The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $4.2 million as of June 30, 2021 and December 31, 2020.

The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.


	December 31, 2020
			After one
	One year		but within		After five
(dollars in thousands)	or less		five years		years		Total
Commercial
Owner occupied RE	$	22,232		136,031		275,057		433,320
Non-owner occupied RE		39,359		335,249		210,661		585,269
Construction		21,824		15,785		23,858		61,467
Business		76,662		140,959		89,978		307,599
Total commercial loans		160,077		628,024		599,554		1,387,655
Consumer
Real estate		14,205		54,863		467,243		536,311
Home equity		4,824		23,835		128,298		156,957
Construction		1,629		1,234		37,662		40,525
Other		6,438		11,413		3,568		21,419
Total consumer		27,096		91,345		636,771		755,212
Total gross loan, net of deferred fees	$	187,173		719,369		1,236,325		2,142,867
Loans maturing after one year with:
Fixed interest rates							$	1,590,171
Floating interest rates								365,523

Paycheck Protection Program (“PPP”)

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act or the “Act”) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The Small Business Administration (“SBA”) received funding and authority through the Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency. The Act temporarily permits the SBA to guarantee 100% of certain loans under a new program titled the “Paycheck Protection Program” and also provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

We became an approved SBA lender in March 2020 and processed 853 loans under the PPP for a total of $97.5 million during the second quarter of 2020. On June 26, 2020, we completed the sale of our PPP loan portfolio to The Loan Source Inc., together with its servicing partner, ACAP SME LLC, receiving net lender fees of $2.2 million during the three months ended June 30, 2020.

The SBA offered a second round of PPP loans through May 31, 2021; however, we did not originate any new PPP loans. We did, however, receive referral fees of approximately $268,000 during the three months ended June 30, 2021 from The Loan Source Inc. for PPP loans they originated to our clients.

Portfolio Segment Methodology

Commercial

Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. The Company applies historic grade-specific loss factors to each loan class. In the development of statistically derived loan grade loss factors, the Company observes historical losses over 20 quarters for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status.

Consumer

For consumer loans, the Company determines the allowance on a collective basis utilizing historical losses over 20 quarters to represent its best estimate of inherent loss. The Company pools loans, generally by loan class with

similar risk characteristics. The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status.

Credit Quality Indicators

Commercial

We manage a consistent process for assessing commercial loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our risk categories include Pass, Special Mention, Substandard, and Doubtful, each of which is defined by our banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses.

We categorize our loans into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:

•

Pass—These loans range from minimal credit risk to average credit risk; however, still have acceptable credit risk.

•

Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

•

Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

•

Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status as well as accruing TDRs.


	June 30, 2021
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Current	$	452,130		599,598		60,786		307,862		1,420,376
30-59 days past due		-		-		-		35		35
60-89 days past due		-		-		-		-		-
Greater than 90 Days		-		496		-		36		532
	$	452,130		600,094		60,786		307,933		1,420,943


	December 31, 2020
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Current	$	432,711		584,565		61,467		307,261		1,386,004
30-59 days past due		403		282		-		35		720
60-89 days past due		-		-		-		266		266
Greater than 90 Days		206		422		-		37		665
	$	433,320		585,269		61,467		307,599		1,387,655

As of June 30, 2021 and December 31, 2020, loans 30 days or more past due represented 0.14% and 0.17% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.03% and 0.08% of the Company’s total loan portfolio as of June 30, 2021 and December 31, 2020, respectively.

The tables below provide a breakdown of outstanding commercial loans by risk category.


	June 30, 2021
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Pass	$	451,044		522,211		60,786		302,451		1,336,492
Special mention		780		48,970		-		1,317		51,067
Substandard		306		28,913		-		4,165		33,384
Doubtful		-		-		-		-		-
	$	452,130		600,094		60,786		307,933		1,420,943


	December 31, 2020
	Owner		Non-owner
(dollars in thousands)	occupied RE		occupied RE		Construction		Business		Total
Pass	$	430,291		576,095		61,328		301,838		1,369,552
Special mention		624		587		-		1,703		2,914
Substandard		2,405		8,587		139		4,058		15,189
Doubtful		-		-		-		-		-
	$	433,320		585,269		61,467		307,599		1,387,655

Consumer

The Company manages a consistent process for assessing consumer loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. The Company’s categories include Pass, Special Mention, Substandard, and Doubtful, which are defined above. Delinquency statistics are also an important indicator of credit quality in the establishment of the allowance for loan losses.

The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.


	June 30, 2021
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Current	$	603,357		148,875		48,077		30,300		830,609
30-59 days past due		522		438		-		-		960
60-89 days past due		537		286		-		-		823
Greater than 90 Days		610		190		-		-		800
	$	605,026		149,789		48,077		30,300		833,192


	December 31, 2020
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Current	$	534,648		156,657		40,525		21,419		753,249
30-59 days past due		-		-		-		-		-
60-89 days past due		332		-		-		-		332
Greater than 90 Days		1,331		300		-		-		1,631
	$	536,311		156,957		40,525		21,419		755,212

Consumer loans 30 days or more past due were 0.11% and 0.09% of total loans as of June 30, 2021 and December 31, 2020, respectively.

The tables below provide a breakdown of outstanding consumer loans by risk category.


	June 30, 2021
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Pass	$	597,139		143,545		48,077		30,100		818,861
Special mention		3,465		3,773		-		152		7,390
Substandard		4,422		2,471		-		48		6,941
Doubtful		-		-		-		-		-
	$	605,026		149,789		48,077		30,300		833,192


	December 31, 2020
(dollars in thousands)	Real estate		Home equity		Construction		Other		Total
Pass	$	530,515		152,154		40,525		21,290		744,484
Special mention		1,968		1,005		-		91		3,064
Substandard		3,828		3,798		-		38		7,664
Doubtful		-		-		-		-		-
	$	536,311		156,957		40,525		21,419		755,212

Nonperforming assets

The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when the Company believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received.

Following is a summary of our nonperforming assets, including nonaccruing TDRs.


(dollars in thousands)	June 30, 2021			December 31, 2020
Commercial
Owner occupied RE	$	-			-
Non-owner occupied RE		1,048			1,143
Construction		-			139
Business		37			195
Consumer
Real estate		2,372			2,536
Home equity		426			547
Construction		-			-
Other		-			-
Nonaccruing troubled debt restructurings		2,883			3,509
Total nonaccrual loans, including nonaccruing TDRs		6,766			8,069
Other real estate owned		366			1,169
Total nonperforming assets	$	7,132			9,238
Nonperforming assets as a percentage of:
Total assets		0.27	%		0.37	%
Gross loans		0.32	%		0.43	%
Total loans over 90 days past due	$	1,332			2,296
Loans over 90 days past due and still accruing		-			-
Accruing troubled debt restructurings		4,621			4,893

Impaired Loans

The table below summarizes key information for impaired loans. The Company’s impaired loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans may have estimated impairment which is included in the allowance for loan losses. The Company’s commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.


			June 30, 2021
			Recorded investment
					Impaired loans		Impaired loans
	Unpaid				with no related		with related		Related
	Principal		Impaired		allowance for		allowance for		allowance for
(dollars in thousands)	Balance		loans		loan losses		loan losses		loan losses
Commercial
Owner occupied RE	$	1,268		1,268		1,268		-		-
Non-owner occupied RE		3,163		2,013		996		1,017		303
Construction		-		-		-		-		-
Business		2,116		2,027		124		1,903		817
Total commercial		6,547		5,308		2,388		2,920		1,120
Consumer
Real estate		4,685		4,282		2,829		1,453		394
Home equity		1,883		1,668		1,610		58		58
Construction		-		-		-		-		-
Other		129		129		-		129		16
Total consumer		6,697		6,079		4,439		1,640		468
Total	$	13,244		11,387		6,828		4,560		1,588


			December 31, 2020
			Recorded investment
				Impaired loans		Impaired loans
	Unpaid			with no related		with related		Related
	Principal		Impaired	allowance for		allowance for		allowance for
(dollars in thousands)	Balance		loans	loan losses		loan losses		loan losses
Commercial
Owner occupied RE	$	1,753	1,649		1,497		152		76
Non-owner occupied RE		3,212	2,188		705		1,483		366
Construction		141	139		139		-		-
Business		2,892	2,449		279		2,170		897
Total commercial		7,998	6,425		2,620		3,805		1,339
Consumer
Real estate		4,362	4,031		3,108		923		190
Home equity		2,498	2,371		2,096		275		163
Construction		-	-		-		-		-
Other		135	135		-		135		17
Total consumer		6,995	6,537		5,204		1,333		370
Total	$	14,993	12,962		7,824		5,138		1,709

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.


	Three months ended June 30, 2021					Three months ended June 30, 2020
	Average		Recognized		Average		Recognized
	recorded		interest		recorded		interest
(dollars in thousands)	investment		income		investment		income
Commercial
Owner occupied RE	$	1,379		16		2,722		14
Non-owner occupied RE		2,073		32		6,078		39
Construction		68		-		-		-
Business		2,118		20		2,534		19
Total commercial		5,638		68		11,334		72
Consumer
Real estate		4,337		60		3,052		15
Home equity		1,679		18		2,287		5
Construction		-		-		-		-
Other		131		1		142		1
Total consumer		6,147		79		5,481		21
Total	$	11,785		147		16,815		93


	Six months ended					Six months ended				Year ended
	June 30, 2021					June 30, 2020				December 31, 2020
	Average		Recognized		Average		Recognized		Average		Recognized
	recorded		interest		recorded		interest		recorded		interest
(dollars in thousands)	investment		income		investment		income		investment		income
Commercial
Owner occupied RE	$	1,469		32		2,723		33		2,423		88
Non-owner occupied RE		2,111		94		6,098		102		4,217		221
Construction		91		2		-		-		56		6
Business		2,229		54		2,545		47		2,306		243
Total commercial		5,900		182		11,366		182		9,002		558
Consumer
Real estate		4,235		103		3,057		40		3,372		170
Home equity		1,910		34		2,288		17		2,128		5
Construction		-		-		-		-		-		-
Other		132		2		144		2		141		79
Total consumer		6,277		139		5,489		59		5,641		254
Total	$	12,177		321		16,855		241		14,643		812

Allowance for Loan Losses

The allowance for loan loss is management’s estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The Company has an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in the portfolio. While the Company attributes portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The Company’s process involves procedures to appropriately consider the unique risk characteristics of the

commercial and consumer loan portfolio segments. For each portfolio segment, impairment is measured individually for each impaired loan. The Company’s allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions.

The following table summarizes the activity related to the allowance for loan losses by commercial and consumer portfolio segments:


	Three months ended June 30, 2021
	Commercial											Consumer
	Owner			Non-owner
	occupied			occupied								Real		Home
(dollars in thousands)	RE			RE			Construction		Business			Estate		equity			Construction		Other			Total
Balance, beginning of period	$	7,154			15,195			827		6,848			9,666		2,688			685		436			43,499
Provision for loan losses		(149	)		(2,096	)		124		(226	)		362		(129	)		68		146			(1,900	)
Loan charge-offs		-			-			-		-			-		-			-		(8	)		(8	)
Loan recoveries		94			124			-		100			-		3			-		-			321
Net loan charge-offs		94			124			-		100			-		3			-		(8	)		313
Balance, end of period	$	7,099			13,223			951		6,722			10,028		2,562			753		574			41,912
Net charge-offs (recoveries) to average loans (annualized)																							(0.06	)%
Allowance for loan losses to gross loans																							1.86	%
Allowance for loan losses to nonperforming loans																							619.47	%


	Three months ended June 30, 2020
	Commercial										Consumer
	Owner		Non-owner
	occupied		occupied								Real		Home
(dollars in thousands)	RE		RE			Construction		Business			Estate		equity		Construction		Other		Total
Balance, beginning of period	$	4,005		5,794			694		4,714			4,606		1,896		415		338		22,462
Provision for loan losses		1,795		3,909			283		1,282			1,925		745		200		61		10,200
Loan charge-offs		-		(912	)		-		(170	)		-		-		-		-		(1,082	)
Loan recoveries		-		-			-		15			7		-		-		-		22
Net loan charge-offs		-		(912	)		-		(155	)		7		-		-		-		(1,060	)
Balance, end of period	$	5,800		8,791			977		5,841			6,538		2,641		615		399		31,602
Net charge-offs to average loans (annualized)																				0.24	%
Allowance for loan losses to gross loans																				1.55	%
Allowance for loan losses to nonperforming loans																				350.74	%

	Six months ended June 30, 2021
	Commercial											Consumer
	Owner			Non-owner
	occupied			occupied							Real			Home
(dollars in thousands)	RE			RE		Construction			Business		Estate			equity		Construction		Other			Total
Balance, beginning of period	$	8,145			12,049		1,154		7,845			10,453		3,249			747		507			44,149
Provision for loan losses		(1,140	)		1,050		(203	)	(1,011	)		(425	)	(552	)		6		75			(2,200	)
Loan charge-offs		-			-		-		(268	)		-		(139	)		-		(8	)		(415	)
Loan recoveries		94			124		-		156			-		4			-		-			378
Net loan charge-offs		94			124		-		(112	)		-		(135	)		-		(8	)		(37	)
Balance, end of period	$	7,099			13,223		951		6,722			10,028		2,562			753		574			41,912
Net charge-offs to average loans (annualized)																						0.00	%

	Six months ended June 30, 2020
	Commercial							Consumer
	Owner		Non-owner
	occupied		occupied					Real	Home
(dollars in thousands)	RE		RE		Construction	Business		Estate	equity		Construction		Other		Total
Balance, beginning of period	$	2,835	4,304		541	3,692		3,278		1,447		268	277			16,642
Provision for loan losses		2,965	5,620		436	2,288		3,251		1,126		347	167			16,200
Loan charge-offs		-	(1,133	)	-	(170	)	-		-		-	(45	)		(1,348	)
Loan recoveries		-	-		-	31		9		68		-	-			108
Net loan charge-offs		-	(1,133	)	-	(139	)	9		68		-	(45	)		(1,240	)
Balance, end of period	$	5,800	8,791		977	5,841		6,538		2,641		615	399			31,602
Net charge-offs to average loans (annualized)																0.12	%

The following table disaggregates the allowance for loan losses and recorded investment in loans by impairment methodology.


	June 30, 2021
	Allowance for loan losses				Recorded investment in loans
(dollars in thousands)	Commercial		Consumer	Total	Commercial	Consumer	Total
Individually evaluated	$	1,454	134	1,588	5,308	6,079	11,387
Collectively evaluated		26,536	13,788	40,324	1,415,635	827,113	2,242,748
Total	$	27,995	13,917	41,912	1,420,943	833,192	2,254,135


	December 31, 2020
	Allowance for loan losses				Recorded investment in loans
(dollars in thousands)	Commercial		Consumer	Total	Commercial	Consumer	Total
Individually evaluated	$	1,339	370	1,709	6,425	6,537	12,962
Collectively evaluated		27,826	14,614	42,440	1,381,230	748,675	2,129,905
Total	$	29,165	14,984	44,149	1,387,655	755,212	2,142,867