4.	Loans Receivable and Related Allowance for Loan Losses

The Corporation's loans receivable as of the respective dates are summarized as follows:

(Dollar amounts in thousands)	March 31, 2021		December 31, 2020
Mortgage loans on real estate:
Residential first mortgages	$	298,491	$	308,031
Home equity loans and lines of credit		83,523		87,088
Commercial real estate		285,133		285,625
Total real estate loans		667,147		680,744
Other loans:
Commercial business		84,953		89,139
Consumer		43,088		40,035
Total other loans		128,041		129,174
Total loans, gross		795,188		809,918
Less allowance for loan losses		9,685		9,580
Total loans, net	$	785,503	$	800,338

Included in total loans above are net deferred costs of

$1.8

million and

$2.5

million at

March 31, 2021

and

December 31, 2020

, respectively. In addition, included in commercial loans at

March 31, 2021

and

December 31, 2020

were

$32.6

million and

$30.4

million, respectively, of Paycheck Protection Program (PPP) loans that are guaranteed by the Small Business Administration (SBA). The Corporation received

$3.3

million of fees related to the origination of these loans, of which

$1.3

million was recognized in

2020,

$641,000

was recognized in the quarter ended

March 31, 2021

and

$1.4

million will be recognized in future periods upon forgiveness by the SBA.

An allowance for loan losses (ALL) is maintained to absorb probable incurred 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 nonperforming loans. While the Corporation has historically experienced strong trends in asset quality, as a result of the situation regarding the COVID-

pandemic, management has recognized the need to incorporate factors into the allowance evaluation to help compensate for the effects of any credit deterioration due to the current economic situation.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order 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.

The allowance for loan losses 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.

March 31, 2021

, there was

allowance for loan losses allocated to loans acquired from United American Savings Bank (

2016

), Northern Hancock Bank and Trust Co. (

2017

) or Community First Bancorp, Inc (

2018

) because the unaccreted purchase discount still exceeded the calculated allowance.

The following table details activity in the ALL and the recorded investment by portfolio segment based on impairment method:

(Dollar amounts in thousands)	Residential Mortgages			Home Equity & Lines of Credit			Commercial Real Estate			Commercial Business			Consumer			Total
Three months ended March 31, 2021:
Allowance for loan losses:
Beginning Balance	$	2,774		$	620		$	5,180		$	677		$	329		$	9,580
Charge-offs		—			—			(94	)		—			(90	)		(184	)
Recoveries		—			8			—			—			6			14
Provision		(114	)		(43	)		386			(65	)		111			275
Ending Balance	$	2,660		$	585		$	5,472		$	612		$	356		$	9,685

At March 31, 2021:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	1		$	—		$	33		$	6		$	—		$	40
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,659			585			5,439			606			356			9,645
Total	$	2,660		$	585		$	5,472		$	612		$	356		$	9,685
Total loans:
Individually evaluated for impairment	$	320		$	4		$	1,467		$	129		$	—		$	1,920
Acquired loans collectively evaluated for impairment		40,182			7,780			29,169			3,389			901			81,421
Originated loans collectively evaluated for impairment		257,989			75,739			254,497			81,435			42,187			711,847
Total	$	298,491		$	83,523		$	285,133		$	84,953		$	43,088		$	795,188

At December 31, 2020:
Ending ALL balance attributable to loans:
Individually evaluated for impairment	$	—		$	—		$	40		$	20		$	—		$	60
Acquired loans collectively evaluated for impairment		—			—			—			—			—			—
Originated loans collectively evaluated for impairment		2,774			620			5,140			657			329			9,520
Total	$	2,774		$	620		$	5,180		$	677		$	329		$	9,580
Total loans:
Individually evaluated for impairment	$	329		$	3		$	1,639		$	143		$	—		$	2,114
Acquired loans collectively evaluated for impairment		44,209			8,491			30,913			5,131			1,017			89,761
Originated loans collectively evaluated for impairment		263,493			78,594			253,073			83,865			39,018			718,043
Total	$	308,031		$	87,088		$	285,625		$	89,139		$	40,035		$	809,918

Three months ended March 31, 2020:
Allowance for loan losses:
Beginning Balance	$	2,309		$	626		$	2,898		$	636		$	87		$	6,556
Charge-offs		(11	)		(39	)		(73	)		—			(15	)		(138	)
Recoveries		—			—			3			—			7			10
Provision		31			54			606			45			56			792
Ending Balance	$	2,329		$	641		$	3,434		$	681		$	135		$	7,220

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

necessary as of

March 31, 2021

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of March 31, 2021						For the three months ended March 31, 2021
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	69	$	69	$	1	$	35	$	1	$	1
Home equity and lines of credit		—		—		—		—		—		—
Commercial real estate		373		373		33		376		4		4
Commercial business		64		64		6		71		1		1
Consumer		—		—		—		—		—		—
Total	$	506	$	506	$	40	$	482	$	6	$	6

	Impaired Loans with No Specific Allowance
	As of March 31, 2021				For the three months ended March 31, 2021
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	363	$	251	$	290	$	1	$	1
Home equity and lines of credit		4		4		4		—		—
Commercial real estate		1,110		1,094		1,177		12		12
Commercial business		65		65		65		1		1
Consumer		—		—		—		—		—
Total	$	1,542	$	1,414	$	1,536	$	14	$	14

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

necessary as of

December 31, 2020

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of December 31, 2020						For the year ended December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	—	$	—	$	—	$	43	$	—	$	—
Home equity and lines of credit		—		—		—		2		—		—
Commercial real estate		380		380		40		106		17		11
Commercial business		78		78		20		53		5		4
Consumer		—		—		—		—		—		—
Total	$	458	$	458	$	60	$	204	$	22	$	15

	Impaired Loans with No Specific Allowance
	As of December 31, 2020				For the year ended December 31, 2020
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	440	$	329	$	300	$	7	$	7
Home equity and lines of credit		3		3		2		—		—
Commercial real estate		1,259		1,259		1,167		76		66
Commercial business		65		65		80		10		6
Consumer		—		—		—		—		—
Total	$	1,767	$	1,656	$	1,549	$	93	$	79

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

necessary as of

March 31, 2020:

(Dollar amounts in thousands)
	Impaired Loans with Specific Allowance
	As of March 31, 2020						For the three months ended March 31, 2020
	Unpaid Principal Balance		Recorded Investment		Related Allowance		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	71	$	71	$	2	$	71	$	1	$	1
Home equity and lines of credit		4		4		—		4		—		—
Commercial real estate		150		150		19		75		—		—
Commercial business		45		45		5		23		1		1
Consumer		—		—		—		—		—		—
Total	$	270	$	270	$	26	$	173	$	2	$	2

	Impaired Loans with No Specific Allowance
	As of March 31, 2020				For the three months ended March 31, 2020
	Unpaid Principal Balance		Recorded Investment		Average Recorded Investment		Interest Income Recognized in Period		Cash Basis Interest Recognized in Period
Residential first mortgages	$	390	$	278	$	282	$	1	$	1
Home equity and lines of credit		—		—		—		—		—
Commercial real estate		1,067		1,067		574		13		13
Commercial business		43		43		41		1		—
Consumer		—		—		—		—		—
Total	$	1,500	$	1,388	$	897	$	15	$	14

Unpaid principal balance includes any loans that have been partially charged off but

not

forgiven. Accrued interest is

not

included in the recorded investment in loans presented above or in the tables that follow based on the amounts

not

being material.

Troubled debt restructurings (TDR).

The Corporation has certain loans that have been modified in order to maximize collection of loan balances. If, for economic or legal reasons related to the customer's financial difficulties, management grants a concession compared to the original terms and conditions of the loan that it would

not

have otherwise considered, the modified loan is classified as a TDR. Concessions related to TDRs generally do

not

include forgiveness of principal balances. The Corporation generally does

not

extend additional credit to borrowers with loans classified as TDRs.

March 31, 2021

and

December 31, 2020

, the Corporation had

$384,000

and

$396,000,

respectively, of loans classified as TDRs, which are included in impaired loans above. The Corporation had allocated

$3,000

and

$6,000

of specific allowance for these loans at

March 31, 2021

and

December 31, 2020

, respectively.

During the

three

months ended

March 31, 2021

and

2020,

the Corporation did

not

modify any loans as TDRs.

A loan is considered to be in payment default once it is

days contractually past due under the modified terms. During the

three

months ended

March 31, 2021

and

2020

, the Corporation did

not

have any loans which were modified as TDRs for which there was a payment default within

twelve

months following the modification.

COVID-

related deferrals.

Under the provisions of the CARES Act, at the peak, the Corporation had granted modifications on

419

loans with an aggregate balance of

$111.6

million, representing

14.7%

of gross outstanding loan balances. As of

March 31, 2021,

loans with an aggregate balance of

$33.9

million, or

4.4%,

of gross loans outstanding remained on deferral while the remaining loans have resumed normal repayment or have been repaid in full. As of

March 31, 2021,

hotel loans comprised

$30.1

million, or

88.8%

of the loans remaining on deferral. The characteristics of these modifications are considered short-term and do

not

result in a reclassification of these loans to TDR status.

Credit Quality Indicators.

Management categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors.

Commercial real estate and commercial business loans

not

identified as impaired are evaluated as risk rated pools of loans utilizing a risk rating practice that is supported by a quarterly special asset review. In this review process, strengths and weaknesses are identified, evaluated and documented for each criticized and classified loan and borrower, strategic action plans are developed, risk ratings are confirmed and the loan's performance status is reviewed.

Management has determined certain portions of the loan portfolio to be homogeneous in nature and assigns like reserve factors for the following loan pool types: residential real estate, home equity loans and lines of credit, and consumer installment and personal lines of credit.

The reserve allocation for risk rated loan pools is developed by applying the following factors:

Historic

: Management utilizes a computer model to develop the historical net charge-off experience which is used to formulate the assumptions employed in the migration analysis applied to estimate losses in the portfolio. Outstanding balance and charge-off information are input into the model and historical loss migration rate assumptions are developed to apply to pass, special mention, substandard and doubtful risk rated loans. A

twelve

-quarter rolling weighted-average is utilized to estimate probable incurred losses in the portfolios.

Qualitative

: Qualitative adjustment factors for pass, special mention, substandard and doubtful ratings are developed and applied to risk rated loans to allow for: quality of lending policies and procedures; national and local economic and business conditions; changes in the nature and volume of the portfolio; experiences, ability and depth of lending management; changes in trends, volume and severity of past due, nonaccrual and classified loans and loss and recovery trends; quality of loan review systems; concentrations of credit and other external factors.

Management uses the following definitions for risk ratings:

Pass

: Loans classified as pass typically exhibit good payment performance and have underlying borrowers with acceptable financial trends where repayment capacity is evident. These borrowers typically would have a sufficient cash flow that would allow them to weather an economic downturn and the value of any underlying collateral could withstand a moderate degree of depreciation due to economic conditions.

Special Mention

: Loans classified as special mention are characterized by potential weaknesses that could jeopardize repayment as contractually agreed. These loans

may

exhibit adverse trends such as increasing leverage, shrinking profit margins and/or deteriorating cash flows. These borrowers would inherently be more vulnerable to the application of economic pressures.

Substandard

: Loans classified as substandard exhibit weaknesses that are well-defined to the point that repayment is jeopardized. Typically, the Corporation is

longer adequately protected by both the apparent net worth and repayment capacity of the borrower.

Doubtful

: Loans classified as doubtful have advanced to the point that collection or liquidation in full, on the basis of currently ascertainable facts, conditions and value, is highly questionable or improbable.

The following table presents the classes of the loan portfolio summarized by the aggregate pass and the criticized categories of special mention, substandard and doubtful within the Corporation's internal risk rating system as of

March 31, 2021

and

December 31, 2020

(Dollar amounts in thousands)
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
March 31, 2021:
Residential first mortgages	$	296,999	$	—	$	—	$	1,492	$	—	$	298,491
Home equity and lines of credit		83,298		—		—		225		—		83,523
Commercial real estate		—		250,095		14,801		20,237		—		285,133
Commercial business		—		78,925		1,575		4,453		—		84,953
Consumer		43,046		—		—		42		—		43,088
Total loans	$	423,343	$	329,020	$	16,376	$	26,449	$	—	$	795,188

December 31, 2020:
Residential first mortgages	$	306,237	$	—	$	—	$	1,794	$	—	$	308,031
Home equity and lines of credit		86,867		—		—		221		—		87,088
Commercial real estate		—		249,357		19,669		16,599		—		285,625
Commercial business		—		83,059		2,054		4,026		—		89,139
Consumer		39,987		—		—		48		—		40,035
Total loans	$	433,091	$	332,416	$	21,723	$	22,688	$	—	$	809,918

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 following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonperforming loans as of

March 31, 2021

and

December 31, 2020

(Dollar amounts in thousands)
	Performing						Nonperforming
	Accruing Loans Not Past Due		Accruing 30-59 Days Past Due		Accruing 60-89 Days Past Due		Accruing 90+ Days Past Due		Nonaccrual		Total
March 31, 2021:
Residential first mortgages	$	295,560	$	1,213	$	226	$	191	$	1,301	$	298,491
Home equity and lines of credit		82,810		241		247		151		74		83,523
Commercial real estate		282,799		844		—		41		1,449		285,133
Commercial business		84,553		15		—		239		146		84,953
Consumer		42,992		20		34		—		42		43,088
Total loans	$	788,714	$	2,333	$	507	$	622	$	3,012	$	795,188

December 31, 2020:
Residential first mortgages	$	304,161	$	1,836	$	239	$	176	$	1,619	$	308,031
Home equity and lines of credit		86,093		446		328		146		75		87,088
Commercial real estate		283,373		580		41		18		1,613		285,625
Commercial business		88,614		72		46		239		168		89,139
Consumer		39,917		28		42		—		48		40,035
Total loans	$	802,158	$	2,962	$	696	$	579	$	3,523	$	809,918

The following table presents the Corporation's nonaccrual loans by aging category as of

March 31, 2021

and

December 31, 2020

(Dollar amounts in thousands)
	Not Past Due		30-59 Days Past Due		60-89 Days Past Due		90 Days + Past Due		Total
March 31, 2021:
Residential first mortgages	$	214	$	69	$	—	$	1,018	$	1,301
Home equity and lines of credit		4		—		—		70		74
Commercial real estate		876		—		—		573		1,449
Commercial business		146		—		—		—		146
Consumer		—		—		—		42		42
Total loans	$	1,240	$	69	$	—	$	1,703	$	3,012

December 31, 2020:
Residential first mortgages	$	220	$	70	$	—	$	1,329	$	1,619
Home equity and lines of credit		4		—		—		71		75
Commercial real estate		1,016		—		24		573		1,613
Commercial business		168		—		—		—		168
Consumer		—		—		—		48		48
Total loans	$	1,408	$	70	$	24	$	2,021	$	3,523