Prior to the ICM transaction, the Company routinely generated one to four family mortgages for sale into the secondary market. During 2020, 2019 and 2018, the Company recognized sales proceeds of $1.48 billion, $1.61 billion and $1.24 billion, resulting in mortgage fee income of $33.4 million, $41.0 million and $32.3 million, respectively.


(Dollars in thousands)	2020		2019
Commercial and non-residential real estate	$	1,141,114	$	1,063,828
Residential	240,264		271,604
Home equity	30,828		35,106
Consumer	3,156		3,697
PCI loans:
Commercial and non-residential real estate	21,008		—
Residential	16,943		—

Consumer	1,488		—
Total loans	1,454,801		1,374,235
Deferred loan origination costs and (fees), net	(1,057)		306
Loans receivable	$	1,453,744	$	1,374,541


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
December 31, 2020
Individually evaluated for impairment	$	13,334	$	1,960	$	95	$	5	$	15,394
Collectively evaluated for impairment	1,127,780		238,304		30,733		3,151		1,399,968
Total Loans	$	1,141,114	$	240,264	$	30,828	$	3,156	$	1,415,362
December 31, 2019
Individually evaluated for impairment	$	7,401	$	1,953	$	95	$	34	$	9,483
Collectively evaluated for impairment	1,056,427		269,651		35,011		3,663		1,364,752
Total Loans	$	1,063,828	$	271,604	$	35,106	$	3,697	$	1,374,235

Commercial business loans – Commercial loans are made to provide funds for equipment and general corporate needs, as well as to finance owner occupied real estate, and to finance future cash flows of Federal Government lease contracts. Repayment of these loans primarily uses the funds obtained from the operation of the borrower’s business. Commercial loans also include lines of credit that are utilized to finance a borrower’s short-term credit needs and/or to finance a percentage of eligible receivables and inventory. This segment includes both company originated and purchased participation loans. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.

Commercial real estate loans – Commercial real estate loans consist of non-owner occupied properties, such as investment properties for retail, office and multifamily with a history of occupancy and cash flow. This segment includes both company originated and purchased participation loans. These loans carry the risk of adverse changes in the local economy and a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow.

Commercial acquisition, development and construction loans – Commercial acquisition, development and construction loans are intended to finance the construction of commercial and residential properties, including the construction of single-family dwellings, and also includes loans for the acquisition and development of land. Construction loans represent a higher degree of risk than permanent real estate loans and may be affected by a variety of factors such as the borrower’s ability to control costs and adhere to time schedules and the risk that constructed units may not be absorbed by the market within the anticipated time frame or at the anticipated price. The loan commitment on these loans often includes an interest reserve that allows the lender to periodically advance loan funds to pay interest charges on the outstanding balance of the loan.

Commercial SBA PPP loans –This segment includes the loan originated through the recently created SBA PPP loans. Credit risk is heightened as this SBA program mandates that these loans require no collateral and no guarantors of the loans. However, the loans are backed by a full guaranty of the SBA, so long as the loans were originated in accordance with the program guidelines. Additionally, these loans are eligible for full forgiveness by the SBA so long as the borrowers comply with the program guidelines as it pertains to their eligibility to borrow these funds, as well as their use of the funds.

Residential mortgage loans – This residential real estate subsegment contains permanent and construction mortgage loans principally to consumers secured by residential real estate. Residential real estate loans are evaluated for the adequacy of repayment sources at the time of approval, based upon measures including credit scores, debt-to-income ratios, and collateral values. Credit risk arises from the borrower’s, and where applicable the builder's, continuing financial stability, which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.

Home equity lines of credit – This segment includes subsegment for senior lien and subordinate lien lines of credit. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.

Consumer loans – This segment of loans includes primarily installment loans and personal lines of credit. Consumer loans include installment loans used by clients to purchase automobiles, boats and recreational vehicles. Credit risk is similar to residential real estate loans described above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.


	Impaired Loans with Specific Allowance				Impaired Loans with No Specific Allowance		Total Impaired Loans
(Dollars in thousands)	Recorded Investment		Related Allowance		Recorded Investment		Recorded Investment		Unpaid Principal Balance
December 31, 2020
Commercial:
Commercial business	$	3,431	$	1,032	$	5,653	$	9,084	$	10,440
Commercial real estate	772		264		944		1,716		1,864
Acquisition and development	—		—		2,534		2,534		3,939
Total commercial	4,203		1,296		9,131		13,334		16,243
Residential	—		—		1,960		1,960		2,232
Home equity	—		—		95		95		95
Consumer	—		—		5		5		5
Total impaired loans	$	4,203	$	1,296	$	11,191	$	15,394	$	18,575

December 31, 2019
Commercial:
Commercial business	$	2,606	$	249	$	644	$	3,250	$	4,308
Commercial real estate	1,786		325		295		2,081		2,171
Acquisition and development	—		—		2,070		2,070		3,467
Total commercial	4,392		574		3,009		7,401		9,946
Residential	—		—		1,953		1,953		2,045
Home equity	—		—		95		95		100
Consumer	—		—		34		34		35
Total impaired loans	$	4,392	$	574	$	5,091	$	9,483	$	12,126


	December 31, 2020						December 31, 2019						December 31, 2018
(Dollars in thousands)	Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis		Average Investment in Impaired Loans		Interest Income Recognized on Accrual Basis		Interest Income Recognized on Cash Basis
Commercial:
Commercial business	$	6,066	$	—	$	—	$	3,202	$	—	$	—	$	4,052	$	51	$	106
Commercial real estate	3,057		97		104		3,220		162		140		6,416		159		94
Acquisition and development	1,207		67		73		2,151		123		131		1,367		106		8
Total commercial	10,330		164		177		8,573		285		271		11,835		316		208
Residential	2,541		19		19		2,719		16		16		2,569		20		14
Home equity	87		—		—		154		2		2		100		2		1
Consumer	7		—		—		45		—		—		149		—		—
Total	$	12,965	$	183	$	196	$	11,491	$	303	$	289	$	14,653	$	338	$	223

As of December 31, 2020, there are five loans collateralized by residential real estate property in the process of foreclosure. The total recorded investment in these loans was $0.2 million as of December 31, 2020. These loans are included in the table above and have no specific allowance allocated to them.

As of December 31, 2020, the loans acquired through the acquisition of First State held 32 foreclosed residential real estate properties, representing $2.6 million, or 56.6%, of the total balance of other real estate owned. These properties are held as a result of the foreclosures of various commercial loans to different borrowers. There are eleven additional loans collateralized by

As of December 31, 2019, the Bank held eleven foreclosed residential real estate properties representing $0.6 million, or 40.9%, of the total balance of other real estate owned. These properties are held as a result of the foreclosures of primarily two commercial loan relationships, one of which included two properties for a total of $0.3 million, while the other included seven properties for a total of $0.2 million. The three remaining properties, totaling $0.1 million, were the result of the foreclosure of two unrelated borrowers. There are seven additional consumer mortgage loans collateralized by residential real estate property in the process of foreclosure. The total recorded investment in these loans was $0.6 million as of December 31, 2019. These loans are included in the table above and have no specific allowance allocated to them.

Bank management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first six categories are considered not criticized and are aggregated as “Pass” rated. The criticized rating categories utilized by management generally follow bank regulatory definitions.

Loans categorized as “Pass” rated have adequate sources of repayment, with little identifiable risk of collection and general conformity to the Bank's policy requirements, product guidelines and underwriting standards. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

Loans categorized as “Special Mention” rated have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in 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 the institution to sufficient risk to warrant adverse classification.

Loans categorized as “Substandard” rated are inadequately protected by the current sound worth and paying capacity of the borrower 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 and are characterized by the distinct possibility that bank will sustain some loss if the deficiencies are not corrected.

Loans categorized as “Doubtful” rated have all the weakness inherent in those classified substandard with the added characteristic that the weakness make collections or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification. Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected. Any portion of a loan that has been or is expected to be charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Bank has a structured loan rating process with several layers of internal and external oversight. Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as past due status, bankruptcy, repossession or death occurs to raise awareness of a possible credit event. The Bank’s Chief Credit Officer is responsible for the timely and accurate risk rating of the loans in the portfolio at origination and on an ongoing basis. The Credit Department ensures that a review of all commercial relationships of $1.0 million or greater is performed annually.

Review of the appropriate risk grade is included in both the internal and external loan review process, and on an ongoing basis. The Bank has an experienced Credit Department that continually reviews and assesses loans within the portfolio. The Bank engages an external consultant to conduct independent loan reviews on at least an annual basis. Generally, the external consultant reviews larger commercial relationships or criticized relationships. The Credit Department compiles detailed reviews, including plans for resolution, on loans classified as Substandard on a quarterly basis. Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2020
Commercial:
Commercial business	$	496,222	$	9,529	$	17,045	$	1,095	$	523,891
Commercial real estate	356,544		32,044		34,001		533		423,122
Acquisition and development	80,771		25,001		4,184		2,170		112,126
SBA PPP	81,975		—		—		—		81,975
Total commercial	1,015,512		66,574		55,230		3,798		1,141,114
Residential	236,250		948		2,896		170		240,264
Home equity	30,277		381		144		26		30,828
Consumer	3,124		32		—		—		3,156
Total Loans	$	1,285,163	$	67,935	$	58,270	$	3,994	$	1,415,362

December 31, 2019
Commercial:
Commercial business	$	511,590	$	17,398	$	11,894	$	—	$	540,882
Commercial real estate	406,712		3,564		1,494		—		411,770
Acquisition and development	106,428		1,869		2,879		—		111,176
Total commercial	1,024,730		22,831		16,267		—		1,063,828
Residential	267,367		1,946		2,177		114		271,604
Home equity	34,641		383		82		—		35,106
Consumer	3,613		56		28		—		3,697
Total Loans	$	1,330,351	$	25,216	$	18,554	$	114	$	1,374,235

A loan that has deteriorated and requires additional collection efforts by the Bank could warrant non-accrual status. A thorough review is presented to the Chief Credit Officer and/or the SARC, as required with respect to any loan which is in a collection process and to make a determination as to whether the loan should be placed on non-accrual status. The placement of loans on non-accrual status is subject to applicable regulatory restrictions and guidelines. Generally, loans should be placed in non-accrual status when the loan reaches 90 days past due, when it becomes likely the borrower cannot or will not make scheduled principal or interest payments, when full repayment of principal and interest is not expected or when the loan displays potential loss characteristics. Normally, all accrued interest is charged off when a loan is placed in non-accrual status, unless the Company believes it is likely the accrued interest will be collected. Any payments subsequently received are applied to principal. To remove a loan from non-accrual status, all principal and interest due must be paid up to date and the Bank is reasonably sure of future satisfactory payment performance. Usually, this requires the receipt of six consecutive months of regular, on-time payments. Removal of a loan from non-accrual status will require the approval of the Chief Credit Officer and/or SARC.


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual		90+ Days Still Accruing
December 31, 2020
Commercial:
Commercial business	$	521,799	$	1,040	$	33	$	1,019	$	2,092	$	523,891	$	8,601	$	—
Commercial real estate	422,343		34		212		533		779		423,122		944		—
Acquisition and development	109,686		—		—		2,440		2,440		112,126		2,534		—
SBA PPP	81,975		—		—		—		—		81,975		—		—
Total commercial	1,135,803		1,074		245		3,992		5,311		1,141,114		12,079		—
Residential	235,420		2,058		1,969		817		4,844		240,264		1,534		—
Home equity	30,369		289		75		95		459		30,828		95		—
Consumer	3,156		—		—		—		—		3,156		5		—
Total Loans	$	1,404,748	$	3,421	$	2,289	$	4,904	$	10,614	$	1,415,362	$	13,713	$	—

December 31, 2019
Commercial:
Commercial business	$	537,602	$	3,189	$	47	$	44	$	3,280	$	540,882	$	2,848	$	—
Commercial real estate	411,070		522		178		—		700		411,770		295		—
Acquisition and development	110,717		180		—		279		459		111,176		390		—
Total commercial	1,059,389		3,891		225		323		4,439		1,063,828		3,533		—
Residential	267,515		3,003		549		537		4,089		271,604		1,461		—
Home equity	34,382		545		84		95		724		35,106		95		—
Consumer	3,610		1		58		28		87		3,697		34		—
Total Loans	$	1,364,896	$	7,440	$	916	$	983	$	9,339	$	1,374,235	$	5,123	$	—

The ALL is maintained to absorb losses from the loan portfolio and is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience and the amount of non-performing loans.

The Bank’s methodology for determining the ALL is based on the requirements of ASC Section 310 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance. The total of the two components represents the Bank’s ALL. The Bank analyzes certain impaired loans in homogeneous pools, rather than on an individual basis, when those loans are below specific thresholds based on outstanding principal balance. More specifically, residential mortgage loans, home equity lines of credit and consumer loans, when considered impaired, are evaluated collectively for impairment by applying allocation rates derived from the Bank’s historical losses specific to impaired loans and the reserve totaled $0.1 million and $0.1 million, and $0.2 million as of December 31, 2020, 2019 and 2018, respectively.

The segments described above, which are based on the Federal call code assigned to each loan, provide the starting point for the ALL analysis. Company and Bank management track the historical net charge-off activity at the call code level. A historical charge-off factor is calculated utilizing a defined number of consecutive historical quarters. All pools currently utilize a rolling 12 quarters.

“Pass” rated credits are segregated from “Criticized” credits for the application of qualitative factors. Loans in the criticized pools, which possess certain qualities or characteristics that may lead to collection and loss issues, are closely monitored by management and subject to additional qualitative factors.

Company and Bank management have identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor as these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience. The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory and governmental sources are: lending policies and procedures, nature and volume of the portfolio, experience and ability of lending management and staff, volume and severity of problem credits, conclusion of loan reviews, audits and exams, changes in the value of underlying collateral, effect of concentrations of credit from a loan type, industry and/or geographic standpoint, changes in economic and business conditions, consumer sentiment and other external factors. The combination of historical charge-off and qualitative factors are then weighted for each risk grade. These weightings are determined internally based upon the likelihood of loss as a loan risk grading deteriorates.

To estimate the liability for off-balance sheet credit exposures, Bank management analyzed the portfolios of letters of credit, non-revolving lines of credit and revolving lines of credit and based its calculation on the expectation of future advances of each loan category. Letters of credit were determined to be highly unlikely to advance since they are generally in place only to ensure various forms of performance of the borrowers. In the Bank’s history, there have been no letters of credit drawn upon. In addition, many of the letters of credit are cash secured and do not warrant an allocation. Non-revolving lines of credit were determined to be highly likely to advance as these are typically construction lines. Meanwhile, the likelihood of revolving lines of credit advancing varies with each individual borrower. Therefore, the future usage of each line was estimated based on the average line utilization of the revolving line of credit portfolio as a whole.

Once the estimated future advances were calculated, an allocation rate, which was derived from the Bank’s historical losses and qualitative environmental factors, was applied in the similar manner as those used for the allowance for loan loss calculation. The resulting estimated loss allocations were totaled to determine the liability for unfunded commitments related to these loans, which Management considers necessary to anticipate potential losses on those commitments that have a reasonable probability of funding. The liability for unfunded commitments was $0.6 million and $0.3 million as of December 31, 2020 and 2019, respectively.

Bank management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALL. When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALL.

The following tables summarize the activity of primary segments of the ALL, excluding the ALL related to PCI loans, segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment for the years ending December 31, 2020, 2019 and 2018:


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at December 31, 2019	$	10,098	$	1,272	$	327	$	78	$	11,775
Charge-offs	(1,932)		(224)		(23)		—		(2,179)
Recoveries	22		—		9		3		34
Provision	15,845		684		(15)		(30)		16,484
Allowance contributed with mortgage combination transaction	—		(354)		—		—		(354)
ALL balance at December 31, 2020	$	24,033	$	1,378	$	298	$	51	$	25,760
Individually evaluated for impairment	$	1,296	$	—	$	—	$	—	$	1,296
Collectively evaluated for impairment	$	22,737	$	1,378	$	298	$	51	$	24,464


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at December 31, 2018	$	8,605	$	1,405	$	684	$	245	$	10,939
Charge-offs	(998)		—		—		(10)		(1,008)
Recoveries	1		1		4		49		55
Provision	2,490		(134)		(361)		(206)		1,789
ALL balance at December 31, 2019	$	10,098	$	1,272	$	327	$	78	$	11,775
Individually evaluated for impairment	$	574	$	—	$	—	$	—	$	574
Collectively evaluated for impairment	$	9,524	$	1,272	$	327	$	78	$	11,201


(Dollars in thousands)	Commercial		Residential		Home Equity		Consumer		Total
ALL balance at December 31, 2017	$	7,804	$	1,119	$	705	$	250	$	9,878
Charge-offs	(1,024)		(166)		—		(290)		(1,480)
Recoveries	15		22		59		5		101
Provision	1,810		430		(80)		280		2,440
ALL balance at December 31, 2018	$	8,605	$	1,405	$	684	$	245	$	10,939
Individually evaluated for impairment	$	1,043	$	—	$	—	$	—	$	1,043
Collectively evaluated for impairment	$	7,562	$	1,405	$	684	$	245	$	9,896

The allowance for loan losses is based on estimates, and actual losses will vary from current estimates. Management believes that the granularity of the homogeneous pools and the related historical loss ratios and other qualitative factors, as well as the consistency in the application of assumptions, result in an ALL that is representative of the risk found in the components of the portfolio at any given date.

At December 31, 2020 and 2019, the Bank had specific reserve allocations for TDRs of $0.6 million and $0.5 million, respectively. Loans considered to be troubled debt restructured loans totaled $10.2 million and $7.7 million as of December 31, 2020 and December 31, 2019, respectively. Of these totals, $1.6 million and $4.4 million, respectively, represent accruing troubled debt restructured loans and represent 12% and 46%, respectively, of total impaired loans. Meanwhile, as of December 31, 2020, $8.0 million represents seven loans to three borrowers that have defaulted under the restructured terms. The largest of these loans, at $2.2 million, is a restructured commercial loan to a company previously dependent on the coal industry, which is now structured as an unsecured loan. Three of these loans to an unrelated borrower, totaling $5.2 million, are restructured equipment loans to a borrower in the coal industry, which was provided extended interest-only terms to allow time for the collateral equipment to be sold. The last of these loans are commercial acquisition and development loans totaling $0.6 million that were considered TDRs due to extended interest only periods and/or unsatisfactory repayment structures once transitioned to principal and interest payments. These borrowers have experienced continued financial difficulty and are considered non-performing loans as of December 31, 2020. The unsecured loan and the three development loans were also considered non-performing loans as of December 31, 2019.


	New TDRs 1
	December 31, 2020					December 31, 2019
(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial:
Commercial business	6	$	6,294	$	5,326	2	$	336	$	333
Commercial real estate	2	159		150		—	—		—
Acquisition and development	—	—		—		—	—		—
Total commercial	8	6,453		5,476		2	336		333
Residential	1	87		86		3	246		323
Home equity	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total	9	$	6,540	$	5,562	5	$	582	$	656

As of December 31, 2020, the loans in the Company's PCI loan portfolio are all collectively evaluated for impairment and are segmented into three categories: commercial loans totaling $17.1 million, residential loans totaling $16.9 million and consumer loans totaling $1.3 million, for portfolio total of $35.4 million.


(Dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
December 31, 2020
Commercial:
Commercial Business	$	12,263	$	136	$	345	$	4,860	$	17,604
Commercial Real Estate	982		3		263		21		1,269
Acquisition & Development	1,900		—		—		235		2,135

Total Commercial	15,145		139		608		5,116		21,008
Residential	15,157		—		1,665		121		16,943

Consumer	1,256		—		—		232		1,488
Total Loans	$	31,558	$	139	$	2,273	$	5,469	$	39,439


(Dollars in thousands)	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		Total Past Due		Total Loans		Non-Accrual
December 31, 2020
Commercial:
Commercial Business	$	16,264	$	71	$	65	$	1,204	$	1,340	$	17,604	$	—
Commercial Real Estate	1,157		—		—		112		112		1,269		—
Acquisition & Development	2,135		—		—		—		—		2,135		—

Total Commercial	19,556		71		65		1,316		1,452		21,008		—
Residential	13,714		710		145		2,374		3,229		16,943		—

Consumer	1,245		3		1		239		243		1,488		—
Total Loans	$	34,515	$	784	$	211	$	3,929	$	4,924	$	39,439	$	—

As the Company's PCI loan portfolio is accounted for in pools with similar risk characteristics in accordance with ASC 310-30, this portfolio is not subject to the impaired loan and TDR guidance. Rather, the revised estimated future cash flows of the individually modified loans are included in the estimated future cash flows of the pool.

The Company is actively participating in the PPP as a lender, evaluating other programs available to assist its clients and providing deferrals consistent with GSE guidelines. The Company originated 455 PPP loans with original balances of $92.8 million and outstanding balances of $82.0 million as of December 31, 2020.