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LOANS
 9 Months Ended
Sep. 30, 2021
Receivables [Abstract]  
Loans LOANS
Loans consist of the following:
 September 30, 2021December 31, 2020
(dollars in thousands)Total% of Gross LoansTotal% of Gross Loans
Portfolio Loans:
Commercial real estate$1,088,636 71.02 %$1,049,147 69.75 %
Residential first mortgages96,835 6.32 %133,779 8.89 %
Residential rentals172,082 11.22 %139,059 9.24 %
Construction and land development37,139 2.42 %37,520 2.49 %
Home equity and second mortgages26,518 1.73 %29,129 1.94 %
Commercial loans48,327 3.15 %52,921 3.52 %
Consumer loans2,168 0.14 %1,027 0.07 %
Commercial equipment61,346 4.00 %61,693 4.10 %
Gross portfolio loans1,533,051 100.00 %1,504,275 100.00 %
Adjustments:
Net deferred costs365 0.01 %1,264 0.08 %
Allowance for loan losses(18,579)(1.21)%(19,424)(1.29)%
(18,214)(18,160)
Net portfolio loans1,514,837 1,486,115 
Gross U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans56,424 110,320 
Net deferred fees(1,617)(2,360)
Net U.S. SBA PPP Loans54,807 107,960 
Total net loans$1,569,644 $1,594,075 
Gross Loans$1,589,475 $1,614,595 
The Company has segregated its loans into two categories: portfolio loans and U.S. SBA PPP loans.
Deferred Costs/Fees
Net deferred costs consist of fees paid by customers offset by the estimated costs to produce the loans. U.S. SBA PPP deferred fees consist of fees paid by the SBA offset by estimated costs. Deferred fees and costs are amortized into interest income as loans are repaid or forgiven.
Risk Characteristics of Portfolio Segments
Concentrations of Credit - Loans are primarily made 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 Bank's commercial loan portfolios include business loans secured by real estate, real estate development loans, commercial lines of credit and equipment loans. At September 30, 2021 and December 31, 2020, the Company had no loans outstanding with foreign entities.
The Company manages its credit products and exposure to credit losses (credit risk) by the following specific portfolio segments, which are levels at which the Company develops and documents its allowance for loan loss methodology. These segments are:
Commercial Real Estate (“CRE”)
Commercial real estate loan balances include commercial construction and financing for a variety of commercial properties. Construction balances were 4.8% and 6.9% of the CRE portfolio at September 30, 2021 and December 31, 2020, respectively. 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.
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 Mortgages
Residential first mortgage loans are generally long-term (10 to 30 years) amortizing loans. The Bank’s residential portfolio has both fixed-rate and adjustable-rate residential first mortgages.
The annual and lifetime limitations on interest rate adjustments may constrain interest rate increases on these loans.
As of September 30, 2021 and December 31, 2020, the Bank serviced $18.7 million and $23.9 million, respectively, in residential mortgage loans for others.
Residential Rentals
Residential rental mortgage loans are amortizing long-term loans. The loans are secured by income-producing 1-4 family units and apartments. 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 an initial contractual loan payment period ranging from three to 20 years.
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 more volatile conditions in the rental real estate market or the economy than similar owner-occupied properties.
Construction and Land Development
The Bank offers loans for the construction of residential dwellings. 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. Construction and Land Development loans are dependent on the successful completion of the underlying project or the borrowers guarantee to repay the loan. As such, they are subject to the risks of the project including changing prices and interest rates. The repayment of these loans is also dependent on the borrower’s ability to successfully manage the construction and development activities.
Home Equity and Second Mortgage Loans
The Bank maintains a portfolio of home equity and second mortgage loans. 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.
Commercial Loans
Commercial loans including lines of credit are short-term loans (5 years or less) that are secured by the equipment financed, the guarantees of the borrower, and other collateral. These loans are dependent on the success of the underlying business or the strength of the guarantor.
Consumer Loans
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. The repayment of these loans is dependent on the continued stability of the customer.
Commercial Equipment Loans
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. These loans are dependent on the success of the underlying business or the strength of the guarantor.
U.S. SBA PPP Loans
U.S. SBA PPP loans 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 U.S. SBA PPP loans were underwritten in accordance with the program's guidelines.
Non-accrual and Aging Analysis of Current and Past Due Loans
Non-accrual loans as of September 30, 2021 and December 31, 2020 were as follows:
 September 30, 2021
(dollars in thousands)Non-accrual Delinquent LoansNon-accrual Current LoansTotal Non-accrual Loans
Commercial real estate$758 $2,378 $3,136 
Residential first mortgages182 269 451 
Residential rentals257 704 961 
Home equity and second mortgages202 378 580 
Commercial equipment— 32 32 
 $1,399 $3,761 $5,160 
 December 31, 2020
(dollars in thousands)Non-accrual Delinquent LoansNon-accrual Current LoansTotal Non-accrual Loans
Commercial real estate$11,428 $5,184 $16,612 
Residential first mortgages335 459 794 
Residential rentals— 275 275 
Home equity and second mortgages202 293 495 
Commercial equipment— 46 46 
$11,965 $6,257 $18,222 
Non-accrual loans at December 31, 2020 included three TDRs totaling $1.52 million. There were no non-accrual TDR loans at September 30, 2021.
Non-accrual loans which did not have a specific allowance for impairment, amounted to $4.4 million and $12.4 million at September 30, 2021 and December 31, 2020, respectively. Interest due but not recognized on these balances at September 30, 2021 and December 31, 2020 were $0.1 million and $0.4 million, respectively. Non-accrual loans with a specific allowance for impairment amounted to $0.8 million and $5.8 million at September 30, 2021 and December 31, 2020, respectively. Interest due but not recognized on these balances at September 30, 2021 and December 31, 2020 were $0.1 million and $0.4 million, respectively.
The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. Purchase Credit Impaired ("PCI") loans are included as a single category in the table below as management believes there is a lower likelihood of aggregate loss related to these loan pools. Additionally, PCI loans are discounted to allow for the accretion of income on a level yield basis over the life of the loan based on expected cash flows. Regardless of payment status, as long as cash flows can be reasonably estimated, the associated discount on these loan pools results in income recognition. An analysis of past due loans as of September 30, 2021 and December 31, 2020 were as follows:
Age Analysis of Past Due Loan Receivables and PCI Loans
 September 30, 2021
(dollars in thousands)31-60 Days61-89 Days90 or Greater DaysTotal Past DuePCI LoansCurrentTotal Loan Receivables
Commercial real estate$— $— $759 $759 $1,144 $1,086,733 $1,088,636 
Residential first mortgages— — 182 182 — 96,653 96,835 
Residential rentals— 189 257 446 — 171,636 172,082 
Construction and land dev.— — — — — 37,139 37,139 
Home equity and second mtg.— — 202 202 — 26,316 26,518 
Commercial loans— — — — — 48,327 48,327 
Consumer loans— — — — — 2,168 2,168 
Commercial equipment— — — — — 61,346 61,346 
Total portfolio loans$— $189 $1,400 $1,589 $1,144 $1,530,318 $1,533,051 
U.S. SBA PPP loans$— $— $— $— $— $56,424 $56,424 

 December 31, 2020
(dollars in thousands)31-60 Days61-89 Days90 or Greater DaysTotal Past DuePCI LoansCurrentTotal 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 loans8 — — 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 

There were no loans that were past due 90 days or greater accruing interest at September 30, 2021 and December 31, 2020.
Impaired Loans and Troubled Debt Restructures (“TDRs”)
Impaired loans, including TDRs, at September 30, 2021 and 2020 and at December 31, 2020 were as follows:
 September 30, 2021
(dollars in thousands)Unpaid Contractual Principal BalanceRecorded Investment With No AllowanceRecorded Investment With AllowanceTotal Recorded InvestmentRelated AllowanceQuarter Average Recorded InvestmentQuarter Interest Income RecognizedYTD Average Recorded InvestmentYTD Interest Income Recognized
Commercial real estate$3,205 $2,377 $759 $3,136 $291 $3,146 $25 $3,177 $80 
Residential first mortgages884 872 — 872 — 873 7 878 25 
Residential rentals990 961 — 961 — 961 13 956 38 
Home equity and second mtg.602 580 — 580 — 581 3 583 10 
Commercial equipment490 455 32 487 32 489 5 493 16 
Total$6,171 $5,245 $791 $6,036 $323 $6,050 $53 $6,087 $169 
 September 30, 2020
(dollars in thousands)Unpaid Contractual Principal BalanceRecorded Investment With No AllowanceRecorded Investment With AllowanceTotal Recorded InvestmentRelated AllowanceQuarter Average Recorded InvestmentQuarter Interest Income RecognizedYTD Average Recorded InvestmentYTD Interest Income Recognized
Commercial real estate$18,355 $16,000 $2,148 $18,148 $468 $18,181 $74 $18,243 $299 
Residential first mortgages1,741 1,739 — 1,739 — 1,747 11 1,770 39 
Residential rentals636 636 — 636 — 638 6 648 24 
Home equity and second mtg.552 540 — 540 — 542 3 607 12 
Commercial loans1,807 1,807 — 1,807 — 1,807 — 1,807 — 
Consumer loans— — — — — — — — — 
Commercial equipment532 476 42 518 42 527 8 536 29 
Total$23,623 $21,198 $2,190 $23,388 $510 $23,442 $102 $23,611 $403 

 December 31, 2020
(dollars in thousands)Unpaid Contractual Principal BalanceRecorded Investment With No AllowanceRecorded Investment With AllowanceTotal Recorded InvestmentRelated AllowanceYTD Average Recorded InvestmentYTD Interest Income Recognized
Commercial real estate$17,952 $11,915 $5,799 $17,714 $1,316 $17,729 $361 
Residential first mortgages2,001 1,989 — 1,989 — 2,043 70 
Residential rentals626 625 — 625 — 643 32 
Home equity and second mtg.568 555 — 555 — 559 15 
Commercial equipment527 472 40 512 40 531 30 
Total$21,674 $15,556 $5,839 $21,395 $1,356 $21,505 $508 
TDRs included in the impaired loan schedules above, as of September 30, 2021 and December 31, 2020 were as follows:
 September 30, 2021December 31, 2020
(dollars in thousands)Dollars Number of LoansDollarsNumber of Loans
Commercial real estate$— — $1,376 2 
Residential first mortgages— — 247 2 
Commercial equipment455 1 471 2 
Total TDRs455 1 2,094 6 
Less: TDRs included in non-accrual loans— — (1,522)(3)
Total accrual TDR loans$455 1 $572 3 
The Company had specific reserves of $0.4 million on six TDRs totaling $2.1 million at December 31, 2020 and no reserves on TDRs at September 30, 2021.
Allowance for Loan Losses ("ALLL")
The following tables detail activity in the ALLL at and for the three and nine months ended September 30, 2021 and 2020. An allocation of the allowance to one category of loans does not prevent the Company from using that allowance to absorb losses in a different category.
Three Months EndedSeptember 30, 2021
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvisionsEnding Balance
Commercial real estate$13,918 $(491)$4 $(12)$13,419 
Residential first mortgages847 — — 65 912 
Residential rentals1,186 — — 614 1,800 
Construction and land development332 — — 36 368 
Home equity and second mortgages242 — 1 6 249 
Commercial loans1,113 — 529 (733)909 
Consumer loans28 — — 14 42 
Commercial equipment798 — 20 10 828 
 18,464 (491)554 — 18,527 
Purchase Credit Impaired52 — — — 52 
Total$18,516 $(491)$554 $— $18,579 
Nine Months Ended
September 30, 2021
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvisionsEnding Balance
Commercial real estate$13,744 $(1,739)$6 $1,408 $13,419 
Residential first mortgages1,305 (142)— (251)912 
Residential rentals1,413 (46)— 433 1,800 
Construction and land development401 — — (33)368 
Home equity and second mortgages261 — 4 (16)249 
Commercial loans1,222 (76)539 (776)909 
Consumer loans20 — — 22 42 
Commercial equipment1,058 (34)57 (253)828 
19,424 (2,037)606 534 18,527 
Purchase Credit Impaired— — — 52 52 
Total$19,424 $(2,037)$606 $586 $18,579 
Three Months EndedSeptember 30, 2020
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvisionsEnding Balance
Commercial real estate$11,268 $(15)$15 $1,852 $13,120 
Residential first mortgages885 — — 225 1,110 
Residential rentals1,059 — — 420 1,479 
Construction and land development428 — — 26 454 
Home equity and second mortgages259 — 7 46 312 
Commercial loans1,161 — 5 (87)1,079 
Consumer loans15 (6)— 11 20 
Commercial equipment1,243 (44)49 7 1,255 
16,318 (65)76 2,500 18,829 
Purchase Credit Impaired— — — — — 
Total$16,318 $(65)$76 $2,500 $18,829 
Nine Months Ended
September 30, 2020
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvisionsEnding Balance
Commercial real estate$7,398 $(944)$15 $6,651 $13,120 
Residential first mortgages464 — — 646 1,110 
Residential rentals397 — — 1,082 1,479 
Construction and land development273 — — 181 454 
Home equity and second mortgages149 (25)8 180 312 
Commercial loans1,086 (1,027)15 1,005 1,079 
Consumer loans10 (6)— 16 20 
Commercial equipment1,165 (326)77 339 1,255 
10,942 (2,328)115 10,100 18,829 
Purchase Credit Impaired— — — — — 
Total$10,942 $(2,328)$115 $10,100 $18,829 
The following tables detail loan receivable and allowance balances at September 30, 2021 and 2020 and December 31, 2020.
 September 30, 2021December 31, 2020September 30, 2020
(dollars in thousands)Ending balance: individually evaluated for impairmentEnding balance: collectively evaluated for impairmentPurchase Credit ImpairedTotalEnding balance: individually evaluated for impairmentEnding balance: collectively evaluated for impairmentPurchase Credit ImpairedTotalEnding balance: individually evaluated for impairmentEnding balance: collectively evaluated for impairmentPurchase Credit ImpairedTotal
Loan Receivables:
Commercial real estate$3,136 $1,084,356 $1,144 $1,088,636 $17,714 $1,029,861 $1,572 $1,049,147 $18,148 $1,002,258 $1,581 $1,021,987 
Residential first mortgages872 95,963 — 96,835 1,989 131,790 — 133,779 1,739 146,017 — 147,756 
Residential rentals961 171,121 — 172,082 625 138,434 — 139,059 636 137,314 — 137,950 
Construction and land development— 37,139 — 37,139 — 37,520 — 37,520 — 36,061 — 36,061 
Home equity and second mortgages580 25,938 — 26,518 555 28,168 406 29,129 540 30,483 404 31,427 
Commercial loans— 48,327 — 48,327 — 52,921 — 52,921 1,807 57,087 — 58,894 
Consumer loans— 2,168 — 2,168 — 1,027 — 1,027 — 1,081 — 1,081 
Commercial equipment487 60,859 — 61,346 512 61,181 — 61,693 518 60,858 — 61,376 
$6,036 $1,525,871 $1,144 $1,533,051 $21,395 $1,480,902 $1,978 $1,504,275 $23,388 $1,471,159 $1,985 $1,496,532 
Allowance for loan losses:
Commercial real estate$291 $13,128 $52 $13,471 $1,316 $12,428 $— $13,744 $468 $12,652 $— $13,120 
Residential first mortgages— 912 — 912 — 1,305 — 1,305 — 1,110 — 1,110 
Residential rentals— 1,800 — 1,800 — 1,413 — 1,413 — 1,479 — 1,479 
Construction and land development— 368 — 368 — 401 — 401 — 454 — 454 
Home equity and second mortgages— 249 — 249 — 261 — 261 — 312 — 312 
Commercial loans— 909 — 909 — 1,222 — 1,222 — 1,079 — 1,079 
Consumer loans— 42 — 42 — 20 — 20 — 20 — 20 
Commercial equipment32 796 — 828 40 1,018 — 1,058 42 1,213 — 1,255 
$323 $18,204 $52 $18,579 $1,356 $18,068 $— $19,424 $510 $18,319 $— $18,829 
Credit Quality Indicators
Credit quality indicators as of September 30, 2021 and December 31, 2020 were as follows:
Credit Risk Profile by Internally Assigned Grade
 Commercial Real EstateConstruction and Land Dev.Residential Rentals
(dollars in thousands)9/30/202112/31/20209/30/202112/31/20209/30/202112/31/2020
Unrated$— $162,434 $— $1,036 $— $47,605 
Pass1,084,372 866,648 37,139 36,484 171,121 90,633 
Special mention600 2,417 — — — 821 
Substandard3,664 17,648 — — 961 — 
Doubtful— — — — — — 
Loss— — — — — — 
Total$1,088,636 $1,049,147 $37,139 $37,520 $172,082 $139,059 
 Commercial LoansCommercial EquipmentTotal Commercial Portfolios
(dollars in thousands)9/30/202112/31/20209/30/202112/31/20209/30/202112/31/2020
Unrated$— $12,962 $— $26,585 $— $250,622 
Pass48,327 39,959 61,134 31,091 1,402,093 1,064,815 
Special mention— — 180 3,977 780 7,215 
Substandard— — 32 40 4,657 17,688 
Doubtful— — — — — — 
Loss— — — — — — 
Total$48,327 $52,921 $61,346 $61,693 $1,407,530 $1,340,340 

Non-Commercial Portfolios**U.S. SBA PPP LoansTotal Loans Portfolios
(dollars in thousands)9/30/202112/31/20206/30/202012/31/20199/30/202112/31/2020
Unrated$103,696 $136,792 $56,424 $110,320 $160,120 $497,734 
Pass21,355 25,125 — — 1,423,448 1,089,940 
Special mention— 457 — — 780 7,672 
Substandard470 1,561 — — 5,127 19,249 
Doubtful— — — — — — 
Loss— — — — — — 
Total$125,521 $163,935 $56,424 $110,320 $1,589,475 $1,614,595 
_______________________________________
**Non-commercial portfolios are generally evaluated based on payment activity but may be risk graded if part of a larger commercial relationship or are credit impaired (e.g. non-accrual loans, TDRs).
Credit Risk Profile Based on Payment Activity
 Residential First MortgagesHome Equity and Second Mtg.Consumer Loans
(dollars in thousands)9/30/202112/31/20209/30/202112/31/20209/30/202112/31/2020
Performing$96,653 $133,444 $26,316 $28,927 $2,168 $1,027 
Nonperforming182 335 202 202 — — 
Total$96,835 $133,779 $26,518 $29,129 $2,168 $1,027 
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. Commercial loan relationships are graded at inception and at a minimum annually. At December 31, 2020 and prior, only commercial loan relationships with an aggregate exposure to the Bank of $1,000,000 or greater were subject to being risk rated. During the quarter ended June 30, 2021, the Bank's policy was amended to risk rate all commercial loan relationships.
Home equity, second mortgages, consumer loans, and residential first mortgages are evaluated for creditworthiness in underwriting and are monitored based on borrower payment history. 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 loans with an Other Assets Especially Mentioned ("OAEM") or higher risk rating.
Management regularly reviews credit quality indicators. Loans subject to risk ratings are graded on a scale of one to ten.
Ratings 1 thru 6 - Pass – Loans rated pass display none of the characteristics of classified loans.
Rating 7 - OAEM (Other Assets Especially Mentioned) – Special Mention loans have potential weaknesses that deserve management’s close attention. If uncorrected these weaknesses may result in deterioration of the repayment prospects or collateral position at some future date. Special mention assets are not adversely classified.
Rating 8 - Substandard – A substandard loan is inadequately protected by the current net worth and payment capacity of the borrower or of the collateral pledged. Loans classified as substandard have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. These loans are characterized by the distinct possibility of loss if the deficiencies are not corrected.
Rating 9 - Doubtful – A loan classified as doubtful has all the weaknesses inherent in a loan classified as substandard with the added characteristics that the weaknesses make collection or liquidation in full improbable on the basis of currently existing facts, conditions, and values.
Rating 10 – Loss – 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 and Acquired Loans
PCI loans had an unpaid principal balance of $1.4 million and a carrying value of $1.1 million at September 30, 2021. 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. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference.
A summary of changes in the accretable yield for PCI loans for the three and nine months ended September 30, 2021 and 2020 and the year ended December 31, 2020 follows:
 Three Months Ended September 30,Nine Months Ended September 30,
(dollars in thousands)2021202020212020
Accretable yield, beginning of period$324 $415 $342 $677 
Additions— — — — 
Accretion(31)(46)(92)(184)
Reclassification from nonaccretable difference15 — 29 24 
Other changes, net(15)— 14 (148)
Accretable yield, end of period$293 $369 $293 $369 
At September 30, 2021 performing acquired loans, which totaled $49.3 million, included a $0.5 million net acquisition accounting fair market value adjustment, representing a 1.09% discount; and PCI loans which totaled $1.1 million, included a $0.3 million adjustment, representing a 20.59% discount. At December 31, 2020 acquired performing loans, which totaled $59.0 million, included an $0.8 million net acquisition accounting fair market value adjustment, representing a 1.25% discount; and PCI loans which totaled $2.0 million, included a $0.3 million adjustment, representing a 14.95% discount.
During the three months ended September 30, 2021 and 2020 there was $91,000 and $0.1 million, respectively, of accretion interest.
Accounting standards require a periodic recast of the expected cash flows on the PCI loan portfolio. The recast was performed during the second quarter of 2021 and 2020 which resulted in a reclassification of $37,000, net of PCI impairment, and $24,000, respectively, from the credit (nonaccretable) portion of the discount to the liquidity (accretable) portion of the discount.
The following is a summary of acquired and non-acquired loans as of September 30, 2021 and December 31, 2020:
BY ACQUIRED AND NON-ACQUIREDSeptember 30, 2021%December 31, 2020%
Acquired loans - performing$49,342 3.10 %$58,999 3.66 %
Acquired loans - PCI1,144 0.07 %1,978 0.12 %
Total acquired loans50,486 3.17 %60,977 3.78 %
U.S. SBA PPP loans56,424 3.55 %110,320 6.83 %
Non-acquired loans**1,482,565 93.28 %1,443,298 89.39 %
Gross loans1,589,475 1,614,595 
Net deferred fees(1,252)(0.08)%(1,096)(0.07)%
Total loans, net of deferred fees$1,588,223 $1,613,499 
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**Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments.