2021 Annual Report

The Company has increased oversight and analysis of all segments of the loan portfolio in response to the COVID-19 pandemic, especially in vulnerable industries such as hospitality and restaurants, to proactively monitor evolving credit risk. Loans that have potential weaknesses that warranted a watchlist risk rating at December 31, 2021, totaled $49.3 million, compared to $44.8 million at December 31, 2020. As the COVID-19 pandemic continues to evolve, the length and extent of the economic uncertainty may result in further watchlist or adverse classifications in the loan portfolio. Loans that warranted a substandard risk rating at December 31, 2021 totaled $22.6 million, compared to $15.2 million at December 31, 2020. Management continues to actively work with these borrowers and closely monitor substandard credits. The Company developed programs for clients who experienced business and personal disruptions due to the COVID-19 pandemic by providing interest-only modifications, loan payment deferrals, and extended amortization modifications. In accordance with interagency regulatory guidance and the CARES Act, qualifying loans modified in response to the COVID-19 pandemic are not considered TDRs. Modifications under this guidance, which could only be applied to modifications made by January 1, 2022, have been granted on a case-by-case basis based on specific needs and circumstances affecting each borrower. As of December 31, 2021, the Company had 12 modified loans outstanding totaling $35.0 million, representing 1.3% of the loan portfolio, excluding PPP loans. The following table presents a rollforward of loan modification activity, by modification type, from December 31, 2020 to December 31, 2021:

(dollars in thousands)

Interest-Only

Payment Deferral

Extended Amortization

Total

Principal Balance - December 31, 2020 . . . Modification Expired . . . . . . . . . . . . . . . . Additional Modification Granted . . . . . . . New Modifications . . . . . . . . . . . . . . . . . . Net Principal Advances (Payments) . . . . . Principal Balance - December 31, 2021 . . .

$

61,105

$

613

$

4,834

$

66,552

(61,524)

(618)

(4,764)

(66,906)

19,486 11,091

— —

4,764

24,250 11,091

—

91

5

(94)

2

$

30,249

$

—

$

4,740

$

34,989

The following table presents a summary of active loan modifications, by loan segment and modification type, at December 31, 2021:

Interest-Only

Extended Amortization

Total

(dollars in thousands)

Amount

# of Loans

Amount

# of Loans

Amount

# of Loans

Commercial . . . . . . . . . . . . . . . . . . . Real Estate Mortgage: CRE Owner Occupied . . . . . . . . CRE Nonowner Occupied . . . . . Totals . . . . . . . . . . . . . . . . . . . . .

$

315

2

$

4,740

1

$

5,055

3

592

3 6

— —

— —

592

3 6

29,342 30,249

29,342 34,989

$

11

$

4,740

1

$

12

Nonperforming Assets Nonperforming loans include loans accounted for on a nonaccrual basis and loans 90 days past due and still accruing. Nonperforming assets consist of nonperforming loans plus foreclosed assets (i.e., real or personal property acquired through foreclosure). Nonaccrual loans totaled $722,000 at December 31, 2021 and $775,000 at December 31, 2020, a decrease of $53,000. There were no loans 90 days past due and still accruing as of December 31, 2021 and 2020. There were no foreclosed assets as of December 31, 2021 and 2020.

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