
	September 30, 2020				December 31, 2019
	Amount		Percent		Amount		Percent
(Dollars in thousands)

Real Estate:
Residential	$	343,955	32.7	%	$	347,766	36.6	%
Commercial	353,904		33.7		351,360		36.9
Construction	69,178		6.6		35,605		3.7
Commercial and Industrial	144,315		13.7		85,586		9.0
Consumer	117,364		11.2		113,637		11.9
Other	22,169		2.1		18,542		1.9
Total Loans	1,050,885		100.0	%	952,496		100.0	%
Allowance for Loan Losses	(13,780)				(9,867)
Loans, Net	$	1,037,105			$	942,629

The Coronavirus Aid, Relief, and Economic Security Act (the “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, which included authorizing the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (“PPP”). On April 16, 2020, the original $349 billion funding cap was reached. On April 23, 2020, the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Enhancement Act”) was signed into law and included an additional $484 billion in COVID-19 relief, including allocating an additional $310 billion to replenish the PPP. The second round of the PPP began on April 27, 2020.

Under the PPP, participating SBA and other qualifying lenders can originate loans to eligible businesses that are fully guaranteed by the SBA as to principal and interest, have more favorable terms than traditional SBA loans and may be forgiven if the proceeds are used by the borrower for certain purposes. PPP is designed to help small businesses keep their workforce employed and cover expenses during the COVID-19 crisis. These loans have a two- or five-year loan term to maturity, an interest rate of 1% per annum and loan payments are deferred for six months. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of a PPP loan, including any accrued interest, is eligible to be reduced by the loan forgiveness amount under the PPP so long as employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses. The Bank receives a processing fee from the SBA ranging from 1% to 5% depending on the size of the loan, which is offset by a 0.75% third-party servicing agent fee.

construction and specialty-trade contractors, $6.1 million for professional and technical services, $6.1 million for retail trade, $5.1 million for wholesale trade, $4.6 million for manufacturing and $3.4 million for restaurant and food services. Net SBA origination fees as of September 30, 2020 were $2.2 million, of which $274,000 was recognized for the three months ended September 30, 2020 and $465,000 for the nine months ended September 30, 2020. All PPP loans are classified as commercial and industrial loans held for investment. No allowance for loan loss was allocated to the PPP loan portfolio due to the Bank complying with the lender obligations that ensure SBA guarantee.

The following table presents loans summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system as of the dates indicated. At September 30, 2020 and December 31, 2019, there were no loans in the criticized category of Loss within the internal risk rating system.


	September 30, 2020
	Pass		Special Mention		Substandard		Doubtful		Total
(Dollars in Thousands)

Real Estate:
Residential	$	340,421	$	1,045	$	2,489	$	—	$	343,955
Commercial	311,125		29,383		13,396		—		353,904
Construction	65,158		3,379		641		—		69,178
Commercial and Industrial	137,871		4,197		1,614		633		144,315
Consumer	117,315		—		49		—		117,364
Other	22,089		80		—		—		22,169
Total Loans	$	993,979	$	38,084	$	18,189	$	633	$	1,050,885


	December 31, 2019
	Pass		Special Mention		Substandard		Doubtful		Total
(Dollars in Thousands)

Real Estate:
Residential	$	343,851	$	1,997	$	1,918	$	—	$	347,766
Commercial	335,436		12,260		3,664		—		351,360
Construction	33,342		2,263		—		—		35,605
Commercial and Industrial	75,201		7,975		1,691		719		85,586
Consumer	113,527		—		110		—		113,637
Other	18,452		90		—		—		18,542
Total Loans	$	919,809	$	24,585	$	7,383	$	719	$	952,496

The increase of $13.5 million in the special mention loan category and $10.8 million in the substandard category as of September 30, 2020 compared to December 31, 2019 was mainly from the downgrade of the hospitality portfolio due to the economic conditions in that industry caused by the COVID-19 pandemic.


	September 30, 2020
	Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
(Dollars in Thousands)

Real Estate:
Residential	$	341,775	$	281	$	22	$	—	$	303	$	1,877	$	343,955
Commercial	345,772		—		—		—		—		8,132		353,904
Construction	69,178		—		—		—		—		—		69,178
Commercial and Industrial	142,286		—		—		—		—		2,029		144,315
Consumer	116,826		452		37		—		489		49		117,364
Other	22,169		—		—		—		—		—		22,169
Total Loans	$	1,038,006	$	733	$	59	$	—	$	792	$	12,087	$	1,050,885


	December 31, 2019
	Loans Current		30-59 Days Past Due		60-89 Days Past Due		90 Days Or More Past Due		Total Past Due		Non- Accrual		Total Loans
(Dollars in Thousands)

Real Estate:
Residential	$	342,010	$	3,462	$	281	$	196	$	3,939	$	1,817	$	347,766
Commercial	351,104		22		—		—		22		234		351,360
Construction	35,605		—		—		—		—		—		35,605
Commercial and Industrial	84,280		388		178		—		566		740		85,586
Consumer	112,438		923		140		26		1,089		110		113,637
Other	18,542		—		—		—		—		—		18,542
Total Loans	$	943,979	$	4,795	$	599	$	222	$	5,616	$	2,901	$	952,496

The increase in nonaccrual commercial real estate loans is primarily related to two hotel loans with a total principal balance of $7.9 million that were impacted by the pandemic and determined to be impaired due to insufficient cash flows and occupancy rates. The increase in nonaccrual commercial and industrial loans is primarily related to a $1.4 million relationship with collateral and income shortfalls.

The following table sets forth the amounts and categories of nonperforming assets at the dates indicated. Included in nonperforming loans and assets are troubled debt restructurings (“TDRs”), which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties. Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section. Nonperforming loans do not include loans modified under Section 4013 of the CARES Act and interagency guidance as further explained below.


	September 30, 2020			December 31, 2019
(Dollars in Thousands)

Nonaccrual Loans:
Real Estate:
Residential	$	1,877		$	1,817
Commercial	8,132			234
Commercial and Industrial	2,029			740
Consumer	49			110
Total Nonaccrual Loans	12,087			2,901

Accruing Loans Past Due 90 Days or More:
Real Estate:
Residential	—			196
Consumer	—			26
Total Accruing Loans Past Due 90 Days or More	—			222
Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More	12,087			3,123

Troubled Debt Restructurings, Accruing:
Real Estate
Residential	660			511
Commercial	2,162			1,648
Commercial and Industrial	96			100
Total Troubled Debt Restructurings, Accruing	2,918			2,259

Total Nonperforming Loans	15,005			5,382

Other Real Estate Owned:
Residential	14			41
Commercial	208			192
Total Other Real Estate Owned	222			233

Total Nonperforming Assets	$	15,227		$	5,615

Nonperforming Loans to Total Loans	1.43		%	0.57		%
Nonperforming Assets to Total Assets	1.09			0.42

TDRs typically are the result of loss mitigation activities whereby concessions are granted to minimize loss and avoid foreclosure or repossession of collateral. For a loan modification to be considered a TDR, the borrower must be experiencing financial difficulty and a concession must be granted, except for an insignificant delay in payment. Section 4013 of the CARES Act provides temporary relief from accounting and financial reporting requirements for TDRs regarding certain loan modifications related to COVID-19. Specifically, the CARES Act provides that the Bank may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and suspend any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Any modification involving

a loan that was not more than 30 days past due as of December 31, 2019 and that occurs beginning on March 1, 2020 and ends on the earlier of December 31, 2020 or the date that is 60 days after the termination date of the national emergency related to the COVID-19 outbreak qualify for this exception, including a forbearance arrangement, interest rate modification, repayment plan or any other similar arrangement that defers or delays the payment of principal or interest.

Bank regulatory agencies released an interagency statement that offers practical expedients for modifications that occur in response to the COVID-19 pandemic, but it differs with the CARES Act in certain areas. The expedients require a lender to conclude that a borrower is not experiencing financial difficulty if either short-term (e.g., six months or less) modifications are made, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant related to loans in which the borrower is less than 30 days past due on its contractual payments at the time a modification program is implemented or the modification or deferral program is mandated by the federal government or a state government. The bank regulatory agencies have subsequently confirmed that their guidance could be applicable for loans that do not qualify for favorable accounting treatment under Section 4013 of the CARES Act. Both Section 4013 of the CARES Act and the interagency statement can be applied to a second modification that occurs after the first modification provided that the second modification does not qualify as a TDR under Section 4013 of the CARES Act or the interagency statement. In its evaluation of whether a payment deferral qualifies as short-term under the interagency statement, an entity should assess multiple payment deferrals collectively (i.e., the cumulative deferrals cannot exceed six months).

The Bank offered forbearance options for borrowers impacted by COVID-19 that provide a short-term delay in payment by primarily allowing: (a) deferral of three months of payments; or (b) for consumer loans not secured by a real estate mortgage, three months of interest-only payments that also extends the maturity date of the loan by three months. During the forbearance period, the borrower is not considered delinquent for credit bureau reporting purposes. The Company has elected the practical expedients related to TDRs that are available in the CARES Act and interagency guidance as an entity-wide accounting policy and does not consider any of the forbearance agreements TDRs, delinquent, or nonaccrual.


	September 30, 2020					June 30, 2020
	Number of Loans	Amount		% of Portfolio		Number of Loans	Amount		% of Portfolio
(Dollars in thousands)

Real Estate:
Residential	11	1,242		0.4	%	163	23,653		6.9	%
Commercial	9	13,885		3.9	%	111	105,117		30.0	%
Construction	1	7,162		10.4	%	6	15,518		26.6	%
Commercial and Industrial	1	122		0.1	%	76	15,697		10.5	%
Consumer	12	295		0.3	%	170	3,447		2.9	%
Other	—	—		—	%	1	2,504		11.2	%
Total Loans in Forbearance	34	$	22,706	2.2	%	527	$	165,936	15.9	%

The concessions granted for the TDRs in the portfolio primarily consist of, but are not limited to, modification of payment or other terms, temporary rate modification and extension of maturity date. Loans classified as TDRs consisted of 18 loans totaling $3.6 million at September 30, 2020 and 16 loans totaling $3.0 million at December 31, 2019, respectively.

During the nine months ended September 30, 2020, there was one residential real estate loan modified in a TDR totaling $60,000 that paid off. During the nine months ended September 30, 2019, one residential real estate loan modified in a TDR totaling $851,000 paid off. No TDRs subsequently defaulted during the three and nine months ended September 30, 2020 and 2019, respectively.


	Three Months Ended September 30, 2020
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

Real Estate:

Commercial	1	$	504	$	519	$	—
Commercial and Industrial	1	38		38		—
Total	2	$	542	$	557	$	—


	Nine Months Ended September 30, 2020
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

Real Estate:
Residential	1	$	234	$	234	$	—
Commercial	1	504		519		—
Commercial and Industrial	1	38		38		—
Total	3	$	776	$	791	$	—


	Nine Months Ended September 30, 2019
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Related Allowance
(Dollars in thousands)

Real Estate:
Residential	2	$	71	$	71	$	—
Commercial and Industrial	1	114		114		—
Total	3	$	185	$	185	$	—


	September 30, 2020
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)

With No Related Allowance Recorded:
Real Estate:
Residential	$	1,216	$	—	$	1,220	$	1,220	$	34
Commercial	20,896		—		20,916		25,193		811
Construction	641		—		641		766		21
Commercial and Industrial	881		—		1,069		936		6
Total With No Related Allowance Recorded	$	23,634	$	—	$	23,846	$	28,115	$	872

With A Related Allowance Recorded:
Real Estate:
Commercial	$	9,498	$	2,248	$	9,528	$	9,610	$	291
Commercial and Industrial	1,528		607		1,528		1,609		45
Total With A Related Allowance Recorded	$	11,026	$	2,855	$	11,056	$	11,219	$	336

Total Impaired Loans:
Real Estate:
Residential	$	1,216	$	—	$	1,220	$	1,220	$	34
Commercial	30,394		2,248		30,444		34,803		1,102
Construction	641		—		641		766		21
Commercial and Industrial	2,409		607		2,597		2,545		51
Total Impaired Loans	$	34,660	$	2,855	$	34,902	$	39,334	$	1,208


	December 31, 2019
	Recorded Investment		Related Allowance		Unpaid Principal Balance		Average Recorded Investment		Interest Income Recognized
(Dollars in thousands)

With No Related Allowance Recorded:
Real Estate:
Residential	$	549	$	—	$	553	$	494	$	20
Commercial	3,058		—		3,077		3,335		177
Commercial and Industrial	133		—		135		156		6
Total With No Related Allowance Recorded	$	3,740	$	—	$	3,765	$	3,985	$	203

With A Related Allowance Recorded:
Real Estate:
Commercial	$	1,646	$	274	$	1,646	$	1,702	$	81
Commercial and Industrial	2,378		610		2,529		2,448		113
Total With A Related Allowance Recorded	$	4,024	$	884	$	4,175	$	4,150	$	194

Total Impaired Loans
Real Estate:
Residential	$	549	$	—	$	553	$	494	$	20
Commercial	4,704		274		4,723		5,037		258
Commercial and Industrial	2,511		610		2,664		2,604		119
Total Impaired Loans	$	7,764	$	884	$	7,940	$	8,135	$	397

The $26.9 million increase in recorded investment of loans evaluated for impairment, primarily in the commercial real estate category, is mainly due to evaluating the hotel portfolio for potential impairment. $16.1 million of hotel loans were evaluated for impairment and determined to not require specific reserves. Two hotel loans with a total principal balance of $7.9 million were determined to be impaired due to insufficient cash flows and occupancy rates.

The following tables present the activity in the allowance for loan losses (“ALLL”) summarized by major classifications and segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for potential impairment at the dates and for the periods indicated.


	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

June 30, 2020	$	2,688	$	5,160	$	820	$	1,566	$	1,714	$	—	$	700	$	12,648
Charge-offs	(11)		—		—		—		(103)		—		—		(114)
Recoveries	1		1		—		6		38		—		—		46
Provision	(506)		1,711		71		170		(290)		—		44		1,200
September 30, 2020	$	2,172	$	6,872	$	891	$	1,742	$	1,359	$	—	$	744	$	13,780


	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

December 31, 2019	$	2,023	$	3,210	$	285	$	2,412	$	1,417	$	—	$	520	$	9,867
Charge-offs	(36)		—		—		—		(239)		—		—		(275)
Recoveries	5		28		—		21		134		—		—		188
Provision	180		3,634		606		(691)		47		—		224		4,000
September 30, 2020	$	2,172	$	6,872	$	891	$	1,742	$	1,359	$	—	$	744	$	13,780


	September 30, 2020
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	—	$	2,248	$	—	$	607	$	—	$	—	$	—	$	2,855
Collectively Evaluated for Potential Impairment	$	2,172	$	4,624	$	891	$	1,135	$	1,359	$	—	$	744	$	10,925


	December 31, 2019
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	—	$	274	$	—	$	610	$	—	$	—	$	—	$	884
Collectively Evaluated for Potential Impairment	$	2,023	$	2,936	$	285	$	1,802	$	1,417	$	—	$	520	$	8,983


	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

June 30, 2019	$	1,096	$	3,446	$	488	$	2,718	$	1,500	$	—	$	443	$	9,691
Charge-offs	(28)		—		—		(16)		(165)		—		—		(209)
Recoveries	1		35		—		5		52		—		—		93
Provision	582		(508)		49		(278)		76		—		254		175
September 30, 2019	$	1,651	$	2,973	$	537	$	2,429	$	1,463	$	—	$	697	$	9,750


	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

December 31, 2018	$	1,050	$	2,693	$	395	$	2,807	$	2,027	$	—	$	586	$	9,558
Charge-offs	(71)		—		—		(16)		(451)		—		—		(538)
Recoveries	10		56		—		7		107		—		—		180
Provision	662		224		142		(369)		(220)		—		111		550
September 30, 2019	$	1,651	$	2,973	$	537	$	2,429	$	1,463	$	—	$	697	$	9,750


	September 30, 2019
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Unallocated		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	—	$	300	$	—	$	503	$	—	$	—	$	—	$	803
Collectively Evaluated for Potential Impairment	$	1,651	$	2,673	$	537	$	1,926	$	1,463	$	—	$	697	$	8,947

The COVID-19 pandemic has resulted in a dramatic increase in unemployment and recessionary economic conditions. Based on evaluation of the macroeconomic conditions, the qualitative factors used in the allowance for loan loss analysis related to economic trends and industry conditions, specifically because of vulnerable industries such as hospitality, oil and gas, retail and restaurants, were adjusted in the current year for these circumstances. In addition, the Company has an exposure of hotel loans that have been greatly impacted by the COVID-19 pandemic and were evaluated for impairment in the current quarter. Two hotel loans with a total principal balance of $7.9 million were determined to be impaired due to insufficient cash flows and occupancy rates. The combination of these factors primarily resulted in a $1.2 million provision for loan losses for the three months ended September 30, 2020 and $4.0 million provision for loan losses for the nine months ended September 30, 2020.

Prior to the quarter ended March 31, 2020, management determined historical loss experience for each segment of loans using a two-year rolling average of the net charge-off data within each loan segment, which was then used in combination with qualitative factors to calculate the general allowance component that covers pools of homogeneous loans that are not specifically evaluated for impairment. For the quarter ended March 31, 2020, the Company began using a five-year rolling average of the net charge-off data within each segment. This change was driven by no net charge-off experience in the commercial real estate and commercial and industrial segments in the prior two-year rolling period as of March 31, 2020, which the Company believes does not represent the inherent risks in those segments. In the first quarter of 2018, the Company incurred $1.4 million of commercial and industrial charge-offs, however this period would have been removed from the lookback period as of March 31, 2020 if continuing to use a two-year history. In addition, moving to a five-year history is expected to improve the calculation moving forward by capturing economic ebbs and flows over a longer period while also not heavily weighting one period of charge-off activity.


	September 30, 2020
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	1,216	$	30,394	$	641	$	2,409	$	—	$	—	$	34,660
Collectively Evaluated for Potential Impairment	342,739		323,510		68,537		141,906		117,364		22,169		1,016,225
Total Loans	$	343,955	$	353,904	$	69,178	$	144,315	$	117,364	$	22,169	$	1,050,885


	December 31, 2019
	Real Estate Residential		Real Estate Commercial		Real Estate Construction		Commercial and Industrial		Consumer		Other		Total
(Dollars in thousands)

Individually Evaluated for Impairment	$	549	$	4,704	$	—	$	2,511	$	—	$	—	$	7,764
Collectively Evaluated for Potential Impairment	347,217		346,656		35,605		83,075		113,637		18,542		944,732
Total Loans	$	347,766	$	351,360	$	35,605	$	85,586	$	113,637	$	18,542	$	952,496