The following table summarizes the primary segments of the loan portfolio at March 31, 2022 and December 31, 2021:

The commercial and industrial portfolio in the table above includes $1.3 million and $7.7 million of Paycheck Protection Program (“PPP”) loans at March 31, 2022 and December 31, 2021, respectively, which are 100% guaranteed by the SBA, and no allowance for loan loss (“ALL”) has been assigned to them.

The following table presents the classes of the loan portfolio summarized by the aggregate pass and the criticized categories of special mention and substandard within the internal risk rating system at March 31, 2022 and December 31, 2021:

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

The increase of $6.3 million in the substandard category was related to one large relationship in the nursing care sector that was downgraded from special mention in the first quarter of 2022. This relationship continues to perform according to its contractual terms and is not considered impaired.

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and non-accrual loans at March 31, 2022 and December 31, 2021:

The current category of commercial and industrial loans includes $1.3 million and $7.7 million of PPP loans at March 31, 2022 and December 31, 2021, respectively.

Non-accrual loans that have been subject to partial charge-offs totaled $0.6 million at March 31, 2022 and $0.5 million at December 31, 2021. Loans secured by 1-4 family residential real estate properties in the process of foreclosure totaled $0.2 million at both March 31, 2022 and December 31, 2021. Management continues to conform to federal and state mandates relative to the foreclosure processes for both Federal Backed and Non-Federal Backed mortgages. As a percentage of the loan portfolio, accruing loans past due 30 days or more decreased to 0.19% at March 31, 2022 from 0.31% at December 31, 2021.

The following table summarizes the primary segments of the ALL at March 31, 2022 and December 31, 2021, segregated by the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment:

The evaluation of the need and amount of a specific allocation of the ALL and whether a loan can be removed from impairment status is made on a quarterly basis.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not required at March 31, 2022 and December 31, 2021:

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate. For general allowances, historical loss trends are used in the estimation of losses in the current portfolio. These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Management tracks the historical net charge-off activity (full and partial charge-offs, net of full and partial recoveries) at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. Consumer pools currently utilize a rolling twelve quarters, while Commercial pools currently utilize a rolling eight quarters.

Management supplements the historical charge-off factor with a number of additional qualitative factors that are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors, which are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources, are: (a) national and local economic trends and conditions; (b) levels of and trends in delinquency rates and non-accrual loans; (c) trends in volumes and terms of loans; (d) effects of changes in lending policies; (e) experience, ability, and depth of lending staff; (f) value of underlying collateral; and (g) concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL. Residential mortgage and consumer loans are charged off after they are 120 days contractually past due. All other loans are charged off based on an evaluation of the facts and circumstances of each individual loan. When the Bank believes that its ability to collect is solely dependent on the liquidation of the collateral, a full or partial charge-off is recorded promptly to bring the recorded investment to an amount that the Bank believes is supported by an ability to collect on the collateral. The circumstances that may impact the Bank’s decision to charge-off all or a portion of a loan include default or non-payment by the borrower, scheduled foreclosure actions, and/or prioritization of the Bank’s claim in bankruptcy. There may be circumstances where due to pending events, the Bank will place a specific allocation of the ALL on a loan for which a partial charge-off has been previously recognized. This specific allocation may be either charged-off or removed depending upon the outcome of the pending event. Full or partial charge-offs are not recovered until full principal and interest on the loan have been collected, even if a subsequent appraisal supports a higher value. In most cases, loans with partial charge-offs remain in non-accrual status. Both full and partial charge-offs reduce the recorded investment of the loan and the ALL and are considered to be charge-offs for purposes of all credit loss metrics and trends, including the historical rolling charge-off rates used in the determination of the ALL.

The following tables present the activity in the ALL for the three month periods ended March 31, 2022 and 2021:



(in thousands)	Commercial Real Estate		Acquisition and Development		Commercial and Industrial		Residential Mortgage		Consumer		Unallocated		Total
ALL balance at January 1, 2022	$	6,032	$	2,615	$	2,460	$	3,484	$	934	$	430	$	15,955
Charge-offs		—		—		(48)		(9)		(246)		—		(303)
Recoveries		1		18		3		15		22		—		59
Provision		(111)		(91)		98		(545)		230		—		(419)
ALL balance at March 31, 2022	$	5,922	$	2,542	$	2,513	$	2,945	$	940	$	430	$	15,292
ALL balance at January 1, 2021	$	5,543	$	2,339	$	2,584	$	5,150	$	370	$	500	$	16,486
Charge-offs		—		(81)		—		(82)		(80)		—		(243)
Recoveries		—		101		36		17		47		—		201
Provision		(139)		64		211		(57)		31		—		110
ALL balance at March 31, 2021	$	5,404	$	2,423	$	2,831	$	5,028	$	368	$	500	$	16,554

The ALL is based on estimates, and actual losses may 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.

The following table presents the average recorded investment in impaired loans by class and related interest income recognized for the periods indicated:


	Three months ended						Three months ended
	March 31, 2022						March 31, 2021
(in thousands)	Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis		Average investment		Interest income recognized on an accrual basis		Interest income recognized on a cash basis
Commercial real estate
Non owner-occupied	$	106	$	3	$	—	$	2,406	$	3	$	—
All other CRE		2,235		23		—		3,182		35		—
Acquisition and development
1-4 family residential construction		235		4		—		263		3		—
All other A&D		386		—		—		596		3		—
Commercial and industrial		45		—		—		—		—		—
Residential mortgage
Residential mortgage – term		2,227		12		5		2,784		20		5
Residential mortgage – home equity		397		—		—		446		—		—
Consumer		—		—		—		25		—		—
Total	$	5,631	$	42	$	5	$	9,702	$	64	$	5

In the normal course of business, the Bank modifies loan terms for various reasons. These reasons may include as a retention strategy to compete in the current interest rate environment, and to re-amortize or extend a loan term to better match the loan’s payment stream with the borrower’s cash flows. A modified loan is considered to be a troubled debt restructuring (a “TDR”) when the Bank has determined that the borrower is troubled (i.e. experiencing financial difficulties) and a concession has been granted. The Bank evaluates the probability that the borrower will be in payment default on any of its debt in the foreseeable future without modification. To make this determination, the Bank performs a global financial review of the borrower and loan guarantors to assess their current ability to meet their financial obligations.

When the Bank restructures a loan to a troubled borrower, the loan terms (i.e. interest rate, payment, amortization period and/or maturity date) are modified in such a way to enable the borrower to cover the modified debt service payments based on current financials and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms are only offered for that time period. Where possible, the Bank obtains additional collateral and/or secondary payment sources at the time of the restructure in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. To date, the Bank has not forgiven any principal as a restructuring concession. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default.

All loans designated as TDRs are considered impaired loans and may be in either accruing or non-accruing status. If the loan was accruing at the time of the modification, then it continues to be in accruing status subsequent to the modification. Non-accrual TDRs may return to accruing status when there has been sufficient payment performance for a period of at least six months. TDRs are considered to be in payment default if, subsequent to modification, the loans are transferred to non-accrual status or to foreclosure. A loan may be removed from being reported as a TDR in the calendar year following the modification if the interest rate at the time of modification was consistent with the interest rate for a loan with comparable credit risk and the loan has performed according to its modified terms for at least six months. Further, a loan that has been removed from TDR reporting status and has been subsequently re-modified at standard market terms, may be removed from impaired status as well.

The volume, type and performance of TDR activity is considered in the assessment of the local economic trend qualitative factor used in the determination of the ALL for loans that are evaluated collectively for impairment.

There were 12 loans totaling $3.2 million and $3.3 million that were classified as TDRs at March 31, 2022 and December 31, 2021, respectively.

During the three month periods ended March 31, 2022 and 2021, there were no new TDRs and no modifications on existing TDRs, nor were there any payment defaults under existing TDRs. The Bank had no significant commitments to lend additional funds to TDR borrowers.