
	December 31, 2020				December 31, 2019
(dollars in thousands)	Total		% of Gross Portfolio Loans		Total		% of Gross Portfolio Loans
Portfolio Loans:
Commercial real estate	$	1,049,147	69.75	%	$	964,777	66.34	%
Residential first mortgages	133,779		8.89	%	167,710		11.53	%
Residential rentals	139,059		9.24	%	123,601		8.50	%
Construction and land development	37,520		2.49	%	34,133		2.35	%
Home equity and second mortgages	29,129		1.94	%	36,098		2.48	%
Commercial loans	52,921		3.52	%	63,102		4.34	%
Consumer loans	1,027		0.07	%	1,104		0.08	%
Commercial equipment	61,693		4.10	%	63,647		4.38	%
Gross portfolio loans	1,504,275		100.00	%	1,454,172		100.00	%
Less:
Net deferred costs	1,264		0.08	%	1,879		0.13	%
Allowance for loan losses	(19,424)		(1.29)	%	(10,942)		(0.75)	%
	(18,160)				(9,063)
Net portfolio loans	$	1,486,115			$	1,445,109

U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans	$	110,320			$	—
Net deferred fees	(2,360)				—
Net SBA PPP Loans	$	107,960			$	—

Total Net Loans	$	1,594,075			$	1,445,109

Gross Loans	$	1,614,595			$	1,454,172

Portfolio net deferred loan costs of $1.3 million at December 31, 2020 included deferred fees paid by customers of $3.4 million offset by deferred costs of $4.7 million. Deferred loan costs include premiums paid for the purchase of residential first mortgages and deferred loan origination costs recorded in accordance with ASC 310-20. Net deferred loan costs of $1.9 million at December 31, 2019 included deferred fees paid by customers of $3.3 million offset by deferred costs of $5.2 million.

U.S. SBA PPP loan net deferred fees of $2.4 million at December 31, 2020 included deferred fees paid by the Small Business Administration of $2.9 million partially offset by deferred costs of $0.5 million. The net deferred fees are being amortized as a component of interest income through the contractual maturity date of each individual PPP loan. Net deferred fees include fees (deferred fees) paid to participant banks for each PPP loan underwritten and funded net of costs incurred to underwrite the loans (deferred costs). Net deferred fees will be recognized in income when the PPP loan is forgiven or paid.

Concentrations of Credit - Loans are made primarily within the Company’s operating footprint of Southern Maryland and the greater Fredericksburg area of Virginia. Real estate loans can be affected by the condition of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions. The commercial loan portfolio has concentrations in business loans secured by real estate and real estate development loans. At December 31, 2020 and 2019, the Company had no loans outstanding with foreign entities.

Commercial and other real estate projects include office, medical and professional buildings, retail locations, churches, other special purpose buildings and commercial construction. Commercial construction balances were 6.9% and 8.9% of the CRE portfolio at December 31, 2020 and 2019, respectively. The Bank offers both fixed-rate and adjustable-rate loans under these product lines. The primary security on a commercial real estate loan is the real property and the leases that produce income for the real property. Loans secured by commercial real estate are generally limited to 80% of the lower of the appraised value or sales price at origination and have an initial contractual loan payment period ranging from three to 20 years.

Loans secured by commercial real estate are larger and involve greater risks than 1-4 family residential mortgage loans. Because payments on loans secured by such properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy.

Residential first mortgage loans are generally long-term loans, amortized on a monthly basis, with principal and interest due each month. The contractual loan payment period for residential loans typically ranges from ten to 30 years. The Bank’s experience indicates that real estate loans remain outstanding for significantly shorter time periods than their contractual terms. Borrowers may refinance or prepay loans at their option, without penalty. The Bank’s residential portfolio has both fixed-rate and adjustable-rate residential first mortgages. During the years ended December 31, 2020 and 2019, the Bank purchased residential first mortgages of $22.0 million and $41.0 million, respectively.

The annual and lifetime limitations on interest rate adjustments may constrain interest rate increases on these loans. There are also credit risks resulting from potential increased costs to the borrower as a result of repricing of adjustable-rate mortgage loans. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower. The Bank’s adjustable rate residential first mortgage portfolio was $33.6 million or 2.2% of total gross portfolio loans of $1.50 billion at December 31, 2020 compared to $52.3 million or 3.6% of total gross portfolio loans of $1.45 billion at December 31, 2019.

Residential rental mortgage loans are amortizing, with principal and interest due each month. The loans are secured by income-producing 1-4 family units and apartments. As of December 31, 2020, and 2019, $105.9 million and $97.1 million, respectively, were 1-4 family units and $33.2 million and $26.5 million, respectively, were apartment buildings or multi-family units. Loans secured by residential rental properties are generally limited to 80% of the lower of the appraised value or sales price at origination and have initial contractual loan payment periods ranging from three to 20 years. The primary security on a residential rental loan is the property and the leases that produce income. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower. The Bank’s adjustable rate residential rental portfolio was $118.5 million or 7.9% of total gross portfolio loans of $1.50 billion at December 31, 2020 compared to $102.2 million or 7.0% of total gross portfolio loans of $1.45 billion at December 31, 2019.

Loans secured by residential rental properties involve greater risks than 1-4 family residential mortgage loans. Although, there are similar risk characteristics shared with commercial real estate loans, the balances for the loans secured by residential rental properties are generally smaller. Payments on loans secured by residential rental properties are dependent on the successful operation of the properties and repayment of these loans may be subject to adverse conditions in the rental real estate market or the economy to a greater extent than similar owner-occupied properties.

The Bank offers loans for the construction of 1-4 family dwellings. Generally, these loans are secured by the real estate under construction as well as by guarantees of the principals involved. In addition, the Bank offers loans to acquire and develop land, as well as loans on undeveloped, subdivided lots for home building. The Bank’s construction and land development portfolio was $37.5 million or 2.5% of total gross portfolio loans of $1.50 billion at December 31, 2020 compared to $34.1 million or 2.4% of total gross portfolio loans of $1.45 billion at December 31, 2019. The Bank’s investment in these loans has declined in recent years as the Bank has deemphasized this product line.

A decline in demand for new housing might adversely affect the ability of borrowers to repay these loans. Construction and land development loans are inherently riskier than financing owner-occupied real estate. The Bank’s risk of loss is affected by the accuracy of the initial estimate of the market value of the completed project as well as the accuracy of the cost estimates to complete the project. In addition, volatility in the real estate market can make it difficult to ensure that the valuation of land associated with these loans is accurate. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, the Bank may be required to advance funds beyond the amount originally committed to permit completion of the development. If the estimate of value proves to be inaccurate, a project’s value might be insufficient to assure full repayment. As a result of these factors, construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of the project rather than the ability of the borrower or guarantor to repay principal and interest. If the Bank forecloses on a project, there can be no assurance that the Bank will be able to recover all of the unpaid balance of, and accrued interest on, the loan as well as related foreclosure and holding costs.

The Bank maintains a portfolio of home equity and second mortgage loans. The Bank’s home equity and second mortgage portfolio was $29.1 million or 1.9% of total gross portfolio loans of $1.50 billion at December 31, 2020 compared to $36.1 million or 2.5% of total gross portfolio loans of $1.45 billion at December 31, 2019. These products contain a higher risk of default than residential first mortgages as in the event of foreclosure, the first mortgage would need to be paid off prior to collection of the second mortgage.

The Bank offers its customers commercial loan products including term loans, demand loans and lines of credit. Such loans are generally made for terms of five years or less. The Bank offers both fixed-rate and adjustable-rate loans. The portfolio consists primarily of demand loans and lines of credit. When making commercial business loans, the Bank considers the financial condition of the borrower, the borrower’s payment history of both corporate and personal debt, the projected cash flows of the business, the viability of the industry in which the borrower operates, the value of the collateral, and the borrower’s ability to service the debt from income. These loans are primarily secured by equipment, real property, accounts receivable or other security as determined by the Bank. Commercial loans are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. In the case of business failure, collateral would need to be liquidated to provide repayment for the loan. In many cases, the highly specialized nature of collateral would make full recovery from the sale of collateral unlikely.

The Bank’s commercial loan portfolio was $52.9 million or 3.5% of total gross portfolio loans of $1.50 billion at December 31, 2020 compared to $63.1 million or 4.3% of total gross loans of $1.45 billion at December 31, 2019. At December 31, 2020 and 2019, the largest outstanding commercial loans were $5.6 million and $2.8 million, respectively, which were secured by commercial real estate (all of which were located in the Bank’s market area), cash and investments. These loans were performing according to terms at December 31, 2020 and 2019.

Consumer loans consist of loans secured by automobiles, boats, recreational vehicles and trucks. The Bank also makes home improvement loans and offers both secured and unsecured personal lines of credit. Consumer loans entail greater risk from other loan types due to being secured by rapidly depreciating assets or the reliance on the borrower’s continuing financial stability.

These loans consist primarily of fixed-rate, short-term loans collateralized by a commercial customer’s equipment or secured by real property, accounts receivable, or other security as determined by the Bank. When making commercial equipment loans, the Bank considers the same factors it considers when underwriting a commercial business loan. Commercial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business. As a result, repayment of commercial loans may depend substantially on the success of the business itself. In the case of business failure, collateral would need to be liquidated to repay the loan. In many cases, the highly specialized nature of collateral equipment would make full recovery from the sale of collateral problematic.

The Bank’s commercial equipment portfolio was $61.7 million or 4.1% of total gross portfolio loans of $1.50 billion at December 31, 2020 compared to $63.6 million or 4.4% of total gross portfolio loans of $1.45 billion at December 31, 2019. At December 31, 2020 and 2019, the largest outstanding commercial equipment loans were $2.4 million and $2.1 million, respectively, which were secured by commercial real estate (located in the Bank’s market area), cash and investments. These loans were performing according to terms at December 31, 2020 and 2019.

The U.S. SBA PPP loan was created to address economic hardships resulting from the COVID-19 pandemic. The program is designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses. U.S. SBA PPP loans carry two- or five-year terms at a 1% annual interest rate until the loan is either forgiven or paid.

No credit issues are anticipated with SBA PPP loans as they are fully guaranteed by the Small Business Administration and the Bank's ALLL does not include an allowance for U.S. SBA PPP loans. Management believes all PPP loans were underwritten in accordance with the program's guidelines. The U.S. SBA PPP guidelines indicate that lenders may rely on certifications of the borrower in order to determine eligibility and to rely on specified documents provided by the borrower to determine qualifying loan amount and eligibility for forgiveness. The guidelines further specify that lenders will be held harmless for a borrowers’ failure to comply with program criteria.


(dollars in thousands)	December 31, 2020
	Non- accrual Delinquent Loans		Number of Loans	Non-accrual Current Loans		Number of Loans	Total Non-accrual Loans		Total Number of Loans
Commercial real estate	$	11,428	9	$	5,184	9	$	16,612	18
Residential first mortgages	335		2	459		2	794		4
Residential rentals	—		—	275		2	275		2

Home equity and second mortgages	202		2	293		1	495		3


Commercial equipment	—		—	46		3	46		3
	$	11,965	13	$	6,257	17	$	18,222	30


(dollars in thousands)	December 31, 2019
	Non- accrual Delinquent Loans		Number of Loans	Non-accrual Current Loans		Number of Loans	Total Non-accrual Loans		Total Number of Loans
Commercial real estate	$	10,562	11	$	1,687	5	$	12,249	16
Residential first mortgages	—		—	830		3	830		3
Residential rentals	—		—	937		5	937		5

Home equity and second mortgages	177		3	271		3	448		6
Commercial loans	1,807		2	1,320		1	3,127		3

Commercial equipment	241		5	25		1	266		6
	$	12,787	21	$	5,070	18	$	17,857	39

Non-accrual loans increased $0.4 million from $17.9 million or 1.23% of total loans at December 31, 2019 to $18.2 million or 1.13% of total loans at December 31, 2020. Non-accrual loans can be current but classified as non-accrual due to customer operating results or payment history. All interest accrued but not collected from non-accrual or charged-off loans is reversed against interest income. In accordance with the Company’s policy, interest income is recognized on a cash-basis or cost-recovery method, until the loan returns to accrual status.

At December 31, 2020, non-accrual loans of $18.2 million included 30 loans, of which $15.7 million, or 86% represented 15 loans and six customer relationships. At December 31, 2019, non-accrual loans of $17.9 million included 39 loans, of which $15.0 million, or 84% represented 18 loans and seven customer relationships. At December 31, 2020, $6.3 million (34%) of non-accrual loans were current with all payments of principal and interest with no impairment and $12.0 million (66%) of non-accrual loans were delinquent with specific valuation reserves $1.3 million.

Non-accrual loans at December 31, 2020 and 2019 included three and three TDRs totaling $1.5 million and $1.4 million, respectively. These loans were classified solely as non-accrual for the calculation of financial ratios. Loan delinquency (total past due) decreased $1.2 million from $13.3 million, or 0.92% of loans, at December 31, 2019 to $12.1 million, or 0.81% of loans, at December 31, 2020.

Non-accrual loans on which the recognition of interest has been discontinued, which did not have a specific allowance for impairment, amounted to $12.4 million and $11.7 million at December 31, 2020 and 2019, respectively. Interest due but not recognized on these balances at December 31, 2020 and 2019 was $0.4 million and $0.3 million, respectively. Non-accrual loans with a specific allowance for impairment on which the recognition of interest has been discontinued amounted to $5.8 million and $6.1 million at December 31, 2020 and 2019, respectively. Interest due but not recognized on these balances at December 31, 2020 and 2019 was $0.4 million and $0.3 million, respectively.

The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. PCI loans are included as a single category in the table below as management believes, regardless of their age, there is a lower likelihood of aggregate loss related to these loan pools. Additionally, PCI loans are discounted to allow for the accretion of income on a level yield basis over the life of the loan based on expected cash flows. Regardless of payment status, as long as cash flows can be reasonably estimated, the associated discount on these loan pools results in income recognition. An analysis of past due loans as of December 31, 2020 and 2019 was as follows:


(dollars in thousands)	December 31, 2020
	31-60 Days		61-89 Days		90 or Greater Days		Total Past Due		PCI Loans		Current		Total Loan Receivables
Commercial real estate	$	—	$	—	$	11,428	$	11,428	$	1,572	$	1,036,147	$	1,049,147
Residential first mortgages	—		—		335		335		—		133,444		133,779
Residential rentals	—		—		—		—		—		139,059		139,059
Construction and land dev.	—		—		—		—		—		37,520		37,520
Home equity and second mtg.	167		—		202		369		406		28,354		29,129
Commercial loans	—		—		—		—		—		52,921		52,921
Consumer loans	8		—		—		8		—		1,019		1,027
Commercial equipment	—		4		—		4		—		61,689		61,693
Total portfolio loans	$	175	$	4	$	11,965	$	12,144	$	1,978	$	1,490,153	$	1,504,275

U.S. SBA PPP loans	$	—	$	—	$	—	$	—	$	—	$	110,320	$	110,320


(dollars in thousands)	December 31, 2019
	31-60 Days		61-89 Days		90 or Greater Days		Total Past Due		PCI Loans		Current		Total Loan Receivables
Commercial real estate	$	—	$	217	$	10,563	$	10,780	$	1,738	$	952,259	$	964,777
Residential first mortgages	—		—		—		—		—		167,710		167,710
Residential rentals	—		—		—		—		295		123,306		123,601
Construction and land dev.	—		—		—		—		—		34,133		34,133
Home equity and second mtg.	98		23		177		298		391		35,409		36,098
Commercial loans	—		—		1,807		1,807		—		61,295		63,102
Consumer loans	—		—		—		—		—		1,104		1,104
Commercial equipment	52		159		231		442		—		63,205		63,647
Total portfolio loans	$	150	$	399	$	12,778	$	13,327	$	2,424	$	1,438,421	$	1,454,172


(dollars in thousands)	December 31, 2020
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	17,952	$	11,915	$	5,799	$	17,714	$	1,316	$	17,729	$	361
Residential first mortgages	2,001		1,989		—		1,989		—		2,043		70
Residential rentals	626		625		—		625		—		643		32

Home equity and second mtg.	568		555		—		555		—		559		15


Commercial equipment	527		472		40		512		40		531		30
Total	$	21,674	$	15,556	$	5,839	$	21,395	$	1,356	$	21,505	$	508


(dollars in thousands)	December 31, 2019
	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	20,914	$	15,919	$	4,788	$	20,707	$	417	$	21,035	$	813
Residential first mortgages	1,921		1,917		—		1,917		—		1,962		86
Residential rentals	941		937		—		937		—		967		56

Home equity and second mtg.	524		510		—		510		—		519		23
Commercial loans	3,127		1,807		1,320		3,127		210		3,284		152

Commercial equipment	808		585		203		788		201		826		35
Total	$	28,235	$	21,675	$	6,311	$	27,986	$	828	$	28,593	$	1,165


(dollars in thousands)	December 31, 2020			December 31, 2019
	Dollars		Number of Loans	Dollars		Number of Loans
Commercial real estate	$	1,376	2	$	1,420	3
Residential first mortgages	247		2	64		1



Commercial equipment	471		2	565		4
Total TDRs	$	2,094	6	$	2,049	8
Less: TDRs included in non-accrual loans	(1,522)		(3)	(1,399)		(3)
Total performing accrual TDR loans	$	572	3	$	650	5

TDRs increased slightly from $2.0 million at December 31, 2019 to $2.1 million at December 31, 2020. TDRs that are included in non-accrual are classified as non-accrual loans solely for the calculation of financial ratios. The Company had specific reserves of $0.4 million on one TDR totaling $1.3 million at December 31, 2020 and $87,000 on three TDRs totaling $0.1 million at December 31, 2019. During the year ended December 31, 2020, TDR disposals, which included payoffs and refinancing consisted of three loans totaling $0.1 million. TDR loan principal curtailment was $53,000 for the year ended December 31, 2020. There was one TDR added during the year ended December 31, 2020 totaling $0.2 million. During the year ended December 31, 2019, TDR disposals, which included payoffs and refinancing decreased by seven loans totaling $4.4 million. TDR loan principal curtailment was $0.2 million for the year ended December 31, 2019. There were $25,000 TDRs added during the year ended December 31, 2019.

Interest income in the amount of $96,000 and $92,000 was recognized on outstanding TDR loans for the years ended December 31, 2020 and 2019, respectively. The Bank’s TDRs are performing according to the terms of their agreements at market interest rates appropriate for the level of credit risk of each TDR loan. The average contractual interest rate on performing TDRs at December 31, 2020 and 2019 was 4.60% and 4.51%, respectively.


Year Ended	December 31, 2020
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	7,398	$	(944)	$	17	$	7,273	$	13,744
Residential first mortgages	464		—		—		841		1,305
Residential rentals	397		—		—		1,016		1,413
Construction and land development	273		—		—		128		401
Home equity and second mortgages	149		(53)		9		156		261
Commercial loans	1,086		(1,027)		20		1,143		1,222
Consumer loans	10		(6)		—		16		20
Commercial equipment	1,165		(328)		94		127		1,058
	$	10,942	$	(2,358)	$	140	$	10,700	$	19,424

Purchase Credit Impaired**	$	—	$	—	$	—	$	—	$	—


Year Ended	December 31, 2019
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	6,882	$	(148)	$	15	$	649	$	7,398
Residential first mortgages	755		—		—		(291)		464
Residential rentals	498		(53)		46		(94)		397
Construction and land development	310		(329)		—		292		273
Home equity and second mortgages	133		(28)		6		38		149
Commercial loans	1,482		(1,127)		40		691		1,086
Consumer loans	6		(5)		2		7		10
Commercial equipment	910		(685)		102		838		1,165
	$	10,976	$	(2,375)	$	211	$	2,130	$	10,942

Purchase Credit Impaired**	$	—	$	—	$	—	$	—	$	—


	December 31, 2020								December 31, 2019
(dollars in thousands)	Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchase Credit Impaired		Total		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchase Credit Impaired		Total
Loan Receivables:
Commercial real estate	$	17,714	$	1,029,861	$	1,572	$	1,049,147	$	20,707	$	942,332	$	1,738	$	964,777
Residential first mortgages	1,989		131,790		—		133,779		1,917		165,793		—		167,710
Residential rentals	625		138,434		—		139,059		937		122,369		295		123,601
Construction and land development	—		37,520		—		37,520		—		34,133		—		34,133
Home equity and second mortgages	555		28,168		406		29,129		510		35,197		391		36,098
Commercial loans	—		52,921		—		52,921		3,127		59,975		—		63,102
Consumer loans	—		1,027		—		1,027		—		1,104		—		1,104
Commercial equipment	512		61,181		—		61,693		788		62,859		—		63,647
	$	21,395	$	1,480,902	$	1,978	$	1,504,275	$	27,986	$	1,423,762	$	2,424	$	1,454,172

Allowance for loan losses:
Commercial real estate	$	1,316	$	12,428	$	—	$	13,744	$	417	$	6,981	$	—	$	7,398
Residential first mortgages	—		1,305		—		1,305		—		464		—		464
Residential rentals	—		1,413		—		1,413		—		397		—		397
Construction and land development	—		401		—		401		—		273		—		273
Home equity and second mortgages	—		261		—		261		—		149		—		149
Commercial loans	—		1,222		—		1,222		210		876		—		1,086
Consumer loans	—		20		—		20		—		10		—		10
Commercial equipment	40		1,018		—		1,058		201		964		—		1,165
	$	1,356	$	18,068	$	—	$	19,424	$	828	$	10,114	$	—	$	10,942


(dollars in thousands)	Commercial Real Estate				Construction and Land Dev.				Residential Rentals
	12/31/2020		12/31/2019		12/31/2020		12/31/2019		12/31/2020		12/31/2019
Unrated	$	162,434	$	102,695	$	1,036	$	2,075	$	47,605	$	38,139
Pass	866,648		840,403		36,484		32,058		90,633		84,811
Special mention	2,417		—		—		—		821		—
Substandard	17,648		21,679		—		—		—		651
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	1,049,147	$	964,777	$	37,520	$	34,133	$	139,059	$	123,601


(dollars in thousands)	Commercial Loans				Commercial Equipment				Total Commercial Portfolios
	12/31/2020		12/31/2019		12/31/2020		12/31/2019		12/31/2020		12/31/2019
Unrated	$	12,962	$	16,754	$	26,585	$	26,045	$	250,622	$	185,708
Pass	39,959		43,221		31,091		37,399		1,064,815		1,037,892
Special mention	—		—		3,977		—		7,215		—
Substandard	—		3,127		40		203		17,688		25,660
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	52,921	$	63,102	$	61,693	$	63,647	$	1,340,340	$	1,249,260


(dollars in thousands)	Non-Commercial Portfolios**				U.S. SBA PPP Loans				Total All Portfolios
	12/31/2020		12/31/2019		12/31/2020		12/31/2019		12/31/2020		12/31/2019
Unrated	$	136,792	$	164,991	$	110,320	$	—	$	497,734	$	350,699
Pass	25,125		38,718		—		—		1,089,940		1,076,610
Special mention	457		—		—		—		7,672		—
Substandard	1,561		1,203		—		—		19,249		26,863
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	163,935	$	204,912	$	110,320	$	—	$	1,614,595	$	1,454,172


(dollars in thousands)	Residential First Mortgages				Home Equity and Second Mtg.				Consumer Loans
	12/31/2020		12/31/2019		12/31/2020		12/31/2019		12/31/2020		12/31/2019

Performing	$	133,444	$	167,710	$	28,927	$	35,921	$	1,027	$	1,104
Nonperforming	335		—		202		177		—		—
Total	$	133,779	$	167,710	$	29,129	$	36,098	$	1,027	$	1,104

A risk grading scale is used to assign grades to commercial relationships, which include commercial real estate, residential rentals, construction and land development, commercial loans and commercial equipment loans. Loans are graded at inception, annually thereafter when financial statements are received and at other times when there is an indication that a credit may have weakened or improved. Only commercial loan relationships with an aggregate exposure to the Bank of $1.0 million or greater are subject to being risk rated.

Home equity and second mortgages and consumer loans are evaluated for creditworthiness in underwriting and are monitored based on borrower payment history. Residential first mortgages are evaluated for creditworthiness during credit due diligence before being purchased. Residential first mortgages, home equity and second mortgages and consumer loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are TDRs or nonperforming loans with an Other Assets Especially Mentioned (“OAEM”) or higher risk rating due to a delinquent payment history.

Management reviews credit quality indicators as part of its individual loan reviews on a quarterly basis. The overall quality of the Bank’s loan portfolio is assessed using the Bank’s risk grading scale, the level and trends of net nonperforming loans and delinquencies, the performance of TDRs and the general economic conditions in the Company’s geographical market. This review process is assisted by frequent internal reporting of loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Credit quality indicators and allowance factors are adjusted based on management’s judgment during the monthly and quarterly review process. Loans subject to risk ratings are graded on a scale of one to ten. The Company considers loans rated substandard, doubtful and loss as classified assets for regulatory and financial reporting.

Ratings 1thru 6 have asset risks ranging from excellent low risk to adequate. The specific rating assigned considers customer history of earnings, cash flows, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship and other relevant specific business factors such as the stability of the industry or market area, changes to management, litigation or unexpected events that could have an impact on risks.

These credits, while protected by the financial strength of the borrowers, guarantors or collateral, have reduced quality due to economic conditions, less than adequate earnings performance or other factors which require the lending officer to direct more than normal attention to the credit. Financing alternatives may be limited and/or command higher risk interest rates. OAEM loans are the first adversely classified assets on our watch list. These relationships will be reviewed at least quarterly.

Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor strength or operating losses. When a loan is assigned to this category the Bank may estimate a specific reserve in the loan loss allowance analysis. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships will be reviewed at least quarterly.

Doubtful assets have many of the same characteristics of Substandard with the exception that the Bank has determined that loss is not only possible but is probable and the risk is close to certain that loss will occur. When a loan is assigned to this category the Bank will identify the probable loss and the loan will receive a specific reserve in the loan loss allowance analysis. These relationships will be reviewed at least quarterly.

Once an asset is identified as a definite loss to the Bank, it will receive the classification of “loss.” There may be some future potential recovery; however, it is more practical to write off the loan at the time of classification. Losses will be taken in the period in which they are determined to be non-collectable.

PCI loans had an unpaid principal balance of $2.3 million and $2.9 million and a carrying value of $2.0 million and $2.4 million at December 31, 2020 and December 31, 2019, respectively. PCI loans represented 0.10% and 0.13% of total assets at December 31, 2020 and December 31, 2019, respectively. Determining the fair value of the PCI loans at the time of acquisition required the Company to estimate cash flows expected to result from those loans and to discount those cash flows at appropriate rates of interest considering prepayment assumptions. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called accretable yield. At acquisition, the difference between contractually required payments and the cash flows expected to be collected reflects estimated credit losses and is called the nonaccretable difference. In accordance with U.S. GAAP, there was no carryover of previously established allowance for loan losses from acquisition.

Accounting standards require a periodic recast of the expected cash flows on the PCI loan portfolio. The recast was performed during the second and fourth quarters of 2020 and the fourth quarter of 2019 and resulted in a reclassification of $25,000 and $0.3 million, respectively, from the credit (nonaccretable) portion of the discount to the liquidity (accretable) portion of the discount. Also, based on the recast, future expected cash flows, not related to the reclassification, decreased $0.1 million for the year ended December 31, 2020 and decreased $32,000 for the year ended December 31, 2019.


BY ACQUIRED AND NON-ACQUIRED	December 31, 2020		%		December 31, 2019		%
Acquired loans - performing	$	58,999	3.66	%	$	74,654	5.13	%
Acquired loans - purchase credit impaired ("PCI")	1,978		0.12	%	2,424		0.17	%
Total acquired loans	60,977		3.78	%	77,078		5.30	%
U.S. SBA PPP loans	110,320		6.83	%	—		—	%
Non-acquired loans**	1,443,298		89.39	%	1,377,094		94.70	%
Gross loans	1,614,595				1,454,172
Net deferred costs (fees)	(1,096)		(0.07)	%	1,879		0.13	%
Total loans, net of deferred costs	$	1,613,499			$	1,456,051

Included in loans receivable were loans made to executive officers and directors or their related interests. These loans were made in the ordinary course of business at substantially the same terms and conditions as those prevailing at the time for comparable transactions with persons not affiliated with the Bank and are not considered to involve more than the normal risk of collectability. For the years ended December 31, 2020 and 2019, all loans to directors and executive officers of the Bank performed according to original loan terms. Activity in loans outstanding to executive officers and directors and their related interests are summarized as follows:

The Bank sells portions of commercial, commercial real estate and commercial construction loans to other lenders. The Bank's sold participated loans with other lenders at December 31, 2020 and 2019 were $17.4 million and $14.9 million, respectively. The Bank may also buy loans, portions of loans, or participation certificates from other lenders to limit overall exposure. The Bank only purchases loans or portions of loans after reviewing loan documents, underwriting support, and completing other procedures, as necessary.