

	June 30, 2020		December 31, 2019
	(In Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	229,994	$	226,614
Commercial real estate — non-owner occupied	533,211		516,652
Land development	44,299		51,097
Construction	133,375		109,057
Multi-family	244,496		217,322
1-4 family	36,823		33,359
Total commercial real estate	1,222,198		1,154,101
Commercial and industrial	781,239		503,402
Direct financing leases, net	25,525		28,203
Consumer and other:
Home equity and second mortgages	6,706		7,006
Other	29,737		22,664
Total consumer and other	36,443		29,670
Total gross loans and leases receivable	2,065,405		1,715,376
Less:
Allowance for loan and lease losses	27,464		19,520
Deferred loan fees	8,542		741
Loans and leases receivable, net	$	2,029,399	$	1,695,115

Loans transferred to third parties consist of the guaranteed portions of SBA 7(a) loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans. The total principal amount of the guaranteed portions of SBA 7(a) loans sold during the three months ended June 30, 2020, and 2019, was $6.5 million and $3.3 million, respectively. The total principal amount of the guaranteed portions of SBA 7(a) loans sold during the six months ended June 30, 2020, and 2019, was $9.2 million and $5.6 million, respectively. Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and six months ended June 30, 2020, and 2019, have been derecognized in the unaudited Consolidated Financial Statements. The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements. The total outstanding balance of sold SBA loans at June 30, 2020, and December 31, 2019, was $69.9 million and $73.8 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended June 30, 2020, and 2019, was $10.3 million and $17.2 million, respectively. The total principal amount of transferred participation interests in other, non-SBA originated loans during the six months ended June 30, 2020, and 2019, was $22.2 million and $34.4 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer. No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation. The total outstanding balance of these transferred loans at June 30, 2020, and December 31, 2019, was $149.4 million and $142.8 million, respectively. As of June 30, 2020, and December 31, 2019, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $266.1 million and $244.6 million, respectively. No loans in this participation portfolio were considered impaired as of June 30, 2020, and December 31, 2019. The Corporation does not share in the participant’s portion of any potential charge-offs. The total amount of loan participations purchased on the unaudited Consolidated Balance Sheets as of June 30, 2020, and December 31, 2019, was $452,000 and $492,000, respectively.



	June 30, 2020
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	170,546		$	26,515		$	25,430		$	7,503		$	229,994
Commercial real estate — non-owner occupied	458,069			55,494			19,648			—			533,211
Land development	42,922			328			—			1,049			44,299
Construction	122,392			10,983			—			—			133,375
Multi-family	220,688			23,808			—			—			244,496
1-4 family	32,687			1,682			2,072			382			36,823
Total commercial real estate	1,047,304			118,810			47,150			8,934			1,222,198
Commercial and industrial	658,377			41,156			66,672			15,034			781,239
Direct financing leases, net	18,661			214			6,601			49			25,525
Consumer and other:
Home equity and second mortgages	5,969			602			135			—			6,706
Other	29,425			185			—			127			29,737
Total consumer and other	35,394			787			135			127			36,443
Total gross loans and leases receivable	$	1,759,736		$	160,967		$	120,558		$	24,144		$	2,065,405
Category as a % of total portfolio	85.20		%	7.79		%	5.84		%	1.17		%	100.00		%



	December 31, 2019
	Category
	I			II			III			IV			Total
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	$	187,728		$	18,455		$	16,399		$	4,032		$	226,614
Commercial real estate — non-owner occupied	459,821			55,524			1,307			—			516,652
Land development	49,132			439			—			1,526			51,097
Construction	108,959			—			98			—			109,057
Multi-family	205,750			11,572			—			—			217,322
1-4 family	29,284			1,843			1,759			473			33,359
Total commercial real estate	1,040,674			87,833			19,563			6,031			1,154,101
Commercial and industrial	398,445			34,478			55,904			14,575			503,402
Direct financing leases, net	21,282			579			6,342			—			28,203
Consumer and other:
Home equity and second mortgages	6,307			610			89			—			7,006
Other	22,517			—			—			147			22,664
Total consumer and other	28,824			610			89			147			29,670
Total gross loans and leases receivable	$	1,489,225		$	123,500		$	81,898		$	20,753		$	1,715,376
Category as a % of total portfolio	86.82		%	7.20		%	4.77		%	1.21		%	100.00		%

Category I — Loans and leases in this category are performing in accordance with the terms of the contract and generally exhibit no immediate concerns regarding the security and viability of the underlying collateral, financial stability of the borrower, integrity or strength of the borrowers’ management team, or the industry in which the borrower operates. The Corporation monitors Category I loans and leases through payment performance, continued maintenance of its personal relationships with such borrowers, and continued review of such borrowers’ compliance with the terms of their respective agreements.

Category II — Loans and leases in this category are beginning to show signs of deterioration in one or more of the Corporation’s core underwriting criteria such as financial stability, management strength, industry trends, or collateral values. Management will place credits in this category to allow for proactive monitoring and resolution with the borrower to possibly mitigate the area of concern and prevent further deterioration or risk of loss to the Corporation. Category II loans are considered performing but are monitored frequently by the assigned business development officer and by asset quality review committees.

Category III — Loans and leases in this category are identified by management as warranting special attention. However, the balance in this category is not intended to represent the amount of adversely classified assets held by the Bank. Category III loans and leases generally exhibit undesirable characteristics, such as evidence of adverse financial trends and conditions, managerial problems, deteriorating economic conditions within the related industry, or evidence of adverse public filings and may exhibit collateral shortfall positions. Management continues to believe that it will collect all contractual principal and interest in accordance with the original terms of the contracts relating to the loans and leases in this category, and therefore Category III loans are considered performing with no specific reserves established for this category. Category III loans are monitored by management and asset quality review committees on a monthly basis.

Category IV — Loans and leases in this category are considered to be impaired. Impaired loans and leases, with the exception of performing troubled debt restructurings, have been placed on non-accrual as management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original terms of the agreement. Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs. When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases. External appraisals are obtained from the Corporation’s approved appraiser listing and are independently reviewed to monitor the quality of such appraisals. To the extent a collateral shortfall position is present, a specific reserve or charge-off will be recorded to reflect the magnitude of the impairment. Loans and leases in this category are monitored by management and asset quality review committees on a monthly basis.



	June 30, 2020
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,491		$	222,491
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			43,250			43,250
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			—			—			36,490			36,490
Commercial and industrial	5,965			1,320			—			7,285			758,920			766,205
Direct financing leases, net	—			—			—			—			25,476			25,476
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			—			—			29,610			29,610
Total	5,965			1,320			—			7,285			2,034,025			2,041,310
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			3,953			7,503
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,049			1,049
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			—			333			333			—			333
Commercial and industrial	76			283			7,416			7,775			7,259			15,034
Direct financing leases, net	—			—			—			—			49			49
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			127			127			—			127
Total	76			283			11,426			11,785			12,310			24,095
Total loans and leases
Commercial real estate:
Owner occupied	—			—			3,550			3,550			226,444			229,994
Non-owner occupied	—			—			—			—			533,211			533,211
Land development	—			—			—			—			44,299			44,299
Construction	—			—			—			—			133,375			133,375
Multi-family	—			—			—			—			244,496			244,496
1-4 family	—			—			333			333			36,490			36,823
Commercial and industrial	6,041			1,603			7,416			15,060			766,179			781,239
Direct financing leases, net	—			—			—			—			25,525			25,525
Consumer and other:
Home equity and second mortgages	—			—			—			—			6,706			6,706
Other	—			—			127			127			29,610			29,737
Total	$	6,041		$	1,603		$	11,426		$	19,070		$	2,046,335		$	2,065,405
Percent of portfolio	0.29		%	0.08		%	0.55		%	0.92		%	99.08		%	100.00		%



	December 31, 2019
	30-59 Days Past Due			60-89 Days Past Due			Greater Than 90 Days Past Due			Total Past Due			Current			Total Loans and Leases
	(Dollars in Thousands)
Accruing loans and leases
Commercial real estate:
Owner occupied	$	—		$	—		$	—		$	—		$	222,582		$	222,582
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			48,581			49,571
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			—			—			—			33,026			33,026
Commercial and industrial	2,707			52			—			2,759			486,068			488,827
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			—			—			22,517			22,517
Total	3,016			1,042			—			4,058			1,690,705			1,694,763
Non-accruing loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			3,690			4,032
Non-owner occupied	—			—			—			—			—			—
Land development	—			—			—			—			1,526			1,526
Construction	—			—			—			—			—			—
Multi-family	—			—			—			—			—			—
1-4 family	—			333			—			333			—			333
Commercial and industrial	4,368			2,717			3,123			10,208			4,367			14,575
Direct financing leases, net	—			—			—			—			—			—
Consumer and other:
Home equity and second mortgages	—			—			—			—			—			—
Other	—			—			147			147			—			147
Total	4,368			3,050			3,612			11,030			9,583			20,613
Total loans and leases
Commercial real estate:
Owner occupied	—			—			342			342			226,272			226,614
Non-owner occupied	—			—			—			—			516,652			516,652
Land development	—			990			—			990			50,107			51,097
Construction	309			—			—			309			108,748			109,057
Multi-family	—			—			—			—			217,322			217,322
1-4 family	—			333			—			333			33,026			33,359
Commercial and industrial	7,075			2,769			3,123			12,967			490,435			503,402
Direct financing leases, net	—			—			—			—			28,203			28,203
Consumer and other:
Home equity and second mortgages	—			—			—			—			7,006			7,006
Other	—			—			147			147			22,517			22,664
Total	$	7,384		$	4,092		$	3,612		$	15,088		$	1,700,288		$	1,715,376
Percent of portfolio	0.43		%	0.24		%	0.21		%	0.88		%	99.12		%	100.00		%



	June 30, 2020		December 31, 2019
	(In Thousands)
Non-accrual loans and leases
Commercial real estate:
Commercial real estate — owner occupied	$	7,503	$	4,032
Commercial real estate — non-owner occupied	—		—
Land development	1,049		1,526
Construction	—		—
Multi-family	—		—
1-4 family	333		333
Total non-accrual commercial real estate	8,885		5,891
Commercial and industrial	15,034		14,575
Direct financing leases, net	49		—
Consumer and other:
Home equity and second mortgages	—		—
Other	127		147
Total non-accrual consumer and other loans	127		147
Total non-accrual loans and leases	24,095		20,613
Foreclosed properties, net	1,389		2,919
Total non-performing assets	25,484		23,532
Performing troubled debt restructurings	49		140
Total impaired assets	$	25,533	$	23,672



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2020
	Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment		Number of Loans	Pre-Modification Recorded Investment		Post-Modification Recorded Investment
	(Dollars in Thousands)
Commercial real estate:
Commercial real estate — owner occupied	—	$	—	$	—	2	$	299	$	272
Commercial and industrial	1	4,986		4,986		3	6,007		5,756
Total	1	$	4,986	$	4,986	5	$	6,306	$	6,028

There were two commercial and industrial loans for a total of $2.7 million and four owner-occupied commercial real estate loans for a total of $3.8 million modified in troubled debt restructurings during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2020. There were two commercial and industrial loans modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2019 in the amount of $2.8 million.



	As of and for the Six Months Ended June 30, 2020
	Recorded Investment⁽¹⁾		Unpaid Principal Balance			Impairment Reserve		Average Recorded Investment⁽²⁾			Foregone Interest Income			Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	3,856	$	3,856		$	—	$	4,577		$	86		$	72	$	14
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	5,328		7,273			—		14,291			550			316		234
Direct financing leases, net	—		—			—		4			—			—		—
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Total	10,742		17,656			—		20,937			698			458		240
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,647		5,034			3,052		1,469			201			—		201
Non-owner occupied	—		—			—		—			—			—		—
Land development	—		—		—	—		—		—	—		—	—		—
Construction	—		—		—	—		—		—	—		—	—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	—		—			—		—			—			—		—
Commercial and industrial	9,706		11,154			2,847		1,437			213			—		213
Direct financing leases, net	49		49			25		4			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	—		—			—		—			—			—		—
Total	13,402		16,237			5,924		2,910			416			—		416
Total:
Commercial real estate:
Owner occupied	7,503		8,890			3,052		6,046			287			72		215
Non-owner occupied	—		—			—		53			—			—		—
Land development	1,049		5,346			—		1,442			19			—		19
Construction	—		—			—		—			—			—		—
Multi-family	—		—			—		—			—			—		—
1-4 family	382		387			—		433			21			70		(49		)
Commercial and industrial	15,034		18,427			2,847		15,728			763			316		447
Direct financing leases, net	49		49			25		8			2			—		2
Consumer and other:
Home equity and second mortgages	—		—			—		—			—			—		—
Other	127		794			—		137			22			—		22
Grand total	$	24,144	$	33,893		$	5,924	$	23,847		$	1,114		$	458	$	656



	As of and for the Year Ended December 31, 2019
	Recorded Investment⁽¹⁾		Unpaid Principal Balance		Impairment Reserve		Average Recorded Investment⁽²⁾		Foregone Interest Income		Interest Income Recognized		Net Foregone Interest Income
	(In Thousands)
With no impairment reserve recorded:
Commercial real estate:
Owner occupied	$	387	$	387	$	—	$	3,285	$	64	$	355	$	(291	)
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	4,779		6,549		—		14,479		1,073		379		694
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Total	7,312		14,050		—		20,212		1,257		793		464
With impairment reserve recorded:
Commercial real estate:
Owner occupied	3,645		5,004		1,082		1,511		414		—		414
Non-owner occupied	—		—		—		—		—		—		—
Land development	—		—		—		—		—		—		—
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	—		—		—		—		—		—		—
Commercial and industrial	9,796		11,179		2,283		2,367		1,022		—		1,022
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		—		—
Other	—		—		—		—		—		—		—
Total	13,441		16,183		3,365		3,878		1,436		—		1,436
Total:
Commercial real estate:
Owner occupied	4,032		5,391		1,082		4,796		478		355		123
Non-owner occupied	—		—		—		58		1		—		1
Land development	1,526		5,823		—		1,843		52		6		46
Construction	—		—		—		—		—		—		—
Multi-family	—		—		—		—		—		—		—
1-4 family	473		478		—		356		19		46		(27		)
Commercial and industrial	14,575		17,728		2,283		16,846		2,095		379		1,716
Direct financing leases, net	—		—		—		—		—		—		—
Consumer and other:
Home equity and second mortgages	—		—		—		—		—		7		(7		)
Other	147		813		—		191		48		—		48
Grand total	$	20,753	$	30,233	$	3,365	$	24,090	$	2,693	$	793	$	1,900

The difference between the recorded investment of loans and leases and the unpaid principal balance of $9.7 million and $9.5 million as of June 30, 2020, and December 31, 2019, respectively, represents partial charge-offs of loans and leases resulting from losses due to the appraised value of the collateral securing the loans and leases being below the carrying values of the loans and leases. Impaired loans and leases also included $49,000 and $140,000 of loans as of June 30, 2020, and December 31, 2019, respectively, that were performing troubled debt restructurings, and although not on non-accrual, were reported as impaired due to the concession in terms. When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income. Cash payments collected on non-accrual loans are first applied to such loan’s principal. Foregone interest represents the interest that was contractually due on the loan but not received or recorded. To the extent the amount of principal on a non-accrual loan is fully collected and additional cash is received, the Corporation will recognize interest income.

To determine the level and composition of the allowance for loan and lease losses, the Corporation categorizes the portfolio into segments with similar risk characteristics. First, the Corporation evaluates loans and leases for potential impairment classification. The Corporation analyzes each loan and lease determined to be impaired on an individual basis to determine a specific reserve based upon the estimated value of the underlying collateral for collateral-dependent loans, or alternatively, the present value of expected cash flows. The Corporation applies historical trends from established risk factors to each category of loans and leases that has not been individually evaluated for the purpose of establishing the general portion of the allowance.



	As of and for the Six Months Ended June 30, 2020
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	10,852		$	8,078		$	590		$	19,520
Charge-offs	(27		)	(909		)	(12		)	(948		)
Recoveries	3			238			—			241
Net charge-offs	(24		)	(671		)	(12		)	(707		)
Provision for loan and lease losses	5,610			2,772			269			8,651
Ending balance	$	16,438		$	10,179		$	847		$	27,464



	As of and for the Six Months Ended June 30, 2019
	Commercial Real Estate			Commercial and Industrial			Consumer and Other			Total
	(In Thousands)
Beginning balance	$	11,662		$	8,079		$	684		$	20,425
Charge-offs	—			(61		)	(2		)	(63		)
Recoveries	73			92			28			193
Net recoveries	73			31			26			130
Provision for loan and lease losses	(466		)	(218		)	(52		)	(736		)
Ending balance	$	11,269		$	7,892		$	658		$	19,819

The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology.



	As of June 30, 2020
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	13,386	$	7,307	$	847	$	21,540
Individually evaluated for impairment	3,052		2,872		—		5,924
Total	$	16,438	$	10,179	$	847	$	27,464
Loans and lease receivables:
Collectively evaluated for impairment	$	1,213,264	$	791,681	$	36,316	$	2,041,261
Individually evaluated for impairment	8,934		15,083		127		24,144
Total	$	1,222,198	$	806,764	$	36,443	$	2,065,405



	As of December 31, 2019
	Commercial Real Estate		Commercial and Industrial		Consumer and Other		Total
	(In Thousands)
Allowance for loan and lease losses:
Collectively evaluated for impairment	$	9,770	$	5,795	$	590	$	16,155
Individually evaluated for impairment	1,082		2,283		—		3,365
Total	$	10,852	$	8,078	$	590	$	19,520
Loans and lease receivables:
Collectively evaluated for impairment	$	1,148,070	$	517,030	$	29,523	$	1,694,623
Individually evaluated for impairment	6,031		14,575		147		20,753
Total	$	1,154,101	$	531,605	$	29,670	$	1,715,376