Loans Held for Sale, Loans and Allowance for Loan Losses | Note 5 – Loans Held for Sale, Loans and Allowance for Loan Losses Loans Held for Sale In its normal course of business, the Bank originates mortgage loans held for sale to the FHLMC. The Bank has elected to measure its residential mortgage loans held for sale at cost. Origination fees and costs are recognized in earnings at the time of origination. Loans are sold to FHLMC at par. During the three months ended March 31, 2021, the Bank originated and sold $10.7 million in FHLMC mortgage loans. During the three months ended March 31, 2020, the Bank originated and sold $3.4 million in FHLMC loans. Mortgage loans serviced for others are not included in the accompanying condensed consolidated statements of financial condition. The unpaid principal balances of mortgage loans serviced for others were $190.9 million at March 31, 2021, and $186.9 million at December 31, 2020. The increase of $4.0 million (2.2%) during the three months ended March 31, 2021, was due to new loans, partially offset by the principal paydowns and payoffs during the period. We retain mortgage servicing rights on mortgage loans that we sell. Such rights represent the net positive cash flows generated from the servicing of such mortgage loans and we recognize such rights as assets on our statements of financial condition based on their estimated fair values. We receive servicing fees, less any subservicing costs, on the unpaid principal balances of such mortgage loans. Those fees are collected from the monthly payments made by the mortgagors or from the proceeds of the sale or foreclosure and liquidation of the underlying real property collateralizing the loans. At March 31, 2021, and December 31, 2020, mortgage servicing rights totaled $1.8 million and $1.7 million, respectively, and are included in other assets in the accompanying condensed consolidated statements of financial condition. The Bank accounts for mortgage servicing rights at fair value with changes in fair value recorded as a part of service fees and charges in the condensed consolidated statements of income. Loans Outstanding loan balances are presented net of unearned income, deferred loan fees, and unamortized discount and premium totaling $3.8 million at March 31, 2021, and $4.2 million at December 31, 2020. As of March 31, 2021, our 10 largest borrowing relationships totaled $342.0 million in commitments, or approximately 23.9% of our total gross loans compared to $345.0 million, or approximately 24.1% at December 31, 2020. Loans subject to ASC Topic 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” The loan portfolio consisted of the following at: March 31, 2021 December 31, 2020 Amount Percent Amount Percent Commercial Commercial & industrial $ 364,031 25.5 % $ 366,942 25.6 % Commercial mortgage 718,302 50.3 % 685,138 47.9 % Commercial construction 31,500 2.2 % 51,785 3.6 % Commercial agriculture 620 0.0 % 629 0.0 % Total commercial 1,114,453 78.0 % 1,104,494 77.1 % Consumer Residential mortgage 127,352 8.9 % 127,371 8.9 % Home equity 2,156 0.1 % 2,076 0.1 % Automobile 19,573 1.4 % 19,923 1.4 % Other consumer loans 1 165,073 11.6 % 177,822 12.5 % Total consumer 314,154 22.0 % 327,192 22.9 % Gross loans 1,428,607 100.0 % 1,431,686 100.0 % Deferred loan (fees) costs, net (3,772 ) (4,159 ) Allowance for loan losses (36,283 ) (34,805 ) Loans, net $ 1,388,552 $ 1,392,722 1 Comprised of other revolving credit, installment loans, and overdrafts. Paycheck Protection Program With the passage of the Paycheck Protection Program, or PPP, administered by the Small Business Administration, the Bank is actively participating in assisting its customers with applications for resources through the program. PPP loans have either a two-year or a five-year term and earn interest at 1%. The Bank believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. In 2020, the Bank approved and funded over $93.4 million in PPP loans. At March 31, 2021, the outstanding principal balance of PPP loans was at $89.2 million. Currently, a total of $48.5 million in PPP loans have been forgiven, of which $40.8 million were forgiven in 2021 and $7.7 million in 2020. On January 13, 2021, the SBA re-opened the PPP program and began accepting applications for PPP loans. As of May 7, 2021, the Bank has approved and funded over $45.5 million in additional PPP loans. It is the Bank’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Bank could be required to establish additional allowance for loan loss through additional credit loss expense charged to earnings. Allowance for Loan Losses The allowance for loan losses is evaluated on a quarterly basis by Bank management, and is based upon management’s periodic review of the collectability of 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 or conditions change. The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. ASC 310-10 defines an impaired loan as one for which there is uncertainty concerning collection of all principal and interest per the original contractual terms of the loan. For those loans that are classified as impaired, an allowance is established when the discounted cash flow (or the collateral value or the observable market price) of the impaired loan is lower than the carrying value of the loan. The general component covers unimpaired loans, and is estimated using a loss migration analysis based on historical charge-off experience and expected loss, given the default probability derived from the Bank’s internal risk rating process. The loss migration analysis tracks twelve rolling quarters of loan loss history and industry loss factors to determine historical losses by classification category for each loan type, except certain consumer loans. These calculated loss factors are then applied to outstanding loan balances for all non-impaired loans. Additionally, a qualitative factor that is determined utilizing external economic factors and internal assessments is applied to each homogeneous loan pool. We also conduct individual loan review analyses, as part of the allowance for loan loss allocation process, applying specific monitoring policies and procedures in analyzing the existing loan portfolio. In the three months ended March 31, 2021, management adjusted the economic risk factors to incorporate the current economic implications, which include reduced tourism and higher unemployment due to the COVID-19 pandemic. Set forth below is a summary of the Bank’s activity in the allowance for loan losses during the three months ended March 31, 2021, and 2020, and the year ended December 31, 2020: Three Months Ended March 31, 2021 Three Months Ended March 31, 2020 Year Ended December 31, 2020 Balance, beginning of period $ 34,805 $ 27,870 $ 27,870 Charged off loans (1,595 ) (1,492 ) (5,628 ) Recoveries on loans previously charged off 598 480 2,205 Provision for loan losses 2,475 2,207 10,358 Balance, end of period $ 36,283 $ 29,065 $ 34,805 Set forth below is information regarding loan balances and the related allowance for loan losses, by portfolio type, for the three months ended March 31, 2021, and 2020, and the year ended December 31, 2020, respectively. Commercial Residential Mortgages Consumer Total (Dollars in thousands) Three Months Ended March 31, 2021 Allowance for loan losses: Balance at beginning of period $ 21,213 $ 1,990 $ 11,602 $ 34,805 Charge-offs (77 ) (4 ) (1,514 ) (1,595 ) Recoveries 124 - 474 598 Provision 1,259 210 1,006 2,475 Balance at end of period $ 22,519 $ 2,196 $ 11,568 $ 36,283 Allowance balance at end of period related to: Loans individually evaluated for impairment $ 3,502 $ 1 $ 1,578 $ 5,081 Loans collectively evaluated for impairment 19,017 2,195 9,990 31,202 Ending balance $ 22,519 $ 2,196 $ 11,568 $ 36,283 Loan balances at end of period: Loans individually evaluated for impairment $ 60,538 $ 2,349 $ 1,716 $ 64,603 Loans collectively evaluated for impairment 1,053,915 127,159 182,930 1,364,004 Ending balance $ 1,114,453 $ 129,508 $ 184,646 $ 1,428,607 Three Months Ended March 31, 2020 Allowance for loan losses: Balance at beginning of period $ 18,360 $ 1,490 $ 8,020 $ 27,870 Charge-offs - - (1,492 ) (1,492 ) Recoveries 5 - 475 480 Provision 1,223 402 582 2,207 Ending balance $ 19,588 $ 1,892 $ 7,585 $ 29,065 Allowance balance at end of period related to: Loans individually evaluated for impairment $ 4,156 $ 2 $ 396 $ 4,554 Loans collectively evaluated for impairment 15,432 1,890 7,189 24,511 Ending balance $ 19,588 $ 1,892 $ 7,585 $ 29,065 Loan balances at end of period: Loans individually evaluated for impairment $ 33,916 $ 4,416 $ 415 $ 38,747 Loans collectively evaluated for impairment 938,084 122,805 228,625 1,289,514 Ending balance $ 972,000 $ 127,221 $ 229,040 $ 1,328,261 Year Ended December 31, 2020 Allowance for loan losses: Balance at beginning of year $ 18,360 $ 1,490 $ 8,020 $ 27,870 Charge-offs (1,069 ) - (4,559 ) (5,628 ) Recoveries 399 - 1,806 2,205 Provision 3,523 500 6,335 10,358 Ending balance $ 21,213 $ 1,990 $ 11,602 $ 34,805 Allowance balance at end of year related to: Loans individually evaluated for impairment $ 3,500 $ 4 $ 1,264 $ 4,768 Loans collectively evaluated for impairment 17,713 1,986 10,338 30,037 Ending balance $ 21,213 $ 1,990 $ 11,602 $ 34,805 Loan balances at end of year: Loans individually evaluated for impairment $ 36,031 $ 2,730 $ 1,343 $ 40,104 Loans collectively evaluated for impairment 1,068,463 126,717 196,402 1,391,582 Ending balance $ 1,104,494 $ 129,447 $ 197,745 $ 1,431,686 Credit Quality The following table provides a summary of the delinquency status of the Bank’s loans by portfolio type: 30-59 Days Past Due 60-89 Days Past Due 90 Days and Greater Non- Accrual 90 Days and Greater Still Accruing Total Past Due Current Total Loans Outstanding March 31, 2021 Commercial Commercial & industrial $ 4,527 $ 1,656 $ 7,926 $ 13 $ 14,122 $ 349,909 $ 364,031 Commercial mortgage 435 817 34,289 830 36,371 681,931 718,302 Commercial construction - - - - - 31,500 31,500 Commercial agriculture - - - - - 620 620 Total commercial 4,962 2,473 42,215 843 50,493 1,063,960 1,114,453 Consumer Residential mortgage 5,847 1,422 970 121 8,360 118,992 127,352 Home equity - - - - - 2,156 2,156 Automobile 474 62 - 63 599 18,974 19,573 Other consumer 1 2,345 1,412 78 1,454 5,289 159,784 165,073 Total consumer 8,666 2,896 1,048 1,638 14,248 299,906 314,154 Total $ 13,628 $ 5,369 $ 43,263 $ 2,481 $ 64,741 $ 1,363,866 $ 1,428,607 December 31, 2020 Commercial Commercial & industrial $ 13,712 $ 3,857 $ 8,119 $ 387 $ 26,075 $ 340,867 $ 366,942 Commercial mortgage 9,183 36,562 913 471 47,129 638,009 685,138 Commercial construction - - - - - 51,785 51,785 Commercial agriculture - - - - - 629 629 Total commercial 22,895 40,419 9,032 858 73,204 1,031,290 1,104,494 Consumer Residential mortgage 4,758 1,833 1,147 129 7,867 119,504 127,371 Home equity - - - - - 2,076 2,076 Automobile 580 184 - 43 807 19,116 19,923 Other consumer 1 3,472 1,502 108 1,096 6,178 171,644 177,822 Total consumer 8,810 3,519 1,255 1,268 14,852 312,340 327,192 Total $ 31,705 $ 43,938 $ 10,287 $ 2,126 $ 88,056 $ 1,343,630 $ 1,431,686 1 Comprised of other revolving credit, installment loans, and overdrafts. Generally, the accrual of interest on a loan is discontinued when principal or interest payments become more than 90 days past due, unless management believes the loan is adequately collateralized and is in the process of collection, with the exception of automobile and other consumer loans which, rather than being placed on non-accrual status, are charged off once they become 120 days delinquent. When a loan is placed on non-accrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Non-accrual loans may be restored to accrual status when in receipt of six consecutive payments, and principal and interest become current and full repayment is expected. The following table provides information as of March 31, 2021, and December 31, 2020, with respect to loans on non-accrual status, by portfolio type: March 31, 2021 December 31, 2020 (Dollars in thousands) Non-accrual loans: Commercial Commercial & industrial $ 8,279 $ 8,750 Commercial mortgage 35,978 6,618 Total commercial 44,257 15,368 Consumer Residential mortgage $ 2,203 $ 2,575 Other consumer 1 193 196 Total consumer 2,396 2,771 Total non-accrual loans $ 46,653 $ 18,139 1 Comprised of other revolving credit, installment loans, and overdrafts. Credit Quality Indicators The Bank uses several credit quality indicators to manage credit risk, including an internal credit risk rating system that categorizes loans into pass, special mention, substandard, formula classified, doubtful or loss categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics and that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk-rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment. The following are the definitions of the Bank’s credit quality indicators: Pass (A): Exceptional: Essentially risk-free credit. These are loans of the highest quality that pose virtually no risk of loss to the Bank. This includes loans fully collateralized by means of a savings account(s) and time certificate(s) of deposit, and by at least 110% of the loan amount. Borrowers should have strong financial statements, good liquidity and excellent credit. Pass (B): Standard: Multiple, strong sources of repayment. These are loans to borrowers with a demonstrated history of financial and managerial performance. The risk of loss is considered to be low. Loans are well-structured, with clearly identified primary and readily available secondary sources of repayment. These loans may be secured by an equal amount of funds in a savings account or time certificate of deposit. These loans may also be secured by marketable collateral whose value can be reasonably determined through outside appraisals. The borrower characteristically has well supported cash flows and low leverage. Pass (C): Acceptable: Good primary and secondary sources of repayment. These are loans to borrowers of average financial condition, stability and management expertise. The borrower should be a well-established individual or company with adequate financial resources to withstand short-term fluctuations in the marketplace. The borrower’s financial ratios and trends are favorable. The loans may be unsecured or supported by non-real estate collateral for which the value is more difficult to determine, represent a reasonable credit risk and require an average amount of account officer attention. The borrower’s ability to repay unsecured credit is to be of unquestionable strength. Pass (D): Monitor: Sufficient primary sources of repayment and an acceptable secondary source of repayment. Acceptable business or individual credit, but the borrower’s operations, cash flows or financial conditions carry average levels of risk. These loans are considered to be collectable in full, but may require a greater-than-average amount of loan officer monitoring. Borrowers are capable of absorbing normal setbacks without failing to meet the terms of the loan agreement. Special Mention: A Special Mention asset has potential weaknesses that deserve a heightened degree of monitoring. These potential weaknesses may result in a deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special Mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. The Special Mention classification should neither be a compromise between a pass grade and substandard, nor should it be a “catch all” grade to identify any loan that has a policy exception. Substandard: A Substandard asset is inadequately protected by the current sound worth and payment capacity of the obligor or the collateral pledged. Assets so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Assets classified as substandard are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Formula Classified: Formula Classified loans are all loans and credit cards delinquent 90 days and over which have yet to be formally classified Special Mention, Substandard or Doubtful by the Bank’s Loan Committee. In most instances, the monthly formula total is comprised primarily of residential real estate loans, consumer loans, credit cards and commercial loans under $250 thousand. However, commercial loans are typically formally classified by the Loan Committee no later than their 90-day delinquency, and those do not become part of the formula classification. Real estate loans 90-days delinquent that are in the foreclosure process, which is typically completed within another 60 days, are not formally classified during this period. Doubtful: A loan with weaknesses well enough defined that eventual repayment in full, on the basis of currently existing facts, conditions and values, is highly questionable, even though certain factors may be present which could improve the status of the loan. The probability of some loss is extremely high, but because of certain known factors that may work to the advantage of strengthening of the assets (i.e. capital injection, perfecting liens on additional collateral, refinancing plans, etc.), its classification as an estimated loss is deferred until its more exact status can be determined. Loss: Loans classified as “Loss” are considered uncollectible, and are either unsecured or are supported by collateral that is of little to no value. As such, their continuance as recorded assets is not warranted. While this classification does not mandate that a loan has no ultimate recovery value, losses should be taken in the period during which these loans are deemed to be uncollectible. Loans identified as loss are immediately approved for charge-off. The Bank may refer loans to outside collection agencies, attorneys, or its internal collection division to continue collection efforts. Any subsequent recoveries are credited to the Allowance for Loan Losses. The Bank classifies its loan portfolios using internal credit quality ratings, as discussed above under Allowance for Loan Losses March 31, 2021 December 31, 2020 (Dollars in thousands) Pass: Commercial & industrial $ 305,540 $ 314,201 Commercial mortgage 656,824 626,477 Commercial construction 31,500 51,785 Commercial agriculture 620 629 Residential mortgage 123,394 123,017 Home equity 2,156 2,076 Automobile 19,509 19,880 Other consumer 163,420 176,522 Total pass loans $ 1,302,963 $ 1,314,587 Special Mention: Commercial & industrial $ 21,500 $ 6,643 Commercial mortgage 15,736 16,285 Residential mortgage 1,679 1,695 Total special mention loans $ 38,915 $ 24,623 Substandard: Commercial & industrial $ 29,065 $ 37,920 Commercial mortgage 45,020 41,654 Residential mortgage 93 433 Other consumer 6 7 Total substandard loans $ 74,184 $ 80,014 Formula Classified: Residential mortgage $ 2,186 $ 2,226 Automobile 64 43 Other consumer 1,647 1,293 Total formula classified loans $ 3,897 $ 3,562 Doubtful: Commercial & industrial $ 7,926 $ 8,178 Commercial mortgage 722 722 Total doubtful loans $ 8,648 $ 8,900 Total outstanding loans, gross $ 1,428,607 $ 1,431,686 Impaired Loans A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the original contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impaired loans include loans that are in non-accrual status and other loans that have been modified in Troubled Debt Restructurings (TDRs), where economic concessions have been granted to borrowers experiencing financial difficulties. These concessions typically result from the Bank’s loss mitigation actions, and could include reductions in the interest rate, payment extensions, forbearance, or other actions taken with the intention of maximizing collections. Impairment is measured on a loan-by-loan basis for commercial and real estate loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral (if the loan is collateral-dependent). Large groups of smaller-balance homogeneous loans, such as consumer loans, are collectively evaluated for impairment. Impairment reserves for these groups of consumer loans are determined using historical loss given default rates for similar loans. The following table sets forth information regarding non-accrual loans and restructured loans, at March 31, 2021, and December 31, 2020: March 31, 2021 December 31, 2020 (Dollars in thousands) Impaired loans: Restructured loans: Non-accruing restructured loans $ 4,703 $ 4,718 Accruing restructured loans 15,438 15,937 Total restructured loans 20,141 20,655 Other impaired loans 44,462 19,450 Total impaired loans $ 64,603 $ 40,105 Impaired loans less than 90 days delinquent and included in total impaired loans $ 18,709 $ 27,664 The table below contains additional information with respect to impaired loans, by portfolio type, at March 31, 2021, and December 31, 2020: Recorded Investment Unpaid Principal Balance Average Recorded Investment Interest Income Recognized (Dollars in thousands) March 31, 2021, With no related allowance recorded: Commercial & industrial $ 22,621 $ 22,621 $ 5,655 $ 95 Commercial mortgage 37,810 38,058 9,453 19 Residential mortgage 92 92 23 - Other consumer 6 6 1 - Total impaired loans with no related allowance $ 60,529 $ 60,777 $ 15,132 $ 114 March 31, 2021, With a related allowance recorded: Commercial & industrial $ 71 $ 71 $ 18 $ 1 Commercial mortgage 36 51 9 - Residential mortgage 2,257 2,266 564 (25 ) Automobile 14 14 4 1 Other consumer 1,696 1,696 424 24 Total impaired loans with a related allowance $ 4,074 $ 4,098 $ 1,019 $ 1 December 31, 2020, With no related allowance recorded: Commercial & industrial $ 23,745 $ 23,745 $ 23,986 $ 102 Commercial mortgage 11,954 12,201 9,030 45 Residential mortgage 432 432 692 - Other consumer 7 7 7 - Total impaired loans with no related allowance $ 36,138 $ 36,385 $ 33,715 $ 147 December 31, 2020, With a related allowance recorded: Commercial & industrial $ 294 $ 607 $ 282 $ 4 Commercial mortgage 39 54 95 - Residential mortgage 2,298 2,308 2,887 (27 ) Automobile 43 43 71 - Other consumer 1,293 1,292 884 27 Total impaired loans with a related allowance $ 3,967 $ 4,304 $ 4,219 $ 4 Troubled Debt Restructurings In accordance with FASB’s Accounting Standards Update No. 2011-02, “A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring” The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined by the CARES Act prior to any relief, are not TDRs. This includes short-term (e.g. six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. Additional information regarding performing and nonperforming TDRs at March 31, 2021, and December 31, 2020, is set forth in the following table: Number of Pre- Modification Outstanding Recorded Principal Post- Modification Outstanding Recorded Outstanding Balance Loans Investment Modifications Investment March 31, 2021 December 31, 2020 Performing Residential mortgage - $ - $ - $ - $ - $ - Commercial & industrial 7 16,880 - 16,880 14,400 - Commercial mortgage 3 1,048 - 1,048 1,038 15,936 Total performing 10 $ 17,928 $ - $ 17,928 $ 15,438 $ 15,936 Nonperforming Commercial & industrial 1 $ 176 $ - $ 176 $ 108 $ - Commercial mortgage 8 7,897 - 7,897 4,548 4,671 Consumer 1 49 - 49 47 48 Total nonperforming 10 $ 8,122 $ - $ 8,122 $ 4,703 $ 4,719 Total Troubled Debt Restructurings (TDRs) 20 $ 26,050 $ - $ 26,050 $ 20,141 $ 20,655 Principal modification includes principal forgiveness at the time of modification, contingent principal forgiveness granted over the life of the loan based on borrower performance. In an effort to constructively work with borrowers affected by the COVID-19 pandemic, the Bank initiated a temporary program in March 2020 to allow for 90-day deferrals for residential mortgage and commercial loans upon request from the borrower, and a 90-day deferral for all consumer and automobile loans. The Bank did not identify these loans that were deferred and were over 30 days delinquent as TDRs. The Bank identified a specific reserve for consumer loans totaling $4.3 million at March 31, 2021. The Bank also increased its environmental factors for the reserve to account for the effects of the COVID-19 pandemic. There were no defaults on troubled debt restructurings following the modification during the three months ended March 31, 2021 and 2020. The Bank has one significant borrowing relationship in bankruptcy totaling $7.9 million at March 31, 2021. The Bank has calculated a specific reserve within the allowance for this borrowing relationship in bankruptcy in the amount of $3.5 million, and believes it has sufficient collateral for the remaining amount. As a result, the Bank’s management believes that at March 31, 2021, there is sufficient coverage to protect the Bank’s exposure to this relationship. |