
	September 30, 2021			December 31, 2020
	Amount		% of Total	Amount		% of Total
	(in thousands, except percentages)
Real estate mortgages:
Construction and development	$	158,255	13.8%	$	102,559	9.9%
Residential	135,862		11.8%	152,212		14.7%
Commercial	647,694		56.3%	514,923		49.8%
Commercial and industrial	198,550		17.3%	254,395		24.6%
Consumer and other	8,979		0.8%	9,644		1.0%
Gross Loans	1,149,340		100.0%	1,033,733		100.0%
Deferred loan fees	(3,893)			(3,618)
Allowance for loan losses	(14,097)			(11,859)
Loans, net	$	1,131,350		$	1,018,256

For purposes of the disclosures required pursuant to ASC 310, the loan portfolio was disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are three loan portfolio segments that include real estate, commercial and industrial, and consumer and other. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and an entity’s method for monitoring and assessing credit risk. Commercial and industrial is a separate commercial loan class. Classes within the real estate portfolio segment include construction and development, residential mortgages, and commercial mortgages. Consumer loans and other are a class in itself.

In light of the U.S. and global economic crisis brought about by the COVID-19 pandemic, the Company has prioritized assisting its clients through this troubled time. The CARES Act provides for Paycheck Protection Plan (PPP) loans to be made by banks to employers with less than 500 employees if they continue to employ their existing workers. As of September 30, 2021, the Company has outstanding 109 loans for a total amount of $20,265 under the PPP. At September 30, 2021, unaccreted deferred loan origination fees related to PPP loans totaled $752. PPP loan origination fees recorded as an adjustment to loan yield for the three and nine months ended were $630 and $2,222, respectively. These PPP loans are included within the commercial and industrial loan category in the table above.

•Loans for real estate construction and development are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.

•Residential mortgages include 1-4 family first mortgage loans which are repaid by various means such as a borrower’s income, sale of the property, or rental income derived from the property. Also included in residential mortgages are real estate loans secured by farmland, second liens, or open end real estate loans, such as home equity lines. These loans are typically repaid in the same means as 1-4 family first mortgages.

•Commercial real estate mortgage loans include both owner-occupied commercial real estate loans and other commercial real estate loans such as commercial loans secured by income producing properties. Owner-occupied commercial real estate loans made to operating businesses are long-term financing of land and buildings and are repaid by cash flows generated from business operations. Real estate loans for income-producing properties such as apartment buildings, hotels, office and industrial buildings, and retail shopping centers are repaid by cash flows from rent income derived from the properties.

Commercial and industrial - The commercial loan portfolio segment includes commercial and industrial loans. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, leases, or expansion projects. Loans are repaid by business cash flows. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly cash flows from the borrowers’ business operations.

Consumer and other - The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures which affects borrowers’ incomes and cash for repayment.

The Chief Credit Officer, Officers Loan Committee and Directors Loan Committee are each involved in the credit risk management process and assess the accuracy of risk ratings, the quality of the portfolio and the estimation of inherent credit losses in the loan portfolio. This comprehensive process also assists in the prompt identification of problem credits. The Company has taken a number of measures to manage the portfolios and reduce risk, particularly in the more problematic portfolios.

The Company employs a credit risk management process with defined policies, accountability and routine reporting to manage credit risk in the loan portfolio segments. Credit risk management is guided by a comprehensive Loan Policy that provides for a consistent and prudent approach to underwriting and approvals of credits. Within the Board approved Loan Policy, procedures exist that elevate the approval requirements as credits become larger and more complex. All loans are individually underwritten, risk-rated, approved, and monitored.

Responsibility and accountability for adherence to underwriting policies and accurate risk ratings lies in each portfolio segment. For the consumer portfolio segment, the risk management process focuses on managing customers who become delinquent in their payments. For the commercial and real estate portfolio segments, the risk management process focuses on underwriting new business and, on an ongoing basis, monitoring the credit of the portfolios. To ensure problem credits are identified on a timely basis, several specific portfolio reviews occur each year to assess the larger adversely rated credits for proper risk rating and accrual status.

Credit quality and trends in the loan portfolio segments are measured and monitored regularly. Detailed reports, by product, collateral, accrual status, etc., are reviewed by the Chief Credit Officer and reported to the Board of Directors.

•Special Mention - A loan that 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 in the institution's credit position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

•Substandard - Substandard loans are 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 jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

•Doubtful - Loans classified Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

•Loss - Loans classified Loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be effected in the future.


	Pass		Special Mention		Substandard		Doubtful		Total
	(dollars in thousands)
As of September 30, 2021
Real estate mortgages:
Construction and development	$	149,332	$	2,255	$	6,668	$	—	$	158,255
Residential	134,372		349		1,076		65		135,862
Commercial	621,743		17,595		8,356		—		647,694
Commercial and industrial	194,978		3,240		89		243		198,550
Consumer and other	8,972		—		7		—		8,979
Total	$	1,109,397	$	23,439	$	16,196	$	308	$	1,149,340

As of December 31, 2020
Real estate mortgages:
Construction and development	$	95,214	$	6,113	$	1,232	$	—	$	102,559
Residential	144,256		6,245		1,627		84		152,212
Commercial	471,555		36,754		6,614		—		514,923
Commercial and industrial	240,646		13,138		611		—		254,395
Consumer and other	8,186		1,435		23		—		9,644
Total	$	959,857	$	63,685	$	10,107	$	84	$	1,033,733

A loan is considered past due if any required principal and interest payments have not been received as of the date such payments were required to be made under the terms of the loan agreement. Generally, management places a loan on nonaccrual when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. The following tables present the aging of the recorded investment in loans and leases as of September 30, 2021 and December 31, 2020:


			Past Due Status (Accruing Loans)
	Current		30-59 Days		60-89 Days		90+ Days		Total Past Due		Nonaccrual		Total
As of September 30, 2021
Real estate mortgages:
Construction and development	$	156,283	$	—	$	—	$	—	$	—	$	1,972	$	158,255
Residential	134,687		411		425		—		836		339		135,862
Commercial	645,148		1,826		30		—		1,856		690		647,694
Commercial and industrial	197,819		431		—		—		431		300		198,550
Consumer and other	8,949		23		—		—		23		7		8,979
Total	$	1,142,886	$	2,691	$	455	$	—	$	3,146	$	3,308	$	1,149,340

As of December 31, 2020
Real estate mortgages:
Construction and development	$	101,375	$	117	$	90	$	—	$	207	$	977	$	102,559
Residential	150,837		382		94		42		518		857		152,212
Commercial	512,208		1,196		—		41		1,237		1,478		514,923
Commercial and industrial	252,473		626		1,212		—		1,838		84		254,395
Consumer and other	9,581		18		15		8		41		22		9,644
Total	$	1,026,474	$	2,339	$	1,411	$	91	$	3,841	$	3,418	$	1,033,733

The following tables detail activity in the allowance for loan losses by portfolio segment as of September 30, 2021 and September 30, 2020. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.


	Real Estate		Commercial		Consumer		Total
Allowance for loan losses:
Balance at December 31, 2020	$	8,057	$	3,609	$	193	$	11,859
Provision for loan losses	2,761		(442)		(69)		2,250
Loans charged off	(44)		—		(2)		(46)
Recoveries of loans previously charged off	12		14		8		34
Ending balance at September 30, 2021	$	10,786	$	3,181	$	130	$	14,097

Ending balance - individually evaluated for impairment	$	288	$	307	$	4	$	599
Ending balance - collectively evaluated for impairment	10,421		2,874		126		13,421
Ending balance - loans acquired with deteriorated credit quality	77		—		—		77
Total ending balance at September 30, 2021	$	10,786	$	3,181	$	130	$	14,097

Loans:
Ending balance - individually evaluated for impairment	$	16,105	$	332	$	30	$	16,467
Ending balance - collectively evaluated for impairment	924,406		198,218		8,949		1,131,573
Ending balance - loans acquired with deteriorated credit quality	1,300		—		—		1,300
Total ending balance at September 30, 2021	$	941,811	$	198,550	$	8,979	$	1,149,340


	Real Estate		Commercial		Consumer		Total
Allowance for loan losses:
Balance at December 31, 2019	$	7,254	$	1,885	$	126	$	9,265
Provision for loan losses	1,118		1,723		(141)		2,700
Loans charged off	(48)		—		(15)		(63)
Recoveries of loans previously charged off	9		122		83		214
Ending balance at September 30, 2020	$	8,333	$	3,730	$	53	$	12,116

Ending balance - individually evaluated for impairment	$	2,115	$	406	$	—	$	2,521
Ending balance - collectively evaluated for impairment	6,079		3,324		53		9,456
Ending balance - loans acquired with deteriorated credit quality	139		—		—		139
Total ending balance at September 30, 2020	$	8,333	$	3,730	$	53	$	12,116

Loans:
Ending balance - individually evaluated for impairment	$	18,390	$	810	$	6	$	19,206
Ending balance - collectively evaluated for impairment	738,670		236,083		10,592		985,345
Ending balance - loans acquired with deteriorated credit quality	1,429		—		—		1,429
Total ending balance at September 30, 2020	$	758,489	$	236,893	$	10,598	$	1,005,980

A loan held for investment is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The following tables detail our impaired loans, by portfolio class as of September 30, 2021 and December 31, 2020.


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
September 30, 2021
With no related allowance recorded:
Real estate mortgages:
Construction and development	$	5,049	$	5,049	$	—	$	5,063
Residential	1,236		1,236		—		1,694
Commercial	8,987		8,694		—		8,328
Commercial and industrial	32		32		—		45
Consumer and other	18		18		—		22
Total with no related allowance recorded	15,322		15,029		—		15,152

With an allowance recorded:
Real estate mortgages:
Construction and development	1,376		1,376		131		1,382
Residential	478		549		125		490
Commercial	279		279		109		280
Commercial and industrial	300		300		307		319
Consumer and other	12		12		4		13
Total with an allowance recorded	2,445		2,516		676		2,484
Total impaired loans	$	17,767	$	17,545	$	676	$	17,636


	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment
December 31, 2020
With no related allowance recorded:
Real estate mortgages:
Construction and development	$	977	$	977	$	—	$	970
Residential	1,537		1,537		—		1,669
Commercial	5,117		5,117		—		5,425
Commercial and industrial	65		65		—		91
Consumer and other	22		22		—		24
Total with no related allowance recorded	7,718		7,718		—		8,179

With an allowance recorded:
Real estate mortgages:
Construction and development	644		644		106		668
Residential	1,557		1,628		628		1,636
Commercial	3,373		3,373		847		3,526
Commercial and industrial	791		791		478		886
Consumer and other	15		15		7		15
Total with an allowance recorded	6,380		6,451		2,066		6,731
Total impaired loans	$	14,098	$	14,169	$	2,066	$	14,910

A loan held for investment is considered impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due (both principal and interest) according to the terms of the loan agreement. The following tables detail our interest income recognized on impaired loans, by portfolio class in the nine months ended September 30, 2021 and 2020.


	Recorded Investment		Average Recorded Investment		Interest Income Recognized
Nine Months Ended September 30, 2021
With no related allowance recorded:
Real estate mortgages:
Construction and development	$	5,049	$	5,063	$	113
Residential	1,236		1,694		59
Commercial	8,987		8,328		242
Commercial and industrial	32		45		2
Consumer and other	18		22		1
Total with no related allowance recorded	15,322		15,152		417

With an allowance recorded:
Real estate mortgages:
Construction and development	1,376		1,382		14
Residential	478		490		12
Commercial	279		280		7
Commercial and industrial	300		319		11
Consumer and other	12		13		—
Total with an allowance recorded	2,445		2,484		44
Total impaired loans	$	17,767	$	17,636	$	461


	Recorded Investment		Average Recorded Investment		Interest Income Recognized
Nine Months Ended September 30, 2020
With no related allowance recorded:
Real estate mortgages:
Construction and development	$	1,490	$	1,506	$	78
Residential	2,345		1,759		95
Commercial	4,915		4,619		202
Commercial and industrial	340		340		34
Consumer and other	6		7		—
Total with no related allowance recorded	9,096		8,231		409

With an allowance recorded:
Real estate mortgages:
Construction and development	1,234		1,258		37
Residential	552		560		20
Commercial	9,283		9,706		100
Commercial and industrial	470		483		16
Consumer and other	—		—		—
Total with an allowance recorded	11,539		12,007		173
Total impaired loans	$	20,635	$	20,238	$	582