at the time of acquisition and likely will continue making payments in accordance with contractual terms, management elected a higher credit adjustment on these loans to reflect the greater inherent risk that the borrower will default on payments. Risk factors used to identify these loans included: loans that received COVID-19 related forbearance consistent with the regulatory guidance, loans that were in industries determined to be at greater risk to economic disruption due to COVID-19, loans that had a prior history of delinquency greater than 60 days at any point in the lifetime of the loan; loans with a Special Mention or Substandard risk rating; and/or loans borrowers in the Gasoline Station industry due to the environmental risk potential of these loans.‎ The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table. For the years ended(dollars in thousands)December 31, 2021 December 31, 2020Balance at beginning of period $ 563 $ -Accretable yield on acquired loans 589 248Reclassification from non-accretable difference 453 429Accretion of accretable yield (517) (114)Balance at end of period$ 1,088 $ 563 The above table excludes the $275 thousand in non-accretable yield accreted to interest income for the year ended December 31, 2021 and $10 thousand in non-accretable yield accreted to interest income for the year ended December 31, 2020.During the twelve months ended December 31, 2021, management performed an analysis of all loans acquired from mergers, consistent with and applicable to ASC 310-30 (Purchased Credit Impaired loans – PCI). The accretable yield balance increased from $563 thousand at December 31, 2020 to $1,088 thousand at December 31, 2021. The $525 thousand increase resulted from $589 thousand in accretable yield on loans acquired from the Landmark merger during the third quarter of 2021; $453 thousand reclassified from non-accretable yield to accretable yield including $167 thousand from improved collateral values and $286 thousand from payments received on PCI in excess of estimates; and $517 thousand in accretable yield accreted to interest income due to contractual payments received during the twelve months ended December 31, 2021.Expected cash flows on acquired loans are estimated quarterly by incorporating several key assumptions. These key assumptions include probability of default and the number of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured.Non-accrual loansNon-accrual loans, segregated by class, at December 31, were as follows: (dollars in thousands)December 31, 2021 December 31, 2020Commercial and industrial$ 154 $ 590Commercial real estate: Non-owner occupied 478 846Owner occupied 1,570 1,123Consumer: Home equity installment - 61Home equity line of credit 97 395Auto loans 78 27Residential: Real estate 572 727Total$ 2,949 $ 3,769The table above excludes $4.7 million and $1.3 million in purchased credit impaired loans, net of unamortized fair value adjustments as of December 31, 2021 and 2020, respectively.The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan. C&I and CRE loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to principal and interest, unless well-secured and in the process of collection. Consumer loans secured by real estate and residential mortgage loans are placed on non-accrual status at 90 days past due as to principal and interest and unsecured consumer loans are charged-off when the loan is 90 days or more past due as to principal and interest. The Company considers all non-accrual loans to be impaired loans.‎ Troubled Debt Restructuring A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company considers all TDRs to be impaired loans. The Company typically considers the following concessions when modifying a loan, which may include lowering interest rates below the market rate, temporary interest-only payment periods, term extensions at interest rates lower than the current market rate for new debt with similar risk and/or converting revolving credit lines to term loans. The Company typically does not forgive principal when granting a TDR modification.Consistent with Section 4013 and the Revised Statement of Section 4013 of the CARES Act, specifically “Temporary Relief From Troubled Debt Restructurings”, the Company approved requests by borrowers to modify loan terms and defer principal and/or interest payment for loans. U.S. GAAP permits the suspension of TDR determination defined under ASC 310-40 provided that such modifications are made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief. This includes short-term (i.e. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current for purposes of Section 4013 are those that are less than 30 days past due on their contractual payments at the time the modification program is implemented.Beginning the week of March 16, 2020, the Company began receiving requests for temporary modifications to the repayment structure for borrower loans. Modification terms included interest only or full payment deferral for up to 6 months. As of December 31, 2021, the Company had no temporary modifications outstanding compared to 10 temporary modifications with principal balances totaling $2.2 million as of December 31, 2020.The following presents by class, information related to loans modified in a TDR: Loans modified as TDRs for the twelve months ended:(dollars in thousands)December 31, 2021 December 31, 2020 Recorded Increase in Recorded Increase in Number investment allowance Number investment allowance of (as of (as of of (as of (as of contracts period end) period end) contracts period end) period end)Commercial and industrial - $ - $ - 2 $ 206 $ 66Commercial real estate - non-owner occupied - - - 2 1,598 453Commercial real estate - owner occupied 1 512 - - - -Total 1 $ 512 $ - 4 $ 1,804 $ 519 In the above table, the period end balance is inclusive of all partial pay downs and charge-offs since the modification date. For all loans modified in a TDR, the pre-modification recorded investment was the same as the post-modification recorded investment.Of the TDRs outstanding as of December 31, 2021 and 2020, when modified, the concessions granted consisted of temporary interest-only payments, extensions of maturity date, or a reduction in the rate of interest to a below-market rate for a contractual period of time. Other than the TDRs that were placed on non-accrual status, the TDRs were performing in accordance with their modified terms.Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The following presents by class, loans modified as a TDR that subsequently defaulted (i.e. 90 days or more past due following a modification) during the periods indicated: Loans modified as a TDR within the previous twelve months that subsequently defaulted during the twelve months ended:(dollars in thousands)December 31, 2021 December 31, 2020 Number of Recorded Number of Recorded contracts investment contracts investmentCommercial and industrial - $ - 2 $ 206Total - $ - 2 $ 206 In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.The allowance for loan losses (allowance) may be increased, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. An allowance for impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the loan’s observable market price. If the loan is collateral dependent, the estimated fair value of the collateral is used to establish the allowance. As of December 31, 2021 and 2020, the balance of outstanding TDRs was $3.5 million and $3.2 million, respectively. As of December 31, 2021 and 2020, the allowance for impaired loans that have been modified in a TDR was $0.5 million and $0.7 million, respectively.Past due loansLoans are considered past due when the contractual principal and/or interest is not received by the due date. For loans reported 30-59 days past due, certain categories of loans are reported past due as and when the loan is in arrears for two payments or billing cycles. An aging analysis of past due loans, segregated by class of loans, as of the period indicated is as follows (dollars in thousands): Recorded Past due investment past 30 - 59 Days 60 - 89 Days 90 days Total Total due ≥ 90 days December 31, 2021past due past due or more (1) past due Current loans (3) and accruing Commercial and industrial$ - $ 4 $ 154 $ 158 $ 236,146 $ 236,304 $ -Commercial real estate: Non-owner occupied - 675 478 1,153 311,695 312,848 -Owner occupied - - 1,570 1,570 247,185 248,755 -Construction - - - - 21,147 21,147 -Consumer: Home equity installment 87 32 - 119 47,452 47,571 -Home equity line of credit - - 97 97 54,781 54,878 -Auto loans 410 45 78 533 117,496 118,029 -Direct finance leases 173 38 64 275 24,528 24,803 (2) 64 Other 49 17 - 66 7,947 8,013 -Residential: Real estate - 452 572 1,024 324,837 325,861 -Construction - - - - 34,919 34,919 -Total$ 719 $ 1,263 $ 3,013 $ 4,995 $ 1,428,133 $ 1,433,128 $ 64 (1) Includes non-accrual loans. (2) Net of unearned lease revenue of $1.4 million. (3) Includes net deferred loan costs of $3.0 million. Recorded Past due investment past 30 - 59 Days 60 - 89 Days 90 days Total Total due ≥ 90 days December 31, 2020past due past due or more (1) past due Current loans (3) and accruing Commercial and industrial$ 288 505 590 1,383 279,374 280,757 -Commercial real estate: Non-owner occupied 79 - 846 925 191,218 192,143 -Owner occupied 1 - 1,123 1,124 178,799 179,923 -Construction - - - - 10,231 10,231 -Consumer: Home equity installment 102 - 61 163 39,984 40,147 -Home equity line of credit 24 - 395 419 49,306 49,725 -Auto loans 197 25 27 249 98,137 98,386 -Direct finance leases 294 - 61 355 18,581 18,936 (2) 61 Other 9 - - 9 7,593 7,602 -Residential: Real estate - 74 727 801 217,644 218,445 -Construction - - - - 23,357 23,357 -Total$ 994 $ 604 $ 3,830 $ 5,428 $ 1,114,224 $ 1,119,652 $ 61 (1) Includes non-accrual loans. (2) Net of unearned lease revenue of $1.2 million. (3) Includes net deferred loan costs of $1.7 million.‎ Impaired loans Impaired loans, segregated by class, as of the period indicated are detailed below: Recorded Recorded Unpaid investment investment Total principal with with no recorded Related(dollars in thousands)balance allowance allowance investment allowanceDecember 31, 2021 Commercial and industrial$ 218 $ 18 $ 136 $ 154 $ 18 Commercial real estate: Non-owner occupied 2,470 1,674 796 2,470 474 Owner occupied 3,185 1,802 762 2,564 763 Consumer: Home equity installment 33 - - - -Home equity line of credit 137 - 97 97 -Auto loans 98 10 68 78 4 Residential: Real estate 699 - 572 572 -Total$ 6,840 $ 3,504 $ 2,431 $ 5,935 $ 1,259 Recorded Recorded Unpaid investment investment Total principal with with no recorded Related(dollars in thousands)balance allowance allowance investment allowanceDecember 31, 2020 Commercial and industrial$ 688 $ 549 $ 41 $ 590 $ 213 Commercial real estate: Non-owner occupied 2,960 1,677 1,171 2,848 481 Owner occupied 2,058 1,219 473 1,692 309 Consumer: Home equity installment 106 - 61 61 -Home equity line of credit 443 105 290 395 48 Auto loans 50 27 - 27 4 Residential: Real estate 774 559 168 727 151 Total$ 7,079 $ 4,136 $ 2,204 $ 6,340 $ 1,206 At December 31, 2021, impaired loans totaled $5.9 million consisting of $3.0 million in accruing TDRs and $2.9 million in non-accrual loans. At December 31, 2020, impaired loans totaled $6.3 million consisting of $2.5 million in accruing TDRs and $3.8 million in non-accrual loans. As of December 31, 2021, the non-accrual loans included three TDRs to two unrelated borrowers totaling $0.6 million compared with four TDRs to three unrelated borrowers totaling $0.7 million as of December 31, 2020.A loan is considered impaired when, based on current information and events; it is probable that the Company will be unable to collect the payments in accordance with the contractual terms of the loan. Factors considered in determining impairment include payment status, collateral value, and the probability of collecting payments when due. The significance of payment delays and/or shortfalls is determined on a case-by-case basis. All circumstances surrounding the loan are considered. Such factors include the length of the delinquency, the underlying reasons and the borrower’s prior payment record. Impairment is measured on these loans on a loan-by-loan basis. Impaired loans include non-accrual loans, TDRs and other loans deemed to be impaired based on the aforementioned factors.The following table presents the average recorded investments in impaired loans and related amount of interest income recognized during the periods indicated below. The average balances are calculated based on the quarter-end balances of impaired loans. Payments received from non-accruing impaired loans are first applied against the outstanding principal balance, then to the recovery of any charged-off amounts. Any excess is treated as a recovery of interest income. Payments received from accruing impaired loans are applied to principal and interest, as contractually agreed upon.‎ December 31, 2021 December 31, 2020 Cash basis Cash basis Average Interest interest Average Interest interest recorded income income recorded income income(dollars in thousands)investment recognized recognized investment recognized recognized Commercial and industrial$ 380 $ 2 $ - $ 404 $ 1 $ -Commercial real estate: Non-owner occupied 2,698 195 - 1,939 96 -Owner occupied 1,883 55 - 1,848 48 -Construction - - - - - -Consumer: Home equity installment 28 6 - 53 - -Home equity line of credit 202 20 - 368 - -Auto loans 42 2 - 51 2 -Direct finance leases - - - - - -Other - - - - - -Residential: Real estate 682 - - 819 - -Construction - - - - - -Total$ 5,915 $ 280 $ - $ 5,482 $ 147 $ - The average recorded investment in the above chart is based on the five quarter average in the impaired loan balance through the quarter ending December 31, 2021. The average recorded investment for the year ended December 31, 2019 was $5.2 million. There was also interest income recognized of $247 thousand and cash basis interest income recognized of $0.Credit Quality IndicatorsCommercial and industrial and commercial real estateThe Company utilizes a loan grading system and assigns a credit risk grade to its loans in the C&I and CRE portfolios. The grading system provides a means to measure portfolio quality and aids in the monitoring of the credit quality of the overall loan portfolio. The credit risk grades are arrived at using a risk rating matrix to assign a grade to each of the loans in the C&I and CRE portfolios.The following is a description of each risk rating category the Company uses to classify each of its C&I and CRE loans:PassLoans in this category have an acceptable level of risk and are graded in a range of one to five. Secured loans generally have good collateral coverage. Current financial statements reflect acceptable balance sheet ratios, sales and earnings trends. Management is competent, and a reasonable succession plan is evident. Payment experience on the loans has been good with minor or no delinquency experience. Loans with a grade of one are of the highest quality in the range. Those graded five are of marginally acceptable quality.Special MentionLoans in this category are graded a six and may be protected but are potentially weak. They constitute a credit risk to the Company but have not yet reached the point of adverse classification. Some of the following conditions may exist: little or no collateral coverage; lack of current financial information; delinquency problems; highly leveraged; available financial information reflects poor balance sheet ratios and profit and loss statements reflect uncertain trends; and document exceptions. Cash flow may not be sufficient to support total debt service requirements.SubstandardLoans in this category are graded a seven and have a well-defined weakness which may jeopardize the ultimate collectability of the debt. The collateral pledged may be lacking in quality or quantity. Financial statements may indicate insufficient cash flow to service the debt; and/or do not reflect a sound net worth. The payment history indicates chronic delinquency problems. Management is weak. There is a distinct possibility that the Company may sustain a loss. All loans on non-accrual are rated substandard. Other loans that are included in the substandard category can be accruing, as well as loans that are current or past due. Loans 90 days or more past due, unless otherwise fully supported, are classified substandard. Also, borrowers that are bankrupt or have loans categorized as TDRs can be graded substandard.DoubtfulLoans in this category are graded an eight and have a better than 50% possibility of the Company sustaining a loss, but the loss cannot be determined because of specific reasonable factors which may strengthen credit in the near-term. Many of the weaknesses present in a substandard loan exist. Liquidation of collateral, if any, is likely. Any loan graded lower than an eight is considered to be uncollectible and charged-off.Consumer and residentialThe consumer and residential loan segments are regarded as homogeneous loan pools and as such are not risk rated. For these portfolios, the Company utilizes payment activity and history in assessing performance. Non-performing loans are comprised of non-accrual loans and loans past due 90 days or more and accruing. All loans not classified as non-performing are considered performing.The following table presents loans including $3.0 million and $1.7 million of deferred costs, segregated by class, categorized into the appropriate credit quality indicator category as of December 31, 2021 and 2020, respectively:Commercial credit exposureCredit risk profile by creditworthiness category December 31, 2021(dollars in thousands)Pass Special mention Substandard Doubtful Total Commercial and industrial$ 234,822 $ 339 $ 2,400 $ - $ 237,561 Commercial real estate - non-owner occupied 289,679 16,614 6,555 - 312,848 Commercial real estate - owner occupied 228,889 7,089 11,520 - 247,498 Commercial real estate - construction 21,147 - - - 21,147 Total commercial$ 774,537 $ 24,042 $ 20,475 $ - $ 819,054 Consumer & Mortgage lending credit exposureCredit risk profile based on payment activity December 31, 2021(dollars in thousands) Performing Non-performing TotalConsumer Home equity installment $ 47,571 $ - $ 47,571 Home equity line of credit 54,781 97 54,878 Auto loans 117,951 78 118,029 Direct finance leases (1) 24,739 64 24,803 Other 8,013 - 8,013 Total consumer 253,055 239 253,294 Residential Real estate 325,289 572 325,861 Construction 34,919 - 34,919 Total residential 360,208 572 360,780 Total consumer & residential $ 613,263 $ 811 $ 614,074 (1)Net of unearned lease revenue of $1.4 million. Commercial credit exposureCredit risk profile by creditworthiness category December 31, 2020(dollars in thousands)Pass Special mention Substandard Doubtful Total Commercial and industrial$ 272,889 $ 4,162 $ 3,706 $ - $ 280,757 Commercial real estate - non-owner occupied 179,311 6,445 6,387 - 192,143 Commercial real estate - owner occupied 167,873 3,241 8,809 - 179,923 Commercial real estate - construction 8,635 1,233 363 - 10,231 Total commercial$ 628,708 $ 15,081 $ 19,265 $ - $ 663,054 ‎ Consumer & Mortgage lending credit exposureCredit risk profile based on payment activity December 31, 2020(dollars in thousands) Performing Non-performing Total Consumer Home equity installment $ 40,086 $ 61 $ 40,147 Home equity line of credit 49,330 395 49,725 Auto loans 98,359 27 98,386 Direct finance leases (2) 18,875 61 18,936 Other 7,602 - 7,602 Total consumer 214,252 544 214,796 Residential Real estate 217,718 727 218,445 Construction 23,357 - 23,357 Total residential 241,075 727 241,802 Total consumer & residential $ 455,327 $ 1,271 $ 456,598 (2) Net of unearned lease revenue of $1.2 million. Allowance for loan lossesManagement continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance on a quarterly basis. The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio. Management’s judgment is based on the evaluation of individual loans, experience, the assessment of current economic conditions and other relevant factors including the amounts and timing of cash flows expected to be received on impaired loans. Those estimates may be susceptible to significant change. Loan losses are charged directly against the allowance when loans are deemed to be uncollectible. Recoveries from previously charged-off loans are added to the allowance when received.Management applies two primary components during the loan review process to determine proper allowance levels. The two components are a specific loan loss allocation for loans that are deemed impaired and a general loan loss allocation for those loans not specifically allocated. The methodology to analyze the adequacy of the allowance for loan losses is as follows:identification of specific impaired loans by loan category;identification of specific loans that are not impaired, but have an identified potential for loss;calculation of specific allowances where required for the impaired loans based on collateral and other objective and quantifiable evidence;determination of loans with similar credit characteristics within each class of the loan portfolio segment and eliminating the impaired loans;application of historical loss percentages (trailing twelve-quarter average) to pools to determine the allowance allocation; application of qualitative factor adjustment percentages to historical losses for trends or changes in the loan portfolio.Qualitative factor adjustments include:olevels of and trends in delinquencies and non-accrual loans;olevels of and trends in charge-offs and recoveries;otrends in volume and terms of loans;ochanges in risk selection and underwriting standards;ochanges in lending policies and legal and regulatory requirements;oexperience, ability and depth of lending management;onational and local economic trends and conditions; andochanges in credit concentrations.Allocation of the allowance for different categories of loans is based on the methodology as explained above. A key element of the methodology to determine the allowance is the Company’s credit risk evaluation process, which includes credit risk grading of individual C&I and CRE loans. C&I and CRE loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted. The credit risk grades for the C&I and CRE loan portfolios are considered in the reserve methodology and loss factors are applied based upon the credit risk grades. The loss factors applied are based upon the Company’s historical experience as well as what we believe to be best practices and common industry standards. Historical experience reveals there is a direct correlation between the credit risk grades and loan charge-offs. The changes in allocations in the C&I and CRE loan portfolio from period to period are based upon the credit risk grading system and from periodic reviews of the loan portfolio. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies.Each quarter, management performs an assessment of the allowance. The Company’s Special Assets Committee meets quarterly, and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance. The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment. The assessment process also includes the review of all loans on a non-accruing basis as well as a review of certain loans to which the lenders or the Company’s Credit Administration function have assigned a criticized or classified risk rating.The Company’s policy is to charge-off unsecured consumer loans when they become 90 days or more past due as to principal and interest. In the other portfolio segments, amounts are charged-off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.Information related to the change in the allowance for loan losses and the Company’s recorded investment in loans by portfolio segment as of the period indicated is as follows: As of and for the year ended December 31, 2021 Commercial & Commercial Residential (dollars in thousands)industrial real estate Consumer real estate Unallocated TotalAllowance for Loan Losses: Beginning balance$ 2,407 $ 6,383 $ 2,552 $ 2,781 $ 79 $ 14,202 Charge-offs (130) (491) (206) (162) - (989)Recoveries 23 250 138 - - 411 Provision (96) 1,280 (80) 889 7 2,000 Ending balance$ 2,204 $ 7,422 $ 2,404 $ 3,508 $ 86 $ 15,624 Ending balance: individually evaluated for impairment$ 18 $ 1,237 $ 4 $ - $ - $ 1,259 Ending balance: collectively evaluated for impairment$ 2,186 $ 6,185 $ 2,400 $ 3,508 $ 86 $ 14,365 Loans Receivables: Ending balance (2)$ 236,304 $ 582,750 $ 253,294 (1)$ 360,780 $ - $ 1,433,128 Ending balance: individually evaluated for impairment$ 154 $ 5,034 $ 175 $ 572 $ - $ 5,935 Ending balance: collectively evaluated for impairment$ 236,150 $ 577,716 $ 253,119 $ 360,208 $ - $ 1,427,193 (1) Net of unearned lease revenue of $1.4 million. (2) Includes $3.0 million of net deferred loan costs. As of and for the year ended December 31, 2020 Commercial & Commercial Residential (dollars in thousands)industrial real estate Consumer real estate Unallocated TotalAllowance for Loan Losses: Beginning balance$ 1,484 $ 3,933 $ 2,013 $ 2,278 $ 39 $ 9,747 Charge-offs (372) (465) (296) (35) - (1,168)Recoveries 26 30 120 197 - 373 Provision 1,269 2,885 715 341 40 5,250 Ending balance$ 2,407 $ 6,383 $ 2,552 $ 2,781 $ 79 $ 14,202 Ending balance: individually evaluated for impairment$ 213 $ 790 $ 52 $ 151 $ - $ 1,206 Ending balance: collectively evaluated for impairment$ 2,194 $ 5,593 $ 2,500 $ 2,630 $ 79 $ 12,996 Loans Receivables: Ending balance (2)$ 280,757 $ 382,297 $ 214,796 (1)$ 241,802 $ - $ 1,119,652 Ending balance: individually evaluated for impairment$ 590 $ 4,540 $ 483 $ 727 $ - $ 6,340 Ending balance: collectively evaluated for impairment$ 280,167 $ 377,757 $ 214,313 $ 241,075 $ - $ 1,113,312 (1) Net of unearned lease revenue of $1.2 million. (2) Includes $1.7 million of net deferred loan costs. ‎ As of and for the year ended December 31, 2019 Commercial & Commercial Residential (dollars in thousands)industrial real estate Consumer real estate Unallocated TotalAllowance for Loan Losses: Beginning balance$ 1,432 $ 3,901 $ 2,548 $ 1,844 $ 22 $ 9,747 Charge-offs (184) (597) (398) (330) - (1,509)Recoveries 32 317 67 8 - 424 Provision 204 312 (204) 756 17 1,085 Ending balance$ 1,484 $ 3,933 $ 2,013 $ 2,278 $ 39 $ 9,747 Direct finance leasesOn January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), and subsequent related updates to revise the accounting for leases. Lessor accounting was largely unchanged as a result of the standard. Additional disclosures required under the standard are included in this section and in Footnote 24, “Leases”.The Company originates direct finance leases through two automobile dealerships. The carrying amount of the Company’s lease receivables, net of unearned income, was $7.7 million and $6.0 million as of December 31, 2021 and 2020, respectively. The residual value of the direct finance leases is fully guaranteed by the dealerships. Residual values amounted to $17.1 million and $12.9 million at December 31, 2021 and 2020, respectively, and are included in the carrying value of direct finance leases.The undiscounted cash flows to be received on an annual basis for the direct finance leases are as follows: (dollars in thousands)Amount 2022$ 7,8812023 6,2862024 8,4972025 3,4442026 1242027 and thereafter -Total future minimum lease payments receivable 26,232Less: Unearned income (1,429)Undiscounted cash flows to be received$ 24,803

Loans and Leases

12 Months Ended

Dec. 31, 2021

5.LOANS AND LEASESThe classifications of loans and leases at December 31, 2021 and 2020 are summarized as follows: (dollars in thousands)December 31, 2021 December 31, 2020Commercial and industrial$ 236,304 $ 280,757Commercial real estate: Non-owner occupied 312,848 192,143Owner occupied 248,755 179,923Construction 21,147 10,231Consumer: Home equity installment 47,571 40,147Home equity line of credit 54,878 49,725Auto loans 118,029 98,386Direct finance leases 26,232 20,095Other 8,013 7,602Residential: Real estate 325,861 218,445Construction 34,919 23,357Total 1,434,557 1,120,811Less: Allowance for loan losses (15,624) (14,202)Unearned lease revenue (1,429) (1,159)Loans and leases, net$ 1,417,504 $ 1,105,450 As of December 31, 2021, total loans of $1.4 billion were reflected net of deferred loan costs of $3.0 million, including $1.2 million in deferred fee income from Paycheck Protection Program (PPP) loans and $4.2 million in deferred loan costs. As of December 31, 2020, total loans of $1.1 billion were reflected net of deferred loan costs of $1.7 million, including $2.2 million in deferred fee income from PPP loans and $3.9 million in deferred loan costs.Commercial and industrial (C&I) loan balances were $237.6 million at December 31, 2021 and $280.8 million on December 31, 2020. As of December 31, 2021, the commercial and industrial loan balance included $39.9 million in PPP loans (net of deferred fees), including $7.9 million in PPP loans acquired from Landmark, compared to $129.9 million as of December 31, 2020. Excluding PPP loans, the balance of C&I loans at December 31, 2021 increased $46.9 million primarily from loans acquired from Landmark during the third quarter of 2021.Direct finance leases include the lease receivable and the guaranteed lease residual. Unearned lease revenue represents the difference between the lessor’s investment in the property and the gross investment in the lease. Unearned revenue is accrued over the life of the lease using the effective interest method.The Company services real estate loans for investors in the secondary mortgage market which are not included in the accompanying consolidated balance sheets. The approximate unpaid principal balance of mortgages serviced for others amounted to $430.9 million as of December 31, 2021 and $366.5 million as of December 31, 2020. Mortgage servicing rights amounted to $1.7 million and $1.3 million as of December 31, 2021 and 2020, respectively.Management is responsible for conducting the Company’s credit risk evaluation process, which includes credit risk grading of individual commercial and industrial and commercial real estate loans. Commercial and industrial and commercial real estate loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted. The Company utilizes an external independent loan review firm that reviews and validates the credit risk program on at least an annual basis. Results of these reviews are presented to management and the board of directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.Paycheck Protection Program LoansThe Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, and provided over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (PPP). As a qualified SBA lender, the Company was automatically authorized to originate PPP loans. The SBA guaranteed 100% of the PPP loans made to eligible borrowers. The entire principal amount of the borrowers’ PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP.On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) was enacted, extending the authority to make PPP loans through May 31, 2021, revising certain PPP requirements, and permitting second draw PPP loans. On March 11, 2021, the American Rescue Plan Act of 2021 (American Rescue Plan Act) was enacted expanding eligibility for first and second draw PPP loans and revising the exclusions from payroll costs for purposes of loan forgiveness.Acquired loans Acquired loans are marked to fair value on the date of acquisition. For detailed information on calculating the fair value of acquired loans, see Footnote 20, “Acquisition.”The carryover of allowance for loan losses related to acquired loans is prohibited as any credit losses in the loans are included in the determination of the fair value of the loans at the acquisition date. The allowance for loan losses on acquired loans reflects only those losses incurred after acquisition and represents the present value of cash flows expected at acquisition that is no longer expected to be collected. The Company reported provisional fair value adjustments regarding the acquired Landmark loan portfolio. Therefore, the Company did not record an allowance on the acquired non-purchased credit impaired loans. In conjunction with the quarterly evaluation of the adequacy of the allowance for loan losses, the Company performs an analysis on acquired loans to determine whether there has been subsequent deterioration in relation to those loans. If deterioration has occurred, the Company will include these loans in the calculation of the allowance for loan losses after the initial valuation and provide reserves accordingly.Upon acquisition, in accordance with U.S. GAAP, the Company has individually determined whether each acquired loan is within the scope of ASC 310-30 deemed as purchased credit impaired (PCI). As part of this process, the Company’s senior management and other relevant individuals reviewed the seller’s loan portfolio on a loan-by-loan basis to determine if any loans met the two-part definition of an impaired loan as defined by ASC 310-30: 1) Credit deterioration on the loan from its inception until the acquisition date, and 2) It is probable that not all contractual cash flows will be collected on the loan.With regards to ASC 310-30 loans, for external disclosure purposes, the aggregate contractual cash flows less the aggregate expected cash flows result in a credit related non-accretable yield amount. The aggregate expected cash flows less the acquisition date fair value result in an accretable yield amount. The accretable yield reflects the contractual cash flows management expects to collect above the loan's acquisition date fair value and will be recognized over the life of the loan on a level-yield basis as a component of interest income.Over the life of the acquired ASC 310-30 loan, the Company continues to estimate cash flows expected to be collected. Decreases in expected cash flows, other than from prepayments or rate adjustments, are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for credit losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized after acquisition, if any, and next, an increase in the amount of accretable yield to be subsequently recognized on a prospective basis over the loan’s remaining life.Acquired ASC 310-30 loans that met the criteria for non-accrual of interest prior to acquisition are considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if the Company can reasonably estimate the timing and amount of expected cash flows on such loans. Accordingly, the Company does not consider acquired contractually delinquent loans to be non-accruing and continues to recognize accretable yield on these loans which is recognized as interest income on a level yield method over the life of the loan.Acquired ASC 310-20 loans, which are loans that did not meet the criteria above, were pooled into groups of similar loans based on various factors including borrower type, loan purpose, and collateral type. For these pools, the Company used certain loan information, including outstanding principal balance, estimated expected losses, weighted average maturity, weighted average margin, and weighted average interest rate along with estimated prepayment rates, expected lifetime losses, and environment factors to estimate the expected cash flow for each loan pool.Within the ASC 310-20 loans, the Company identified certain loans that have higher risk. Although performing at the time of acquisition and likely will continue making payments in accordance with contractual terms, management elected a higher credit adjustment on these loans to reflect the greater inherent risk that the borrower will default on payments. Risk factors used to identify these loans included: loans that received COVID-19 related forbearance consistent with the regulatory guidance, loans that were in industries determined to be at greater risk to economic disruption due to COVID-19, loans that had a prior history of delinquency greater than 60 days at any point in the lifetime of the loan; loans with a Special Mention or Substandard risk rating; and/or loans borrowers in the Gasoline Station industry due to the environmental risk potential of these loans.‎ The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-30. Loans accounted for under ASC 310-20 are not included in this table. For the years ended(dollars in thousands)December 31, 2021 December 31, 2020Balance at beginning of period $ 563 $ -Accretable yield on acquired loans 589 248Reclassification from non-accretable difference 453 429Accretion of accretable yield (517) (114)Balance at end of period$ 1,088 $ 563 The above table excludes the $275 thousand in non-accretable yield accreted to interest income for the year ended December 31, 2021 and $10 thousand in non-accretable yield accreted to interest income for the year ended December 31, 2020.During the twelve months ended December 31, 2021, management performed an analysis of all loans acquired from mergers, consistent with and applicable to ASC 310-30 (Purchased Credit Impaired loans – PCI). The accretable yield balance increased from $563 thousand at December 31, 2020 to $1,088 thousand at December 31, 2021. The $525 thousand increase resulted from $589 thousand in accretable yield on loans acquired from the Landmark merger during the third quarter of 2021; $453 thousand reclassified from non-accretable yield to accretable yield including $167 thousand from improved collateral values and $286 thousand from payments received on PCI in excess of estimates; and $517 thousand in accretable yield accreted to interest income due to contractual payments received during the twelve months ended December 31, 2021.Expected cash flows on acquired loans are estimated quarterly by incorporating several key assumptions. These key assumptions include probability of default and the number of actual prepayments after the acquisition date. Prepayments affect the estimated life of the loans and could change the amount of interest income, and possibly principal expected to be collected. In reforecasting future estimated cash flows, credit loss expectations are adjusted as necessary. Improved cash flow expectations for loans or pools are recorded first as a reversal of previously recorded impairment, if any, and then as an increase in prospective yield when all previously recorded impairment has been recaptured.Non-accrual loansNon-accrual loans, segregated by class, at December 31, were as follows: (dollars in thousands)December 31, 2021 December 31, 2020Commercial and industrial$ 154 $ 590Commercial real estate: Non-owner occupied 478 846Owner occupied 1,570 1,123Consumer: Home equity installment - 61Home equity line of credit 97 395Auto loans 78 27Residential: Real estate 572 727Total$ 2,949 $ 3,769The table above excludes $4.7 million and $1.3 million in purchased credit impaired loans, net of unamortized fair value adjustments as of December 31, 2021 and 2020, respectively.The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan. C&I and CRE loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to principal and interest, unless well-secured and in the process of collection. Consumer loans secured by real estate and residential mortgage loans are placed on non-accrual status at 90 days past due as to principal and interest and unsecured consumer loans are charged-off when the loan is 90 days or more past due as to principal and interest. The Company considers all non-accrual loans to be impaired loans.‎ Troubled Debt Restructuring A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company considers all TDRs to be impaired loans. The Company typically considers the following concessions when modifying a loan, which may include lowering interest rates below the market rate, temporary interest-only payment periods, term extensions at interest rates lower than the current market rate for new debt with similar risk and/or converting revolving credit lines to term loans. The Company typically does not forgive principal when granting a TDR modification.Consistent with Section 4013 and the Revised Statement of Section 4013 of the CARES Act, specifically “Temporary Relief From Troubled Debt Restructurings”, the Company approved requests by borrowers to modify loan terms and defer principal and/or interest payment for loans. U.S. GAAP permits the suspension of TDR determination defined under ASC 310-40 provided that such modifications are made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief. This includes short-term (i.e. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant. Borrowers considered current for purposes of Section 4013 are those that are less than 30 days past due on their contractual payments at the time the modification program is implemented.Beginning the week of March 16, 2020, the Company began receiving requests for temporary modifications to the repayment structure for borrower loans. Modification terms included interest only or full payment deferral for up to 6 months. As of December 31, 2021, the Company had no temporary modifications outstanding compared to 10 temporary modifications with principal balances totaling $2.2 million as of December 31, 2020.The following presents by class, information related to loans modified in a TDR: Loans modified as TDRs for the twelve months ended:(dollars in thousands)December 31, 2021 December 31, 2020 Recorded Increase in Recorded Increase in Number investment allowance Number investment allowance of (as of (as of of (as of (as of contracts period end) period end) contracts period end) period end)Commercial and industrial - $ - $ - 2 $ 206 $ 66Commercial real estate - non-owner occupied - - - 2 1,598 453Commercial real estate - owner occupied 1 512 - - - -Total 1 $ 512 $ - 4 $ 1,804 $ 519 In the above table, the period end balance is inclusive of all partial pay downs and charge-offs since the modification date. For all loans modified in a TDR, the pre-modification recorded investment was the same as the post-modification recorded investment.Of the TDRs outstanding as of December 31, 2021 and 2020, when modified, the concessions granted consisted of temporary interest-only payments, extensions of maturity date, or a reduction in the rate of interest to a below-market rate for a contractual period of time. Other than the TDRs that were placed on non-accrual status, the TDRs were performing in accordance with their modified terms.Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment. The following presents by class, loans modified as a TDR that subsequently defaulted (i.e. 90 days or more past due following a modification) during the periods indicated: Loans modified as a TDR within the previous twelve months that subsequently defaulted during the twelve months ended:(dollars in thousands)December 31, 2021 December 31, 2020 Number of Recorded Number of Recorded contracts investment contracts investmentCommercial and industrial - $ - 2 $ 206Total - $ - 2 $ 206 In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.The allowance for loan losses (allowance) may be increased, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. An allowance for impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the loan’s observable market price. If the loan is collateral dependent, the estimated fair value of the collateral is used to establish the allowance. As of December 31, 2021 and 2020, the balance of outstanding TDRs was $3.5 million and $3.2 million, respectively. As of December 31, 2021 and 2020, the allowance for impaired loans that have been modified in a TDR was $0.5 million and $0.7 million, respectively.Past due loansLoans are considered past due when the contractual principal and/or interest is not received by the due date. For loans reported 30-59 days past due, certain categories of loans are reported past due as and when the loan is in arrears for two payments or billing cycles. An aging analysis of past due loans, segregated by class of loans, as of the period indicated is as follows (dollars in thousands): Recorded Past due investment past 30 - 59 Days 60 - 89 Days 90 days Total Total due ≥ 90 days December 31, 2021past due past due or more (1) past due Current loans (3) and accruing Commercial and industrial$ - $ 4 $ 154 $ 158 $ 236,146 $ 236,304 $ -Commercial real estate: Non-owner occupied - 675 478 1,153 311,695 312,848 -Owner occupied - - 1,570 1,570 247,185 248,755 -Construction - - - - 21,147 21,147 -Consumer: Home equity installment 87 32 - 119 47,452 47,571 -Home equity line of credit - - 97 97 54,781 54,878 -Auto loans 410 45 78 533 117,496 118,029 -Direct finance leases 173 38 64 275 24,528 24,803 (2) 64 Other 49 17 - 66 7,947 8,013 -Residential: Real estate - 452 572 1,024 324,837 325,861 -Construction - - - - 34,919 34,919 -Total$ 719 $ 1,263 $ 3,013 $ 4,995 $ 1,428,133 $ 1,433,128 $ 64 (1) Includes non-accrual loans. (2) Net of unearned lease revenue of $1.4 million. (3) Includes net deferred loan costs of $3.0 million. Recorded Past due investment past 30 - 59 Days 60 - 89 Days 90 days Total Total due ≥ 90 days December 31, 2020past due past due or more (1) past due Current loans (3) and accruing Commercial and industrial$ 288 505 590 1,383 279,374 280,757 -Commercial real estate: Non-owner occupied 79 - 846 925 191,218 192,143 -Owner occupied 1 - 1,123 1,124 178,799 179,923 -Construction - - - - 10,231 10,231 -Consumer: Home equity installment 102 - 61 163 39,984 40,147 -Home equity line of credit 24 - 395 419 49,306 49,725 -Auto loans 197 25 27 249 98,137 98,386 -Direct finance leases 294 - 61 355 18,581 18,936 (2) 61 Other 9 - - 9 7,593 7,602 -Residential: Real estate - 74 727 801 217,644 218,445 -Construction - - - - 23,357 23,357 -Total$ 994 $ 604 $ 3,830 $ 5,428 $ 1,114,224 $ 1,119,652 $ 61 (1) Includes non-accrual loans. (2) Net of unearned lease revenue of $1.2 million. (3) Includes net deferred loan costs of $1.7 million.‎ Impaired loans Impaired loans, segregated by class, as of the period indicated are detailed below: Recorded Recorded Unpaid investment investment Total principal with with no recorded Related(dollars in thousands)balance allowance allowance investment allowanceDecember 31, 2021 Commercial and industrial$ 218 $ 18 $ 136 $ 154 $ 18 Commercial real estate: Non-owner occupied 2,470 1,674 796 2,470 474 Owner occupied 3,185 1,802 762 2,564 763 Consumer: Home equity installment 33 - - - -Home equity line of credit 137 - 97 97 -Auto loans 98 10 68 78 4 Residential: Real estate 699 - 572 572 -Total$ 6,840 $ 3,504 $ 2,431 $ 5,935 $ 1,259 Recorded Recorded Unpaid investment investment Total principal with with no recorded Related(dollars in thousands)balance allowance allowance investment allowanceDecember 31, 2020 Commercial and industrial$ 688 $ 549 $ 41 $ 590 $ 213 Commercial real estate: Non-owner occupied 2,960 1,677 1,171 2,848 481 Owner occupied 2,058 1,219 473 1,692 309 Consumer: Home equity installment 106 - 61 61 -Home equity line of credit 443 105 290 395 48 Auto loans 50 27 - 27 4 Residential: Real estate 774 559 168 727 151 Total$ 7,079 $ 4,136 $ 2,204 $ 6,340 $ 1,206 At December 31, 2021, impaired loans totaled $5.9 million consisting of $3.0 million in accruing TDRs and $2.9 million in non-accrual loans. At December 31, 2020, impaired loans totaled $6.3 million consisting of $2.5 million in accruing TDRs and $3.8 million in non-accrual loans. As of December 31, 2021, the non-accrual loans included three TDRs to two unrelated borrowers totaling $0.6 million compared with four TDRs to three unrelated borrowers totaling $0.7 million as of December 31, 2020.A loan is considered impaired when, based on current information and events; it is probable that the Company will be unable to collect the payments in accordance with the contractual terms of the loan. Factors considered in determining impairment include payment status, collateral value, and the probability of collecting payments when due. The significance of payment delays and/or shortfalls is determined on a case-by-case basis. All circumstances surrounding the loan are considered. Such factors include the length of the delinquency, the underlying reasons and the borrower’s prior payment record. Impairment is measured on these loans on a loan-by-loan basis. Impaired loans include non-accrual loans, TDRs and other loans deemed to be impaired based on the aforementioned factors.The following table presents the average recorded investments in impaired loans and related amount of interest income recognized during the periods indicated below. The average balances are calculated based on the quarter-end balances of impaired loans. Payments received from non-accruing impaired loans are first applied against the outstanding principal balance, then to the recovery of any charged-off amounts. Any excess is treated as a recovery of interest income. Payments received from accruing impaired loans are applied to principal and interest, as contractually agreed upon.‎ December 31, 2021 December 31, 2020 Cash basis Cash basis Average Interest interest Average Interest interest recorded income income recorded income income(dollars in thousands)investment recognized recognized investment recognized recognized Commercial and industrial$ 380 $ 2 $ - $ 404 $ 1 $ -Commercial real estate: Non-owner occupied 2,698 195 - 1,939 96 -Owner occupied 1,883 55 - 1,848 48 -Construction - - - - - -Consumer: Home equity installment 28 6 - 53 - -Home equity line of credit 202 20 - 368 - -Auto loans 42 2 - 51 2 -Direct finance leases - - - - - -Other - - - - - -Residential: Real estate 682 - - 819 - -Construction - - - - - -Total$ 5,915 $ 280 $ - $ 5,482 $ 147 $ - The average recorded investment in the above chart is based on the five quarter average in the impaired loan balance through the quarter ending December 31, 2021. The average recorded investment for the year ended December 31, 2019 was $5.2 million. There was also interest income recognized of $247 thousand and cash basis interest income recognized of $0.Credit Quality IndicatorsCommercial and industrial and commercial real estateThe Company utilizes a loan grading system and assigns a credit risk grade to its loans in the C&I and CRE portfolios. The grading system provides a means to measure portfolio quality and aids in the monitoring of the credit quality of the overall loan portfolio. The credit risk grades are arrived at using a risk rating matrix to assign a grade to each of the loans in the C&I and CRE portfolios.The following is a description of each risk rating category the Company uses to classify each of its C&I and CRE loans:PassLoans in this category have an acceptable level of risk and are graded in a range of one to five. Secured loans generally have good collateral coverage. Current financial statements reflect acceptable balance sheet ratios, sales and earnings trends. Management is competent, and a reasonable succession plan is evident. Payment experience on the loans has been good with minor or no delinquency experience. Loans with a grade of one are of the highest quality in the range. Those graded five are of marginally acceptable quality.Special MentionLoans in this category are graded a six and may be protected but are potentially weak. They constitute a credit risk to the Company but have not yet reached the point of adverse classification. Some of the following conditions may exist: little or no collateral coverage; lack of current financial information; delinquency problems; highly leveraged; available financial information reflects poor balance sheet ratios and profit and loss statements reflect uncertain trends; and document exceptions. Cash flow may not be sufficient to support total debt service requirements.SubstandardLoans in this category are graded a seven and have a well-defined weakness which may jeopardize the ultimate collectability of the debt. The collateral pledged may be lacking in quality or quantity. Financial statements may indicate insufficient cash flow to service the debt; and/or do not reflect a sound net worth. The payment history indicates chronic delinquency problems. Management is weak. There is a distinct possibility that the Company may sustain a loss. All loans on non-accrual are rated substandard. Other loans that are included in the substandard category can be accruing, as well as loans that are current or past due. Loans 90 days or more past due, unless otherwise fully supported, are classified substandard. Also, borrowers that are bankrupt or have loans categorized as TDRs can be graded substandard.DoubtfulLoans in this category are graded an eight and have a better than 50% possibility of the Company sustaining a loss, but the loss cannot be determined because of specific reasonable factors which may strengthen credit in the near-term. Many of the weaknesses present in a substandard loan exist. Liquidation of collateral, if any, is likely. Any loan graded lower than an eight is considered to be uncollectible and charged-off.Consumer and residentialThe consumer and residential loan segments are regarded as homogeneous loan pools and as such are not risk rated. For these portfolios, the Company utilizes payment activity and history in assessing performance. Non-performing loans are comprised of non-accrual loans and loans past due 90 days or more and accruing. All loans not classified as non-performing are considered performing.The following table presents loans including $3.0 million and $1.7 million of deferred costs, segregated by class, categorized into the appropriate credit quality indicator category as of December 31, 2021 and 2020, respectively:Commercial credit exposureCredit risk profile by creditworthiness category December 31, 2021(dollars in thousands)Pass Special mention Substandard Doubtful Total Commercial and industrial$ 234,822 $ 339 $ 2,400 $ - $ 237,561 Commercial real estate - non-owner occupied 289,679 16,614 6,555 - 312,848 Commercial real estate - owner occupied 228,889 7,089 11,520 - 247,498 Commercial real estate - construction 21,147 - - - 21,147 Total commercial$ 774,537 $ 24,042 $ 20,475 $ - $ 819,054 Consumer & Mortgage lending credit exposureCredit risk profile based on payment activity December 31, 2021(dollars in thousands) Performing Non-performing TotalConsumer Home equity installment $ 47,571 $ - $ 47,571 Home equity line of credit 54,781 97 54,878 Auto loans 117,951 78 118,029 Direct finance leases (1) 24,739 64 24,803 Other 8,013 - 8,013 Total consumer 253,055 239 253,294 Residential Real estate 325,289 572 325,861 Construction 34,919 - 34,919 Total residential 360,208 572 360,780 Total consumer & residential $ 613,263 $ 811 $ 614,074 (1)Net of unearned lease revenue of $1.4 million. Commercial credit exposureCredit risk profile by creditworthiness category December 31, 2020(dollars in thousands)Pass Special mention Substandard Doubtful Total Commercial and industrial$ 272,889 $ 4,162 $ 3,706 $ - $ 280,757 Commercial real estate - non-owner occupied 179,311 6,445 6,387 - 192,143 Commercial real estate - owner occupied 167,873 3,241 8,809 - 179,923 Commercial real estate - construction 8,635 1,233 363 - 10,231 Total commercial$ 628,708 $ 15,081 $ 19,265 $ - $ 663,054 ‎ Consumer & Mortgage lending credit exposureCredit risk profile based on payment activity December 31, 2020(dollars in thousands) Performing Non-performing Total Consumer Home equity installment $ 40,086 $ 61 $ 40,147 Home equity line of credit 49,330 395 49,725 Auto loans 98,359 27 98,386 Direct finance leases (2) 18,875 61 18,936 Other 7,602 - 7,602 Total consumer 214,252 544 214,796 Residential Real estate 217,718 727 218,445 Construction 23,357 - 23,357 Total residential 241,075 727 241,802 Total consumer & residential $ 455,327 $ 1,271 $ 456,598 (2) Net of unearned lease revenue of $1.2 million. Allowance for loan lossesManagement continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance on a quarterly basis. The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio. Management’s judgment is based on the evaluation of individual loans, experience, the assessment of current economic conditions and other relevant factors including the amounts and timing of cash flows expected to be received on impaired loans. Those estimates may be susceptible to significant change. Loan losses are charged directly against the allowance when loans are deemed to be uncollectible. Recoveries from previously charged-off loans are added to the allowance when received.Management applies two primary components during the loan review process to determine proper allowance levels. The two components are a specific loan loss allocation for loans that are deemed impaired and a general loan loss allocation for those loans not specifically allocated. The methodology to analyze the adequacy of the allowance for loan losses is as follows:identification of specific impaired loans by loan category;identification of specific loans that are not impaired, but have an identified potential for loss;calculation of specific allowances where required for the impaired loans based on collateral and other objective and quantifiable evidence;determination of loans with similar credit characteristics within each class of the loan portfolio segment and eliminating the impaired loans;application of historical loss percentages (trailing twelve-quarter average) to pools to determine the allowance allocation; application of qualitative factor adjustment percentages to historical losses for trends or changes in the loan portfolio.Qualitative factor adjustments include:olevels of and trends in delinquencies and non-accrual loans;olevels of and trends in charge-offs and recoveries;otrends in volume and terms of loans;ochanges in risk selection and underwriting standards;ochanges in lending policies and legal and regulatory requirements;oexperience, ability and depth of lending management;onational and local economic trends and conditions; andochanges in credit concentrations.Allocation of the allowance for different categories of loans is based on the methodology as explained above. A key element of the methodology to determine the allowance is the Company’s credit risk evaluation process, which includes credit risk grading of individual C&I and CRE loans. C&I and CRE loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement. That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower. Upon review, the commercial loan credit risk grade is revised or reaffirmed. The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted. The credit risk grades for the C&I and CRE loan portfolios are considered in the reserve methodology and loss factors are applied based upon the credit risk grades. The loss factors applied are based upon the Company’s historical experience as well as what we believe to be best practices and common industry standards. Historical experience reveals there is a direct correlation between the credit risk grades and loan charge-offs. The changes in allocations in the C&I and CRE loan portfolio from period to period are based upon the credit risk grading system and from periodic reviews of the loan portfolio. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies.Each quarter, management performs an assessment of the allowance. The Company’s Special Assets Committee meets quarterly, and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance. The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment. The assessment process also includes the review of all loans on a non-accruing basis as well as a review of certain loans to which the lenders or the Company’s Credit Administration function have assigned a criticized or classified risk rating.The Company’s policy is to charge-off unsecured consumer loans when they become 90 days or more past due as to principal and interest. In the other portfolio segments, amounts are charged-off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.Information related to the change in the allowance for loan losses and the Company’s recorded investment in loans by portfolio segment as of the period indicated is as follows: As of and for the year ended December 31, 2021 Commercial & Commercial Residential (dollars in thousands)industrial real estate Consumer real estate Unallocated TotalAllowance for Loan Losses: Beginning balance$ 2,407 $ 6,383 $ 2,552 $ 2,781 $ 79 $ 14,202 Charge-offs (130) (491) (206) (162) - (989)Recoveries 23 250 138 - - 411 Provision (96) 1,280 (80) 889 7 2,000 Ending balance$ 2,204 $ 7,422 $ 2,404 $ 3,508 $ 86 $ 15,624 Ending balance: individually evaluated for impairment$ 18 $ 1,237 $ 4 $ - $ - $ 1,259 Ending balance: collectively evaluated for impairment$ 2,186 $ 6,185 $ 2,400 $ 3,508 $ 86 $ 14,365 Loans Receivables: Ending balance (2)$ 236,304 $ 582,750 $ 253,294 (1)$ 360,780 $ - $ 1,433,128 Ending balance: individually evaluated for impairment$ 154 $ 5,034 $ 175 $ 572 $ - $ 5,935 Ending balance: collectively evaluated for impairment$ 236,150 $ 577,716 $ 253,119 $ 360,208 $ - $ 1,427,193 (1) Net of unearned lease revenue of $1.4 million. (2) Includes $3.0 million of net deferred loan costs. As of and for the year ended December 31, 2020 Commercial & Commercial Residential (dollars in thousands)industrial real estate Consumer real estate Unallocated TotalAllowance for Loan Losses: Beginning balance$ 1,484 $ 3,933 $ 2,013 $ 2,278 $ 39 $ 9,747 Charge-offs (372) (465) (296) (35) - (1,168)Recoveries 26 30 120 197 - 373 Provision 1,269 2,885 715 341 40 5,250 Ending balance$ 2,407 $ 6,383 $ 2,552 $ 2,781 $ 79 $ 14,202 Ending balance: individually evaluated for impairment$ 213 $ 790 $ 52 $ 151 $ - $ 1,206 Ending balance: collectively evaluated for impairment$ 2,194 $ 5,593 $ 2,500 $ 2,630 $ 79 $ 12,996 Loans Receivables: Ending balance (2)$ 280,757 $ 382,297 $ 214,796 (1)$ 241,802 $ - $ 1,119,652 Ending balance: individually evaluated for impairment$ 590 $ 4,540 $ 483 $ 727 $ - $ 6,340 Ending balance: collectively evaluated for impairment$ 280,167 $ 377,757 $ 214,313 $ 241,075 $ - $ 1,113,312 (1) Net of unearned lease revenue of $1.2 million. (2) Includes $1.7 million of net deferred loan costs. ‎ As of and for the year ended December 31, 2019 Commercial & Commercial Residential (dollars in thousands)industrial real estate Consumer real estate Unallocated TotalAllowance for Loan Losses: Beginning balance$ 1,432 $ 3,901 $ 2,548 $ 1,844 $ 22 $ 9,747 Charge-offs (184) (597) (398) (330) - (1,509)Recoveries 32 317 67 8 - 424 Provision 204 312 (204) 756 17 1,085 Ending balance$ 1,484 $ 3,933 $ 2,013 $ 2,278 $ 39 $ 9,747 Direct finance leasesOn January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842), and subsequent related updates to revise the accounting for leases. Lessor accounting was largely unchanged as a result of the standard. Additional disclosures required under the standard are included in this section and in Footnote 24, “Leases”.The Company originates direct finance leases through two automobile dealerships. The carrying amount of the Company’s lease receivables, net of unearned income, was $7.7 million and $6.0 million as of December 31, 2021 and 2020, respectively. The residual value of the direct finance leases is fully guaranteed by the dealerships. Residual values amounted to $17.1 million and $12.9 million at December 31, 2021 and 2020, respectively, and are included in the carrying value of direct finance leases.The undiscounted cash flows to be received on an annual basis for the direct finance leases are as follows: (dollars in thousands)Amount 2022$ 7,8812023 6,2862024 8,4972025 3,4442026 1242027 and thereafter -Total future minimum lease payments receivable 26,232Less: Unearned income (1,429)Undiscounted cash flows to be received$ 24,803