
(Dollars in thousands)	June 30, 2020		December 31, 2019
Commercial and Non-Residential Real Estate	$	1,127,792	$	1,063,828
Residential Real Estate	279,626		271,604
Home Equity	37,383		35,106
Consumer	3,525		3,697
Purchased credit impaired loans:
Commercial and Non-Residential Real Estate	19,799		—
Residential Real Estate	27,033		—
Home Equity	—		—
Consumer	1,603		—
Total Loans	$	1,496,761	$	1,374,235
Deferred loan origination (fees) and costs, net	(2,089)		306
Loans receivable	$	1,494,672	$	1,374,541

Performing loans acquired as a result of the FDIC-assisted acquisition of First State are included with the Company's legacy loan portfolio within this Note. The purchased credit impaired loans acquired from First State are discussed in a separate section, Purchased Credit Impaired Loans, at the end of this Note and are not included, unless otherwise indicated.

An allowance for loan losses (“ALL”) is maintained to absorb losses from the loan portfolio. The ALL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL. The Bank’s methodology allows for the analysis of certain impaired loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit, and consumer loans, when considered impaired, are evaluated collectively for impairment by applying allocation rates derived from the Bank’s historical losses specific to impaired loans. Total collectively evaluated impaired loans, excluding the performing loans and purchased credit impaired loans acquired from First State, were $2.1 million and $2.0 million, while the related reserves were $69 thousand and $139 thousand as of June 30, 2020 and December 31, 2019. Such collectively evaluated impaired loans are included in total loans individually evaluated for impairment and in total impaired loans.

The segments described below in the impaired loans by class table, which are based on the federal call code assigned to each loan, provide the starting point for the ALL analysis. Company and bank management tracks the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. All pools currently utilize a rolling 12 quarters.

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

Company and Bank management have identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, conclusion of loan reviews, audits, and exams, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment, and other external factors. The combination of historical charge-off and qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood of loss as a loan risk grading deteriorates.

To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of letters of credit, non-revolving lines of credit, and revolving lines of credit, and based its calculation on the expectation of future advances of each loan category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure various forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition, many of the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to be highly likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit advancing varies with each individual borrower. Therefore, the future usage of each line was estimated based on the average line utilization of the revolving line of credit portfolio as a whole.

Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and qualitative environmental factors, was applied in the similar manner as those used for the allowance for loan loss calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. As of June 30, 2020 and December 31, 2019, the liability for unfunded commitments related to loans held for investment, excluding loans acquired from First State, was $332 thousand.

The ALL is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
December 31, 2019	$	10,098	$	1,272	$	327	$	78	$	11,775
Charge-offs	(1,756)		—		(23)		—		(1,779)
Recoveries	6		—		4		2		12
Provision	7,053		574		(44)		(22)		7,561
ALL balance at June 30, 2020	$	15,401	$	1,846	$	264	$	58	$	17,569
Individually evaluated for impairment	$	1,547	$	—	$	—	$	—	$	1,547
Collectively evaluated for impairment	$	13,854	$	1,846	$	264	$	58	$	16,022


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
December 31, 2018	$	8,605	$	1,405	$	684	$	245	$	10,939
Charge-offs	(666)		—		—		(10)		(676)
Recoveries	1		1		2		1		5
Provision	1,031		(177)		26		20		900
ALL balance at June 30, 2019	$	8,971	$	1,229	$	712	$	256	$	11,168
Individually evaluated for impairment	$	534	$	—	$	—	$	—	$	534
Collectively evaluated for impairment	$	8,437	$	1,229	$	712	$	256	$	10,634


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at March 31, 2019	$	8,864	$	1,417	$	704	$	257	$	11,242
Charge-offs	(666)		—		—		(10)		(676)
Recoveries	1		—		1		—		2
Provision (recovery)	772		(188)		7		9		600
ALL balance at June 30, 2019	$	8,971	$	1,229	$	712	$	256	$	11,168

Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company evaluates residential mortgage loans, home equity lines of credit, and consumer loans in homogeneous pools, rather than on an individual basis, when each of those loans are below specific thresholds based on outstanding principal balance. Such loans that individually exceed these thresholds are evaluated individually for impairment. The Chief Credit Officer identifies these loans individually by monitoring the delinquency status of the Bank’s portfolio. Once identified, the Bank’s ongoing communications with the borrower allow management to evaluate the significance of the payment delays and the circumstances surrounding the loan and the borrower.

Once the determination has been made that a loan is impaired, the amount of the impairment is measured using one of three valuation methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis.

The Company currently manages its loan portfolios and the respective exposure to credit losses (credit risk) by the following specific portfolio segments which are levels at which the Company develops and documents its systematic methodology to determine the allowance for credit losses attributable to each respective portfolio segment. These segments are as follows:

Commercial business loans – Commercial loans are made to provide funds for equipment and general corporate needs, as well as to finance owner occupied real estate, and to finance future cash flows of Federal Government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both company originated and purchased participation loans. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.

Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both company originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow.

Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, including the construction of single-family dwellings, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

Commercial SBA Paycheck Protection Program loans –This segment includes the loan originated through the recently created Small Business Administration’s Paycheck Protection Program loans. Credit risk is heightened as this SBA program mandates that these loans require no collateral and no guarantors of the loans. However, the loans are backed by a full guaranty of the SBA, so long as the loans were originated in accordance with the program guidelines. Additionally, these loans are eligible for full forgiveness by the SBA so long as the borrowers comply with the program guidelines as it pertains to their eligibility to borrow these funds, as well as their use of the funds.

Residential mortgage loans – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios, and collateral values. Credit risk arises from the borrower’s, and where applicable the builder's, continuing financial stability, which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.

Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.


	Impaired Loans with Specific Allowance						Impaired Loans with No Specific Allowance		Total Impaired Loans
(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
June 30, 2020
Commercial
Commercial Business	$	8,637	$	1,068	$	661	$	9,298	$	10,499
Commercial Real Estate	2,100		479		992		3,092		3,198
Acquisition & Development	—		—		2,035		2,035		3,435
SBA Paycheck Protection Program	—		—		—		—		—
Total Commercial	10,737		1,547		3,688		14,425		17,132
Residential	—		—		3,212		3,212		3,372
Home Equity	—		—		111		111		137
Consumer	—		—		—		—		—
Total Impaired Loans	$	10,737	$	1,547	$	7,011	$	17,748	$	20,641

December 31, 2019
Commercial
Commercial Business	$	2,606	$	249	$	644	$	3,250	$	4,308
Commercial Real Estate	1,786		325		295		2,081		2,171
Acquisition & Development	—		—		2,070		2,070		3,467
SBA Paycheck Protection Program	—		—		—		—		—
Total Commercial	4,392		574		3,009		7,401		9,946
Residential	—		—		1,953		1,953		2,045
Home Equity	—		—		95		95		100
Consumer	—		—		34		34		35
Total Impaired Loans	$	4,392	$	574	$	5,091	$	9,483	$	12,126

Excluding loans acquired from First State, impaired loans have increased by $8.1 million, or 85.1%, during the six months ended June 30, 2020. This change is the net effect of multiple factors, including the identification of $8.2 million of impaired loans, curtailments of $348 thousand, the foreclosure of one consumer loan which required the reclassification of $23 thousand to other real estate owned, the reclassification of $26 thousand to performing loans based on improved repayment performance, and normal loan amortization of $295 thousand.

The $8.2 million of loans recently classified as impaired are primarily concentrated in a single commercial loan relationship that includes three loans for a total of $6.1 million, or 74.4% of the total of recently impaired loans. The remaining $2.1 million represents two unrelated commercial loans totaling $718 thousand, four unrelated mortgage loans totaling $1.4 million, and a single home equity line of credit in the amount of $34 thousand.


	Six Months Ended June 30, 2020										Three Months Ended June 30, 2020
(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial
Commercial Business	$	3,972	$	1	$	—	$	4,681	$	1	$	—
Commercial Real Estate	3,054		52		52		3,211		26		29
Acquisition & Development	2,043		57		19		2,038		29		—
SBA Paycheck Protection Program	—		—		—		—		—		—
Total Commercial	9,069		110		71		9,930		56		29
Residential	2,547		11		9		2,712		6		4
Home Equity	110		—		—		120		—		—
Consumer	10		—		—		—		—		—
Total	$	11,736	$	121	$	80	$	12,762	$	62	$	33


	Six Months Ended June 30, 2019										Three Months Ended June 30, 2019
(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial
Commercial Business	$	3,516	$	—	$	—	$	3,424	$	—	$	—
Commercial Real Estate	3,809		81		83		3,579		40		45
Acquisition & Development	2,194		61		60		2,173		31		31
SBA Paycheck Protection Program	—		—		—		—		—		—
Total Commercial	9,519		142		143		9,176		71		76
Residential	2,990		7		7		3,123		3		4
Home Equity	166		1		1		210		1		1
Consumer	51		—		—		23		—		—
Total	$	12,726	$	150	$	151	$	12,532	$	75	$	81

As of June 30, 2020, the Bank’s other real estate owned balance totaled $1.2 million, excluding other real estate owned acquired from First State. The Bank held three foreclosed residential real estate properties representing $357 thousand, or 30%, of the total balance of other real estate owned. These properties are held primarily as a result of the foreclosures of one commercial loan relationship, which included two properties for a total of $294 thousand. The remaining residential real estate property, with a book balance of $63 thousand, was the result of the foreclosure of an unrelated borrower. The remaining $826 thousand, or 70%, of other real estate owned is the result of the foreclosure of two unrelated commercial development loans. There are four additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure. The total recorded investment in these loans was $214 thousand as of June 30, 2020. These loans are included in the table above and have no specific allowance allocated to them.

As of June 30, 2019, the Bank’s other real estate owned balance totaled $1.4 million. The Bank held twelve foreclosed residential real estate properties representing $583 thousand, or 41%, of the total balance of other real estate owned. These properties are held as a result of the foreclosures of primarily two commercial loan relationships, one of which included two properties for a total of $294 thousand, while the other included seven properties for a total of $174 thousand. The three remaining residential real estate properties, totaling $115 thousand, were result of the foreclosure of three unrelated borrowers. The remaining $826 thousand, or 59%, of other real estate owned is the result of the foreclosure of three unrelated commercial development loans. There are two additional consumer mortgage loans collateralized by residential real estate properties in the process of foreclosure. The total recorded investment in these loans was $516 thousand as of June 30, 2019. These loans are included in the table above and have no specific allowance allocated to them.

Bank management uses a nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as past due status, bankruptcy, repossession, or death occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department ensures that a review of all commercial relationships of $1 million or greater is performed annually.

Review of the appropriate risk grade is included in both the internal and external loan review process, and on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or criticized relationships. The Bank’s Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2020
Commercial
Commercial Business	$	463,570	$	8,782	$	9,497	$	—	$	481,849
Commercial Real Estate	365,802		53,890		7,028		—		426,720
Acquisition & Development	114,343		10,487		4,631		—		129,461
SBA Paycheck Protection Program	89,762		—		—		—		89,762
Total Commercial	1,033,477		73,159		21,156		—		1,127,792
Residential	275,357		1,400		2,758		111		279,626
Home Equity	36,899		382		102		—		37,383
Consumer	3,489		36		—		—		3,525
Total Loans	$	1,349,222	$	74,977	$	24,016	$	111	$	1,448,326

December 31, 2019
Commercial
Commercial Business	$	511,590	$	17,398	$	11,894	$	—	$	540,882
Commercial Real Estate	406,712		3,564		1,494		—		411,770
Acquisition & Development	106,428		1,869		2,879		—		111,176
SBA Paycheck Protection Program	—		—		—		—		—
Total Commercial	1,024,730		22,831		16,267		—		1,063,828
Residential	267,367		1,946		2,177		114		271,604
Home Equity	34,641		383		82		—		35,106
Consumer	3,613		56		28		—		3,697
Total Loans	$	1,330,351	$	25,216	$	18,554	$	114	$	1,374,235

loan portfolio. This increase is primarily the result of the risk grade downgrade of six relationships, totaling $66.4 million. These relationships represent borrowers in industries that now represent increased risk as a result of the COVID-19 pandemic. More specifically, two relationships with loans totaling $30.8 million, include the financing on six separate hotel properties. An additional $30.0 million of the total represents loans to two relationships that were originated to finance three separate retail commercial real estate projects. The fifth relationship includes $3.4 million in loans originated to finance movie cinemas, while the final relationship includes $2.2 million in loans originated to finance an owner-occupied property that houses a private school. Offsetting these additions to the total of Special Mention loans were two unrelated commercial loans which were paid in full since December 31, 2019, for a total of $11.7 million. Additionally, the total was impacted by the charge-off of a $1.8 million government lease finance loan stemming from the non-renewal of the underlying lease agreement. Lastly, a $1.9 million loan originated to finance the infrastructure of residential home sites was reclassified as Substandard in the second quarter of 2020. These lots are adjacent to a resort hotel property and are dependent on the hotel operations for repayment. These matters are being monitored and any significant developments will result in reevaluation of the risk grades, where appropriate, and the potential recognition of future recoveries.

Excluding loans acquired from First State, loans classified as Substandard totaled $23.9 million and $18.6 million as of June 30, 2020 and December 31, 2019, respectively. The increase of $5.3 million, or 29%, was concentrated in the commercial loan portfolio. The increase is primarily the result of the risk grade downgrade of two unrelated commercial loans totaling $6.7 million. These loans include a $4.8 million loan originated to finance a hotel property, and the $1.9 million residential infrastructure loan noted above. Additionally, the risk grade downgrade of twelve unrelated commercial loans totaling $967 thousand further impacted the total of Substandard commercial loans. Meanwhile, Substandard mortgage loans increased by $451 thousand as a result of long-term erratic payment performance that has required non-accrual status of these loans. Meanwhile, the total increase of Substandard commercial loans was offset by the $1.8 million decrease in the outstanding balance of a performing Substandard loan, which is classified due to identified operational risks, and the payoff of an unrelated loan in the amount of $537 thousand. These matters are being monitored and any significant developments will result in reevaluation of the risk grades.

A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough review is presented to the Chief Credit Officer and/or the Management Loan Committee (“MLC”), as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual status when the loan reaches 90 days past due, when it becomes likely the borrower cannot or will not make scheduled principal or interest payments, when full repayment of principal and interest is not expected, or when the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status, unless management believes it is likely the accrued interest will be collected. Any payments subsequently received are applied to principal. To remove a loan from non-accrual status, all principal and interest due must be paid up to date and the Bank is reasonably sure of future satisfactory payment performance. Usually, this requires a six-month recent history of on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or MLC.


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing
June 30, 2020
Commercial
Commercial Business	$	481,455	$	152	$	—	$	242	$	394	$	481,849	$	8,899	$	—
Commercial Real Estate	425,824		—		—		896		896		426,720		1,333		—
Acquisition & Development	128,672		—		—		789		789		129,461		378		—
SBA Paycheck Protection Program	89,762		—		—		—		—		89,762		—		—
Total Commercial	1,125,713		152		—		1,927		2,079		1,127,792		10,610		—
Residential	277,230		—		647		1,749		2,396		279,626		2,734		—
Home Equity	36,999		228		—		156		384		37,383		111		—
Consumer	3,503		3		19		—		22		3,525		—		—
Total Loans	$	1,443,445	$	383	$	666	$	3,832	$	4,881	$	1,448,326	$	13,455	$	—

December 31, 2019
Commercial
Commercial Business	$	537,602	$	3,189	$	47	$	44	$	3,280	$	540,882	$	2,848	$	—
Commercial Real Estate	411,070		522		178		—		700		411,770		295		—
Acquisition & Development	110,717		180		—		279		459		111,176		390		—
SBA Paycheck Protection Program	—		—		—		—		—		—		—		—
Total Commercial	1,059,389		3,891		225		323		4,439		1,063,828		3,533		—
Residential	267,515		3,003		549		537		4,089		271,604		1,461		—
Home Equity	34,382		545		84		95		724		35,106		95		—
Consumer	3,610		1		58		28		87		3,697		34		—
Total Loans	$	1,364,896	$	7,440	$	916	$	983	$	9,339	$	1,374,235	$	5,123	$	—

The restructuring of a loan is considered a troubled debt restructuring (“TDR”) if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. At June 30, 2020 and December 31, 2019, the Bank had specific reserve allocations for TDR’s of $1.2 million and $527 thousand, respectively.

Loans considered to be troubled debt restructured loans totaled $13.9 million and $7.7 million as of June 30, 2020 and December 31, 2019, respectively. Of these totals, $4.3 million and $4.4 million, respectively, represent accruing troubled debt restructured loans and represent 24% and 46%, respectively of total impaired loans. Meanwhile, as of June 30, 2020, $3.0 million represent four loans to two borrowers that have defaulted under the restructured terms. The largest of these loans, at $2.3 million, is a commercial loan and the other three of these loans, totaling $657 thousand, are commercial acquisition and development loans that were considered TDR’s due to extended interest only periods and/or unsatisfactory repayment structures once transitioned to principal and interest payments. These borrowers have experienced continued financial difficulty and are considered non-performing loans as of June 30, 2020 and December 31, 2019.

Three commercial loans to one borrower totaling $6.1 million were classified as TDR’s in the three months ended June 30, 2020. Upon the identification of financial difficulties on the part of the borrowers, the loans were modified to allow for extended interest-only payments. Meanwhile, one mortgage loan with a balance of $87 thousand was classified as a TDR as a result of extended repayment terms. These loans have paid as agreed under their modified terms.

Two unrelated commercial loans totaling $336 thousand were classified as TDR’s during the six months ended June 30, 2019. Upon the identification of financial difficulties on the part of the borrowers, these loans were modified to lower loan payments by lengthening the amortization period beyond what is typical for a commercial loan of this type. These loans have paid as agreed since they were renewed under modified terms.


	New TDR's ¹
	Six Months Ended June 30, 2020								Three Months Ended June 30, 2020
(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial
Commercial Business	5	$	6,237	$	6,232	3	$	6,083	$	6,083
Commercial Real Estate	2	159		159		—	—		—
Acquisition & Development	—	—		—		—	—		—
SBA Paycheck Protection Program	—	—		—		—	—		—
Total Commercial	7	6,396		6,391		3	6,083		6,083
Residential	1	87		87		1	87		87
Home Equity	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total	8	6,483		6,478		4	6,170		6,170


	Six Months Ended June 30, 2019								Three Months Ended June 30, 2019
(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial
Commercial Business	2	$	336	$	333	1	$	68	$	68
Commercial Real Estate	—	—		—		—	—		—
Acquisition & Development	—	—		—		—	—		—
SBA Paycheck Protection Program	—	—		—		—	—		—
Total Commercial	2	336		333		1	68		68
Residential	—	—		—		—	—		—
Home Equity	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total	2	$	336	$	333	1	$	68	$	68

As a result of the FDIC-assisted acquisition of First State on April 3, 2020, the Company has purchased loans, for which there was, at acquisition, evidence of deterioration of credit quality since origination and it was probable, at acquisition, that all contractually required payments would not be collected. The Company did not hold any purchased credit impaired loans as of June 30, 2019 or December 31, 2019.


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
December 31, 2019	$	—	$	—	$	—	$	—	$	—
Charge-offs	—		—		—		—		—
Recoveries	—		—		—		—		—
Provision	121		52		—		—		173
ALL balance at June 30, 2020	$	121	$	52	$	—	$	—	$	173
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment	$	121	$	52	$	—	$	—	173


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
June 30, 2020
Commercial
Commercial Business	$	14,623	$	1,425	$	402	$	—	$	16,450
Commercial Real Estate	1,340		—		16		—		1,356
Acquisition & Development	1,853		—		140		—		1,993

Total Commercial	17,816		1,425		558		—		19,799
Residential	26,013		—		1,020		—		27,033
Home Equity	—		—		—		—		—
Consumer	1,128		233		242		—		1,603
Total Loans	$	44,957	$	1,658	$	1,820	$	—	$	48,435


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing
June 30, 2020
Commercial
Commercial Business	$	14,615	$	230	$	14	$	1,591	$	1,835	$	16,450	$	448	$	—
Commercial Real Estate	1,292		48		—		16		64		1,356		64		—
Acquisition & Development	1,668		144		41		140		325		1,993		140		—

Total Commercial	17,575		422		55		1,747		2,224		19,799		652		—
Residential	21,263		935		568		4,267		5,770		27,033		3,496		—
Home Equity	—		—		—		—		—		—		—		—
Consumer	1,354		4		3		242		249		1,603		241		—
Total Loans	$	40,192	$	1,361	$	626	$	6,256	$	8,243	$	48,435	$	4,389	$	—