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Loans and Allowance for Loan Losses | 12 Months Ended
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Dec. 31, 2020
Receivables [Abstract] |
Loans and Allowance for Loan Losses | Note 5. Loans and Allowance for Loan Losses Loans held for investment at December 31, 2020 and December 31, 2019 were as follows:
(Dollars in thousands) |  | December 31, 2020 |  |  | December 31, 2019 |
Commercial and industrial |  | $ | 93,286 |  |  | $ | 77,728 |
Paycheck Protection Program |  |  | 292,068 |  |  |  | — |
Real estate – construction, commercial |  |  | 54,702 |  |  |  | 38,039 |
Real estate – construction, residential |  |  | 18,040 |  |  |  | 26,778 |
Real estate – mortgage, commercial |  |  | 273,499 |  |  |  | 251,824 |
Real estate – mortgage, residential |  |  | 213,404 |  |  |  | 208,494 |
Real estate – mortgage, farmland |  |  | 3,615 |  |  |  | 5,507 |
Consumer loans |  |  | 46,684 |  |  |  | 39,202 |
Gross loans |  |  | 995,298 |  |  |  | 647,572 |
Less: Unearned income and deferred costs |  |  | (4,271 | ) |  |  | (738 | )
Total |  | $ | 991,027 |  |  | $ | 646,834 |
Beginning in April 2020, the Company has participated in the Paycheck Protection Program (“PPP”) under the CARES Act. Through the PPP, which is administered by the Small Business Administration (SBA), the federal government partnered with banks, including the Bank, to provide over $650 billion to small businesses to support payrolls and other operating expenses. PPP loans have a two-year term if originated prior to June 5, 2020 or a five-year term if originated on or subsequent to June 5, 2020 and earn an annual interest rate of 1%. Banks originating PPP loans earned a processing fee of 1%, 3%, or 5% of the loan amount, depending on the size of the loan. The Company originated approximately $363.4 million in PPP loans throughout 2020 and approximately $71.3 million were forgiven or paid back by the borrower before year end. The Company believes the majority of these loans will be forgiven, in accordance with the terms of the program, and will be paid in full pursuant to the U.S. government guarantee. As of December 31, 2020, the Company’s PPP loan balances were $292.1 million, and the Company had received $11.5 million of processing fees, net of agent fees, and the Company recorded $2.4 million of interest income from PPP loans for originating approximately 2,400 loans. The Company is accounting for the PPP processing fees in accordance with ASC 310-20, Receivable-Nonrefundable Fees and Other Costs, which requires fees, net of costs, to be deferred and amortized as a component of loan yield over the contractual life of the loans; however, a shorter period is allowed if prepayments are probable and the timing and amount of prepayments can be reasonably estimated. The Company has recognized PPP fees, net, over a period that is less than the contractual period of the loans, as it believes the PPP loans will be forgiven by the end of second quarter of 2021. Of the $11.5 million of processing fees received in 2020, approximately $7.9 million has been recognized as interest income in 2020. From the onset of the global COVID-19 pandemic, the Company has proactively addressed the needs of its commercial and individual borrowers by modifying loans allowing for the short-term deferral of principal payments or of principal and interest payments. Pursuant to the CARES Act, banks have the option to temporarily suspend certain requirements of GAAP related to TDR for a limited period of time if certain conditions are met. All loan modifications made by the Company were made on a good faith basis to borrowers who met the requirements for modifications under the CARES Act. As a result of regulatory and accounting guidance regarding such modifications, the loans are not designated as TDRs, as of December 31, 2020. In response to COVID-19 during 2020, the Company approved over 550 loan deferrals for a total of $110.6 million. A majority of these loans were back on normal payment schedules at December 31, 2020 with the exception of 8 loans totaling $6.3 million. The Company is closely monitoring the past due loan portfolio, and proactively staying in touch with borrowers, especially as it relates to certain high-risk industries impacted by COVID-19 as outlined below.
(Dollars in thousands) |  | Number of Borrowers |  |  | 12/31/2020 |
Industry by NAICS Code |  |  |  |  |  |  |  |
Hotels and motels |  |  | 15 |  |  | $ | 34,617 |
Bed and breakfasts |  |  | 5 |  |  |  | 2,739 |
All other traveler accommodations |  |  | 5 |  |  |  | 4,392 |
Full-service restaurants |  |  | 15 |  |  |  | 4,202 |
Limited-service restaurants |  |  | 12 |  |  |  | 4,737 |
Religious organizations |  |  | 36 |  |  |  | 7,080 |
|  |  | 88 |  |  | $ | 57,767 |
The Company has pledged loans held for investment as collateral for borrowings with the FHLB totaling $213.3 million and $146.1 million as of December 31, 2020 and December 31, 2019, respectively. Additionally, PPP loans in the amount of $281.6 million were pledged as collateral for the FRB Paycheck Protection Program Liquidity Facility (the “PPPLF”) at December 31, 2020. During 2019, as a result of the Company’s acquisition of VCB, the acquired loan portfolio was initially measured at fair value and subsequently accounted for under either ASC 310-30 or ASC 310-20. The outstanding principal balance and related carrying amount of these acquired loans included in the consolidated balance sheets as of December 31, 2020 and 2019 was as follows:
(Dollars in thousands) |  | December 31, 2020 |  |  | December 31, 2019 |
PCI loans evaluated individually for future credit losses |  |  |  |  |  |  |  |
Outstanding principal balance |  | $ | 1,278 |  |  | $ | 1,504 |
Carrying amount |  |  | 1,085 |  |  |  | 1,315 |
Other acquired VCB loans |  |  |  |  |  |  |  |
Outstanding principal balance |  |  | 97,301 |  |  |  | 172,279 |
Carrying amount |  |  | 96,317 |  |  |  | 170,151 |
Total acquired VCB loans |  |  |  |  |  |  |  |
Outstanding principal balance |  |  | 98,579 |  |  |  | 173,783 |
Carrying amount |  |  | 97,402 |  |  |  | 171,466 |
The following table presents changes for the year ended December 31, 2020 and 2019, respectively, in the accretable yield on the VCB PCI loans for which the Company applies ASC 310-30:
(Dollars in thousands) |  | December 31, 2020 |  |  | December 31, 2019 |
Balance, beginning of period |  | $ | 188 |  |  | $ | — |
Accretable yield at acquisition date |  |  | — |  |  |  | 190 |
Additions |  |  | (22 | ) |  |  | — |
Accretion |  |  | (56 | ) |  |  | (3 | )
Other changes, net |  |  | 84 |  |  |  | 1 |
Balance, end of period |  | $ | 194 |  |  | $ | 188 |
Loans acquired in the 2016 River Bancorp, Inc. business combination had remaining balances of $12.6 million and $19.7 million as of December 31, 2020 and December 31, 2019, respectively. Acquired loans through acquisitions are recorded at estimated fair value on their purchase date with no carryover of the related allowance for loan losses. In estimating the fair value of loans acquired, certain factors were considered, including the remaining lives of the acquired loans, payment history, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, and the net present value of cash flows expected. Accretable and nonaccretable discounts were immaterial. Of these balances recorded, three loan relationships were considered PCI loans. One of these relationships was resolved during 2018 and the Company recovered $200 thousand of the balance previously charged off. During the first quarter of 2019, another loan relationship was resolved, and the Company recovered $200 thousand of the balance previously charged-off. At December 31, 2020, the remaining PCI loans totaled $2.1 million with a specific impairment of $190 thousand. The following table presents the recorded investment in the River Bancorp, Inc. purchased loans as of December 31, 2020 and December 31, 2019:
(Dollars in thousands) |  | December 31, 2020 |  |  | December 31, 2019 |
Commercial and industrial |  | $ | 549 |  |  | $ | 1,272 |
Real estate - construction, commercial |  |  | — |  |  |  | 1,397 |
Real estate - mortgage, commercial |  |  | 4,545 |  |  |  | 6,844 |
Real estate - mortgage, residential |  |  | 7,453 |  |  |  | 10,075 |
Consumer loans |  |  | 58 |  |  |  | 99 |
|  | $ | 12,605 |  |  | $ | 19,687 |
The following table presents the aging of the recorded investment of loans as of December 31, 2020 and December 31, 2019:
|  | December 31, 2020 |
(Dollars in thousands) |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Greater than 90 Days Past Due & Accruing |  |  | Nonaccrual |  |  | Total Past Due & Nonaccrual |  |  | Current Loans |  |  | Total Loans |
Commercial and industrial |  | $ | 1,117 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,310 |  |  | $ | 2,427 |  |  | $ | 90,859 |  |  | $ | 93,286 |
Paycheck Protection Program |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 292,068 |  |  |  | 292,068 |
Real estate – construction, commercial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 54,702 |  |  |  | 54,702 |
Real estate – construction, residential |  |  | 262 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 262 |  |  |  | 17,778 |  |  |  | 18,040 |
Real estate – mortgage, commercial |  |  | 995 |  |  |  | 211 |  |  |  | — |  |  |  | 3,643 |  |  |  | 4,849 |  |  |  | 268,650 |  |  |  | 273,499 |
Real estate – mortgage, residential |  |  | 1,062 |  |  |  | — |  |  |  | 46 |  |  |  | 916 |  |  |  | 2,024 |  |  |  | 211,380 |  |  |  | 213,404 |
Real estate - mortgage, farmland |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,615 |  |  |  | 3,615 |
Consumer loans |  |  | 935 |  |  |  | 334 |  |  |  | — |  |  |  | 714 |  |  |  | 1,983 |  |  |  | 44,701 |  |  |  | 46,684 |
Less: Unearned income and deferred costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  |  |  |  |  | — |  |  |  | (4,271 | ) |  |  | (4,271 | )
|  | $ | 4,371 |  |  | $ | 545 |  |  | $ | 46 |  |  | $ | 6,583 |  |  | $ | 11,545 |  |  | $ | 979,482 |  |  | $ | 991,027 |
|  | December 31, 2019 |
(Dollars in thousands) |  | 30-59 Days Past Due |  |  | 60-89 Days Past Due |  |  | Greater than 90 Days Past Due & Accruing |  |  | Nonaccrual |  |  | Total Past Due & Nonaccrual |  |  | Current Loans |  |  | Total Loans |
Commercial and industrial |  | $ | 1,652 |  |  | $ | — |  |  | $ | — |  |  | $ | 441 |  |  | $ | 2,093 |  |  | $ | 75,635 |  |  | $ | 77,728 |
Real estate – construction, commercial |  |  | 820 |  |  |  | — |  |  |  | — |  |  |  | 929 |  |  |  | 1,749 |  |  |  | 36,290 |  |  |  | 38,039 |
Real estate – construction, residential |  |  | 241 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 241 |  |  |  | 26,537 |  |  |  | 26,778 |
Real estate – mortgage, commercial |  |  | 3,194 |  |  |  | — |  |  |  | — |  |  |  | 1,931 |  |  |  | 5,125 |  |  |  | 246,699 |  |  |  | 251,824 |
Real estate – mortgage, residential |  |  | 319 |  |  |  | 217 |  |  |  | 369 |  |  |  | 713 |  |  |  | 1,618 |  |  |  | 206,876 |  |  |  | 208,494 |
Real estate - mortgage, farmland |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,507 |  |  |  | 5,507 |
Consumer loans |  |  | 894 |  |  |  | 408 |  |  |  | — |  |  |  | 776 |  |  |  | 2,078 |  |  |  | 37,124 |  |  |  | 39,202 |
Less: Unearned income and deferred costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (738 | ) |  |  | (738 | )
|  | $ | 7,120 |  |  | $ | 625 |  |  | $ | 369 |  |  | $ | 4,790 |  |  | $ | 12,904 |  |  | $ | 633,930 |  |  | $ | 646,834 |
A summary of changes in the allowance for loans losses for the years ended December 31, 2020 and December 31, 2019 is as follows:
(Dollars in thousands) |  | December 31, 2020 |  |  | December 31, 2019 |
Allowance, beginning of period |  | $ | 4,572 |  |  | $ | 3,580 |
Charge-Offs |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | (6 | ) |  | $ | (43 | )
Real estate, mortgage |  |  | (505 | ) |  |  | (4 | )
Consumer loans |  |  | (994 | ) |  |  | (914 | )
Total charge-offs |  |  | (1,505 | ) |  |  | (961 | )
Recoveries |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 41 |  |  |  | — |
Real estate, mortgage |  |  | 8 |  |  |  | 6 |
Consumer loans |  |  | 261 |  |  |  | 205 |
Total recoveries |  |  | 310 |  |  |  | 211 |
Net charge-offs |  |  | (1,195 | ) |  |  | (750 | )
Provision for loan losses |  |  | 10,450 |  |  |  | 1,742 |
Allowance, end of period |  | $ | 13,827 |  |  | $ | 4,572 |
PPP loans are fully guaranteed by the U.S. government; therefore, the Company recorded no allowance for loan losses for these loans as of December 31, 2020. In future periods, the Company may be required to establish an allowance for loan losses for these loans, if, for example, the U.S. government were to eliminate or reduce the guarantee on individual or groups of PPP loans, which would result in a provision for loan losses charged to earnings. The following tables summarize the primary segments of the allowance of loan losses (“ALL”), segregated into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of December 31, 2020 and 2019:
|  | December 31, 2020 |
(Dollars in thousands) |  | Commercial and Industrial |  |  | Real Estate - Construction Commercial |  |  | Real Estate - Construction Residential |  |  | Real Estate - Mortgage, Commercial |  |  | Real Estate - Mortgage, Residential |  |  | Real Estate - Mortgage, Farmland |  |  | Consumer Loans |  |  | Total |
ALL Balance - December 31, 2019 |  | $ | 841 |  |  | $ | 220 |  |  | $ | 60 |  |  |  | 1,604 |  |  | $ | 510 |  |  | $ | 9 |  |  | $ | 1,328 |  |  | $ | 4,572 |
Charge-offs |  |  | (6 | ) |  |  | — |  |  |  | — |  |  |  | (505 | ) |  |  | — |  |  |  | — |  |  |  | (994 | ) |  |  | (1,505 | )
Recoveries |  |  | 41 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 8 |  |  |  | — |  |  |  | 261 |  |  |  | 310 |
Provision for loan losses |  |  | 2,886 |  |  |  | 740 |  |  |  | 90 |  |  |  | 3,116 |  |  |  | 963 |  |  |  | 9 |  |  |  | 2,646 |  |  |  | 10,450 |
ALL Balance - December 31, 2020 |  | $ | 3,762 |  |  | $ | 960 |  |  | $ | 150 |  |  | $ | 4,215 |  |  | $ | 1,481 |  |  | $ | 18 |  |  | $ | 3,241 |  |  | $ | 13,827 |
Individually evaluated for impairment |  |  | 144 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 144 |
Collectively evaluated for impairment |  | $ | 3,618 |  |  | $ | 960 |  |  | $ | 150 |  |  | $ | 4,215 |  |  | $ | 1,481 |  |  | $ | 18 |  |  | $ | 3,241 |  |  | $ | 13,683 |
|  | December 31, 2019 |
(Dollars in thousands) |  | Commercial and Industrial |  |  | Real Estate- Construction Commercial |  |  | Real Estate- Construction Residential |  |  | Real Estate- Mortgage Commercial |  |  | Real Estate- Mortgage Residential |  |  | Real Estate – Mortgage, Farmland |  |  | Consumer Loans |  |  | Total |
ALL Balance - December 31, 2018 |  | $ | 572 |  |  | $ | 112 |  |  | $ | 56 |  |  |  | 1,180 |  |  | $ | 434 |  |  | $ | 13 |  |  | $ | 1,213 |  |  | $ | 3,580 |
Charge-offs |  |  | (43 | ) |  |  | — |  |  |  | — |  |  |  | (3 | ) |  |  | (1 | ) |  |  | — |  |  |  | (914 | ) |  |  | (961 | )
Recoveries |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 205 |  |  |  | 211 |
Provision for loan losses |  |  | 312 |  |  |  | 108 |  |  |  | 4 |  |  |  | 427 |  |  |  | 71 |  |  |  | (4 | ) |  |  | 824 |  |  |  | 1,742 |
ALL Balance - December 31, 2019 |  | $ | 841 |  |  | $ | 220 |  |  | $ | 60 |  |  | $ | 1,604 |  |  | $ | 510 |  |  | $ | 9 |  |  | $ | 1,328 |  |  | $ | 4,572 |
Individually evaluated for impairment |  |  | 143 |  |  |  | — |  |  |  | — |  |  |  | 98 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 241 |
Collectively evaluated for impairment |  | $ | 698 |  |  | $ | 220 |  |  | $ | 60 |  |  | $ | 1,506 |  |  | $ | 510 |  |  | $ | 9 |  |  | $ | 1,328 |  |  | $ | 4,331 |
A summary of the loan portfolio individually and collectively evaluated for impairment at December 31, 2020 and December 31, 2019 is as follows:
(Dollars in thousands) |  | Individually Evaluated for Impairment |  |  | Collectively Evaluated for Impairment |  |  | Total |
December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 234 |  |  | $ | 93,052 |  |  | $ | 93,286 |
Real estate – construction, commercial |  |  | — |  |  |  | 54,702 |  |  |  | 54,702 |
Real estate – construction, residential |  |  | — |  |  |  | 18,040 |  |  |  | 18,040 |
Real estate – mortgage, commercial |  |  | 1,645 |  |  |  | 271,854 |  |  |  | 273,499 |
Real estate – mortgage, residential |  |  | 452 |  |  |  | 212,952 |  |  |  | 213,404 |
Real estate - mortgage, farmland |  |  | — |  |  |  | 3,615 |  |  |  | 3,615 |
Consumer loans |  |  | — |  |  |  | 46,684 |  |  |  | 46,684 |
Gross loans |  |  | 2,331 |  |  |  | 700,899 |  |  |  | 703,230 |
Less: Unearned income and deferred costs |  |  | — |  |  |  | (4,271 | ) |  |  | (4,271 | )
Total |  | $ | 2,331 |  |  | $ | 696,628 |  |  | $ | 698,959 |
The table above excludes gross PPP loans of $292.1 million, which are fully guaranteed by the U.S. government and therefore have no recorded allowance for loan losses as of December 31, 2020.
(Dollars in thousands) |  | Individually Evaluated for Impairment |  |  | Collectively Evaluated for Impairment |  |  | Total |
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 280 |  |  | $ | 77,448 |  |  | $ | 77,728 |
Real estate – construction, commercial |  |  | — |  |  |  | 38,039 |  |  |  | 38,039 |
Real estate – construction, residential |  |  | — |  |  |  | 26,778 |  |  |  | 26,778 |
Real estate – mortgage, commercial |  |  | 733 |  |  |  | 251,091 |  |  |  | 251,824 |
Real estate – mortgage, residential |  |  | 395 |  |  |  | 208,099 |  |  |  | 208,494 |
Real estate – mortgage, farmland |  |  | — |  |  |  | 5,507 |  |  |  | 5,507 |
Consumer loans |  |  | — |  |  |  | 39,202 |  |  |  | 39,202 |
Gross loans |  |  | 1,408 |  |  |  | 646,164 |  |  |  | 647,572 |
Less: Unearned income and deferred costs |  |  | — |  |  |  | (738 | ) |  |  | (738 | )
Total |  | $ | 1,408 |  |  | $ | 645,426 |  |  | $ | 646,834 |
The following table presents information related to impaired loans, by segment, at the dates presented:
|  | December 31, 2020 |
(Dollars in thousands) |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no specific allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate – mortgage, commercial |  | $ | 1,645 |  |  | $ | 2,030 |  |  | $ | — |  |  | $ | 2,091 |  |  | $ | 4 |
Real estate – mortgage, residential |  |  | 452 |  |  |  | 571 |  |  |  | — |  |  |  | 538 |  |  |  | 2 |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 234 |  |  |  | 234 |  |  |  | 144 |  |  |  | 362 |  |  |  | — |
|  | $ | 2,331 |  |  | $ | 2,835 |  |  | $ | 144 |  |  | $ | 2,991 |  |  | $ | 6 |
|  | December 31, 2019 |
(Dollars in thousands) |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no specific allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate – mortgage, residential |  | $ | 395 |  |  | $ | 395 |  |  | $ | — |  |  | $ | 527 |  |  | $ | 7 |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 280 |  |  |  | 280 |  |  |  | 143 |  |  |  | 286 |  |  |  | 2 |
Real estate – mortgage, commercial |  |  | 733 |  |  |  | 733 |  |  |  | 98 |  |  |  | 734 |  |  |  | 5 |
|  | $ | 1,408 |  |  | $ | 1,408 |  |  | $ | 241 |  |  | $ | 1,547 |  |  | $ | 14 |
Impaired loans also include certain loans that have been modified in TDRs where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as non-performing at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months. The Company had two TDRs in the amount of $142 thousand and $144 thousand at December 31, 2020 and 2019, respectively. One loan was classified as a TDR due to a change in interest rate and payment terms and the other loan was classified as a TDR due to a change in payment terms. The following table shows the Company’s loan portfolio by internal loan grade as of December 31, 2020 and December 31, 2019:
|  | December 31, 2020 |
(Dollars in thousands) |  | Grade 1 Prime |  |  | Grade 2 Desirable |  |  | Grade 3 Good |  |  | Grade 4 Acceptable |  |  | Grade 5 Pass/Watch |  |  | Grade 6 Special Mention |  |  | Grade 7 Substandard |  |  | Total |
Commercial and industrial |  | $ | 844 |  |  | $ | 484 |  |  | $ | 23,828 |  |  | $ | 55,539 |  |  | $ | 7,251 |  |  | $ | 4 |  |  | $ | 5,336 |  |  | $ | 93,286 |
Paycheck Protection Program |  |  | 292,068 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 292,068 |
Real estate – construction, commercial |  |  | — |  |  |  | 2,143 |  |  |  | 19,524 |  |  |  | 26,324 |  |  |  | 5,916 |  |  |  | 218 |  |  |  | 577 |  |  |  | 54,702 |
Real estate – construction, residential |  |  | — |  |  |  | — |  |  |  | 3,073 |  |  |  | 8,247 |  |  |  | 6,458 |  |  |  | — |  |  |  | 262 |  |  |  | 18,040 |
Real estate – mortgage, commercial |  |  | — |  |  |  | 3,994 |  |  |  | 128,163 |  |  |  | 114,977 |  |  |  | 15,799 |  |  |  | 2,968 |  |  |  | 7,598 |  |  |  | 273,499 |
Real estate – mortgage residential |  |  | — |  |  |  | 3,583 |  |  |  | 101,078 |  |  |  | 100,601 |  |  |  | 5,750 |  |  |  | 158 |  |  |  | 2,234 |  |  |  | 213,404 |
Real estate – mortgage, farmland |  |  | 444 |  |  |  | — |  |  |  | 1,175 |  |  |  | 1,996 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,615 |
Consumer loans |  |  | 324 |  |  |  | 36 |  |  |  | 17,062 |  |  |  | 28,033 |  |  |  | 521 |  |  |  | 1 |  |  |  | 707 |  |  |  | 46,684 |
Gross loans |  | $ | 293,680 |  |  | $ | 10,240 |  |  | $ | 293,903 |  |  | $ | 335,717 |  |  | $ | 41,695 |  |  | $ | 3,349 |  |  | $ | 16,714 |  |  | $ | 995,298 |
Less: Unearned income and deferred costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (4,271 | )
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 991,027 |
|  | December 31, 2019 |
(Dollars in thousands) |  | Grade 1 Prime |  |  | Grade 2 Desirable |  |  | Grade 3 Good |  |  | Grade 4 Acceptable |  |  | Grade 5 Pass/Watch |  |  | Grade 6 Special Mention |  |  | Grade 7 Substandard |  |  | Total |
Commercial and industrial |  | $ | 1,509 |  |  | $ | 1,042 |  |  | $ | 35,180 |  |  | $ | 37,458 |  |  | $ | 568 |  |  | $ | 1,488 |  |  | $ | 483 |  |  | $ | 77,728 |
Real estate – construction, commercial |  |  | — |  |  |  | 1,454 |  |  |  | 24,667 |  |  |  | 10,850 |  |  |  | 102 |  |  |  | — |  |  |  | 966 |  |  |  | 38,039 |
Real estate – construction, residential |  |  | — |  |  |  | 139 |  |  |  | 9,355 |  |  |  | 14,331 |  |  |  | 2,953 |  |  |  | — |  |  |  | — |  |  |  | 26,778 |
Real estate – mortgage, commercial |  |  | — |  |  |  | 4,971 |  |  |  | 118,488 |  |  |  | 114,598 |  |  |  | 9,273 |  |  |  | 1,935 |  |  |  | 2,559 |  |  |  | 251,824 |
Real estate – mortgage residential |  |  | — |  |  |  | 4,611 |  |  |  | 100,665 |  |  |  | 98,116 |  |  |  | 3,470 |  |  |  | 130 |  |  |  | 1,502 |  |  |  | 208,494 |
Real estate – mortgage, farmland |  |  | 1,467 |  |  |  | 134 |  |  |  | 1,736 |  |  |  | 2,170 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5,507 |
Consumer loans |  |  | 293 |  |  |  | 72 |  |  |  | 17,872 |  |  |  | 20,067 |  |  |  | 116 |  |  |  | — |  |  |  | 782 |  |  |  | 39,202 |
Gross loans |  | $ | 3,269 |  |  | $ | 12,423 |  |  | $ | 307,963 |  |  | $ | 297,590 |  |  | $ | 16,482 |  |  | $ | 3,553 |  |  | $ | 6,292 |  |  | $ | 647,572 |
Less: Unearned income and deferred costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (738 | )
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 646,834 |
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings: Risk Grade 1 – Prime: This grade is reserved for only the strongest of loans. These loans are to individuals or corporations that are well known to the Bank and are always secured with an almost guaranteed source of repayment such as a lien on a bank certificate of deposit or savings account. Character, credit history, and ability of individuals or company principals are excellent and unquestioned. Source of income and industry of borrower appears stable. High liquidity, minimum risk, good ratios, and low handling cost are present. Risk Grade 2 – Desirable: This grade is reserved for new loans that are within guidelines and where the borrowers have documented significant overall financial strength. A liquid financial statement is generally a financial statement with substantial liquid assets, particularly relative to the debts. These loans have excellent sources of repayment, with no significant identifiable risk of collection, and conform in all respects to policy, guidelines, underwriting standards, and federal and state regulations (no exceptions of any kind). Risk Grade 3 – Good: This grade is reserved for loans which exhibit satisfactory credit risk. These loans have adequate sources of repayment, with little identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics: (1) conformity in all respects with policy, guidelines, underwriting standards, and federal and state regulations (no exceptions of any kind), (2) documented historical cash flow that meets or exceeds required minimum the Bank guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor. Risk Grade 4 – Acceptable: This grade is given to satisfactory loans containing more risk than Risk Grade 3 loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics: (1) general conformity to the Bank's underwriting requirements, with limited exceptions to policy, product, or underwriting guidelines. All exceptions noted have documented mitigating factors that offset any additional risk associated with the exceptions noted, (2) documented historical cash flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor. Risk Grade 5 – Pass/Watch: This grade is for satisfactory loans containing acceptable but elevated risk. These loans are characterized by borrowers who have a marginal cash flow, marginal profitability, or have experienced an unprofitable year and declining financial condition. The borrower has in the past satisfactorily handled debts with the Bank, but in recent months has either been late, delinquent in making payments, or made sporadic payments. While the Bank continues to be adequately secured, margins have decreased or are decreasing, despite the borrower’s continued satisfactory condition. These loans require more diligent monitoring due to characteristics such as: (1) additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards that present a higher degree of risk, (2) unproved, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time, and (3) marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor. Risk Grade 6 – Special Mention: This grade is for loans that 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 an institution to sufficient risk to warrant adverse classification. Special mention credits typically exhibit underwriting guideline tolerances and/or exceptions with no mitigating factors, or emerging weaknesses that may or may not be cured as time passes. Risk Grade 7 – Substandard: A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to: (1) high debt to worth ratios, (2) declining or negative earnings trends, (3) declining or inadequate liquidity, (4) improper loan structure, (5) questionable repayment sources, (6) lack of well-defined secondary repayment source, and (7) unfavorable competitive comparisons. Such loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings capacity, declining collateral margins and/or unperfected collateral positions. A possibility of loss of a portion of the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited excessive overdue status or extensions and/or renewals. Risk Grade 8 – Doubtful: Loans classified doubtful have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing 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. Among these events are: (1) injection of capital, (2) alternative financing, (3) liquidation of assets or the pledging of additional collateral, and (4) the ability of the borrower to service the debt is extremely weak, overdue status is constant, the debt has been placed on nonaccrual status, and no definite repayment schedule exists. Doubtful is a temporary grade where a loss is expected, but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off. Risk Grade 9 – Loss: Loans classified loss are considered uncollectable and of such little value that their continuance as assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer charging off the worthless loan, even though partial recovery may be effected in the future. Probable loss portions of doubtful assets should be charged against the allowance for loan losses. Loans may reside in this classification for administrative purposes for a period not to exceed the earlier of thirty (30) days or calendar quarter-end. There were no loans classified as doubtful or loss at December 31, 2020 and December 31, 2019.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Publisher FASB -Name Accounting Standards Codification -Topic 310 -SubTopic 10 -URI http://asc.fasb.org/subtopic&trid=2196772 + Details
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