LOANS AND ALLOWANCE | 3. LOANS AND ALLOWANCE FOR CREDIT LOSSES The following table summarizes the composition of our loan portfolio as of December 31, 2021 and 2020 (in thousands): December 31, 2021 December 31, 2020 Loans secured by real estate: Commercial real estate - owner occupied $ 387,703 $ 434,816 Commercial real estate - non-owner occupied 588,000 599,578 Secured by farmland 8,612 11,687 Construction and land development 121,444 103,401 Residential 1-4 family 547,560 557,953 Multi-family residential 164,071 107,130 Home equity lines of credit 73,846 91,748 Total real estate loans 1,891,236 1,906,313 Commercial loans 301,980 187,797 Paycheck Protection Program loans 77,319 314,982 Consumer loans 60,996 22,496 Total Non-PCD loans 2,331,531 2,431,588 PCD loans 8,455 8,908 Total loans $ 2,339,986 $ 2,440,496 The accounting policy related to the allowance for credit losses is considered a critical policy given the level of estimation, judgment, and uncertainty in the levels of the allowance required to account for the inherent probable losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results. Accrued Interest Receivable Accrued interest receivable on loans totaled $10.8 million and $19.0 million at December 31, 2021 and 2020, respectively and is included in accrued interest receivable in the consolidated balance sheets. COVID-19 Loan Deferments The Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus was published by banking regulators in April 2020 to clarify expectations around loan modifications and the determination of TDRs for borrowers experiencing COVID-19-related financial difficulty. Primis applied this regulatory guidance during its troubled debt restructurings (“TDR”) identification process for short-term loan forbearance agreements as a result of COVID-19 and in most cases is not recording these as TDRs, except as disclosed below. Certain borrowers were unable to meet their contractual payment obligations because of the adverse economic effects of COVID-19. To help mitigate these effects, loan customers could apply for a deferral of payments, or portions thereof, for up to six months. After six months, customers could apply for an additional deferral in 90 days increments, and a small proportion of our customers requested such an additional deferral. In the absence of other intervening factors, such short-term modifications made on a good faith basis were not categorized as TDR, nor were loans granted payment deferrals related to COVID-19 reported as past due or placed on non-accrual status (provided the loans were not past due or on non-accrual status prior to the deferral). We implemented deferral arrangements for TDRs in accordance with the Coronavirus Aid, Relief and Economic Security (“CARES” Act) and bank regulatory guidance. At December 31, 2021, there were no loans in COVID-19 related deferment. At December 31, 2020, there were 44 loans in COVID-19 related deferment with an aggregate outstanding balance of $122.0 million, all of which were current as of December 31, 2020. Accretion The accretable discount on the acquired loans totaled $4.3 million and $6.2 million at December 31, 2021 and 2020, respectively. Accretion associated with the acquired loans held for investment of $2.0 million, $4.3 million and $3.9 million was recognized during the twelve months ended December 31, 2021, 2020 and 2019, respectively. Non-Accrual and Past Due Loans Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower. The following tables present the aging of the recorded investment in past due loans by class of loans as of December 31, 2021 and 2020 (in thousands): 30 - 59 60 - 89 90 Days Days Days Total Loans Not Total December 31, 2021 Past Due Past Due or More Past Due Past Due Loans Commercial real estate - owner occupied $ 194 $ 346 $ — $ 540 $ 387,163 $ 387,703 Commercial real estate - non-owner occupied — — — — 588,000 588,000 Secured by farmland 791 — — 791 7,821 8,612 Construction and land development 204 131 4,575 4,910 116,534 121,444 Residential 1-4 family 9,384 254 137 9,775 537,785 547,560 Multi- family residential — — — — 164,071 164,071 Home equity lines of credit 331 — 171 502 73,344 73,846 Commercial loans 387 — 1,246 1,633 300,347 301,980 Paycheck Protection Program loans 4,954 8,559 283 13,796 63,523 77,319 Consumer loans 193 130 2 325 60,671 60,996 Total Non-PCD loans 16,438 9,420 6,414 32,272 2,299,259 2,331,531 PCD loans 1,717 — — 1,717 6,738 8,455 Total $ 18,155 $ 9,420 $ 6,414 $ 33,989 $ 2,305,997 $ 2,339,986 30 - 59 60 - 89 90 Days Days Days Total Loans Not Total December 31, 2020 Past Due Past Due or More Past Due Past Due Loans (1) Commercial real estate - owner occupied $ — $ — $ 2,641 $ 2,641 $ 432,175 $ 434,816 Commercial real estate - non-owner occupied — — — — 599,578 599,578 Secured by farmland — — 1,098 1,098 10,589 11,687 Construction and land development 23 39 — 62 103,339 103,401 Residential 1-4 family 1,235 349 1,512 3,096 554,857 557,953 Multi- family residential — — — — 107,130 107,130 Home equity lines of credit 310 39 523 872 90,876 91,748 Commercial loans 64 33 2,104 2,201 185,596 187,797 Paycheck Protection Program loans — — — — 314,982 314,982 Consumer loans 207 4 9 220 22,276 22,496 Total Non-PCD loans 1,839 464 7,887 10,190 2,421,398 2,431,588 PCD loans — — 1,853 1,853 7,055 8,908 Total $ 1,839 $ 464 $ 9,740 $ 12,043 $ 2,428,453 $ 2,440,496 (1) Includes $122.0 million of loans that were subject to deferrals at December 31, 2020. The amortized cost, by class, of loans and leases on nonaccrual status at December 31, 2021 and 2020, were as follows (in thousands): 90 Total Days Loans Not Nonaccrual December 31, 2021 or More Past Due Loans (1) Commercial real estate - owner occupied $ — $ 842 $ 842 Secured by farmland — 836 836 Construction and land development 4,575 34 4,609 Residential 1-4 family 137 411 548 Multi- family residential — 4,301 4,301 Home equity lines of credit 171 253 424 Commercial loans 1,246 476 1,722 Consumer loans 2 16 18 Total Non-PCD loans 6,131 7,169 13,300 PCD loans — 1,729 1,729 Total $ 6,131 $ 8,898 $ 15,029 90 Total Days Loans Not Nonaccrual December 31, 2020 or More Past Due Loans (1) Commercial real estate - owner occupied $ 2,641 $ — $ 2,641 Secured by farmland 1,098 — 1,098 Residential 1-4 family 1,512 13 1,525 Multi- family residential — 4,481 4,481 Home equity lines of credit 523 — 523 Commercial loans 2,104 228 2,332 Consumer loans 9 — 9 Total Non-PCD loans 7,887 4,722 12,609 PCD loans 1,853 — 1,853 Total $ 9,740 $ 4,722 $ 14,462 (1) Nonaccrual loans include SBA guaranteed amounts totaling $1.1 million and $3.1 million at December 31, 2021 and 2020, respectively. We had $283 thousand of PPP loans greater than 90 days past due and still accruing at December 31, 2021 and did not have any loans and leases greater than 90 days past due and still accruing at December 31, 2020. The following table presents non-accrual loans as of December 31, 2021 and 2020, segregated by class of loans (in thousands): December 31, 2021 December 31, 2020 Non-Accrual With Non-Accrual With Total No Credit Total No Credit Non-Accrual (1) Loss Allowance (2) Non-Accrual (1) Loss Allowance (2) Commercial real estate - owner occupied $ 842 $ 842 $ 2,641 $ 2,641 Secured by farmland 836 836 1,098 1,098 Construction and land development 4,609 4,609 — — Residential 1-4 family 548 548 1,525 164 Multi- family residential 4,301 4,301 4,481 4,481 Home equity lines of credit 424 424 523 523 Commercial loans 1,722 745 2,332 582 Consumer loans 18 10 9 9 Total non-PCD loans 13,300 12,315 12,609 9,498 PCD loans 1,729 — 1,853 — Total non-accrual loans $ 15,029 $ 12,315 $ 14,462 $ 9,498 (1) Nonaccrual loans include SBA guaranteed amounts totaling $1.1 million and $3.1 million at December 31, 2021 and 2020, respectively. (2) Nonaccrual loans with no credit loss allowance include SBA guaranteed amounts totaling $1.1 million and $1.7 million at December 31, 2021 and 2020, respectively. The following table presents non-accrual loans as of December 31, 2021 by class and year of origination (in thousands): Revolving Loans Revolving Converted 2021 2020 2019 2018 2017 Prior Loans To Term Total Commercial real estate - owner occupied $ — $ — $ 476 $ — $ — $ 366 $ — $ — $ 842 Secured by farmland — — 24 — 681 — 131 — 836 Construction and land development — — 4,575 — — 34 — — 4,609 Residential 1-4 family — — — — — 252 — 296 548 Multi- family residential — — — — — 4,301 — — 4,301 Home equity lines of credit — — — — — — 398 26 424 Commercial loans — 9 — 236 — 314 1,163 — 1,722 Consumer loans — — — 8 8 2 — — 18 Total non-PCD non-accruals — 9 5,075 244 689 5,269 1,692 322 13,300 PCD loans — — — — 1,717 12 — — 1,729 Total non-accrual loans (1) $ — $ 9 $ 5,075 $ 244 $ 2,406 $ 5,281 $ 1,692 $ 322 $ 15,029 (1) Nonaccrual loans include SBA guaranteed amounts totaling $1.1 million and $3.1 million at December 31, 2021 and 2020, respectively. Interest received on non-accrual loans was $523 thousand and $469 thousand for the years ended December 31, 2021 and 2020, respectively. Troubled Debt Restructurings A modification is classified as a TDR if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rates for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR. Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity. For the year ended December 31, 2021, there were ten TDR loans outstanding in the amount of $3.4 million primarily due to the economic impact of COVID-19. There have been no defaults of TDRs modified during the past twelve months. Credit Quality Indicators Through its system of internal controls, Primis evaluates and segments loan portfolio credit quality using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified. Special Mention loans are loans that have a potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position. Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged if any. Loans so classified 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. Doubtful loans have all the weaknesses inherent in those classified as substandard, with 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. Primis had no loans classified Doubtful at December 31, 2021 or 2020. In monitoring credit quality trends in the context of assessing the appropriate level of the allowance for credit losses on loans, we monitor portfolio credit quality by the weighted-average risk grade of each class of loan. The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of December 31, 2021 (in thousands): Revolving Loans Revolving Converted 2021 2020 2019 2018 2017 Prior Loans To Term Total Commercial real estate - owner occupied Pass $ 58,596 $ 18,411 $ 35,498 $ 28,163 $ 45,013 $ 187,461 $ 3,010 $ 6,937 $ 383,089 Special Mention — — — — 140 1,184 — — 1,324 Substandard — — 475 — — 2,815 — — 3,290 Doubtful — — — — — — — — $ 58,596 $ 18,411 $ 35,973 $ 28,163 $ 45,153 $ 191,460 $ 3,010 $ 6,937 $ 387,703 Weighted average risk grade 3.43 3.42 3.47 3.43 3.55 3.53 3.29 3.96 3.51 Commercial real estate - nonowner occupied Pass $ 107,572 $ 55,956 19,816 $ 76,076 $ 58,883 $ 235,676 $ 3,668 $ — $ 557,647 Special Mention — — — — — 12,097 — — 12,097 Substandard — — — — — 17,655 — 601 18,256 Doubtful — — — — — — — — — $ 107,572 $ 55,956 $ 19,816 $ 76,076 $ 58,883 $ 265,428 $ 3,668 $ 601 $ 588,000 Weighted average risk grade 3.05 3.47 3.83 3.45 3.81 3.81 2.94 6.00 3.59 Secured by farmland Pass $ 320 $ 66 $ — $ — $ 445 $ 3,734 $ 1,955 $ — $ 6,520 Special Mention — — — — 852 404 — — 1,256 Substandard — — 24 — 681 — 131 — 836 Doubtful — — — — — — — — — $ 320 $ 66 $ 24 $ — $ 1,978 $ 4,138 $ 2,086 $ — $ 8,612 Weighted average risk grade 3.17 4.00 6.00 N/A 5.04 3.61 4.09 N/A 4.05 Construction and land development Pass $ 57,320 $ 14,003 $ 13,360 $ 7,061 $ 8,414 $ 15,664 $ 982 $ 31 $ 116,835 Special Mention — — — — — — — — — Substandard — — 4,575 — — 34 — — 4,609 Doubtful — — — — — — — — — $ 57,320 $ 14,003 $ 17,935 $ 7,061 $ 8,414 $ 15,698 $ 982 $ 31 $ 121,444 Weighted average risk grade 3.15 3.56 4.48 3.26 3.91 3.54 3.31 4.00 3.50 Residential 1-4 family Pass $ 165,106 $ 54,037 $ 81,905 $ 49,694 $ 43,173 $ 138,711 $ 1,845 $ 3,484 $ 537,955 Special Mention — — 8,514 — — — — — 8,514 Substandard — — — — — 795 — 296 1,091 Doubtful — — — — — — — — — $ 165,106 $ 54,037 $ 90,419 $ 49,694 $ 43,173 $ 139,506 $ 1,845 $ 3,780 $ 547,560 Weighted average risk grade 3.04 3.06 3.24 3.13 3.07 3.26 3.98 3.30 3.15 Multi- family residential Pass $ 37,030 $ 18,866 $ 7,228 $ 6,328 $ 36,574 $ 42,310 $ 5,031 $ — $ 153,367 Special Mention — — — — — 5,326 — — 5,326 Substandard — — — — — 5,076 — 302 5,378 Doubtful — — — — — — — — — $ 37,030 $ 18,866 $ 7,228 $ 6,328 $ 36,574 $ 52,712 $ 5,031 $ 302 $ 164,071 Weighted average risk grade 3.40 3.90 3.00 3.59 3.00 3.00 3.92 4.00 6.00 3.55 Home equity lines of credit Pass $ 715 $ 59 $ 75 $ 235 $ 425 $ 4,337 $ 67,157 $ 143 $ 73,146 Special Mention — — — — — — 276 — 276 Substandard — — — — — — 398 26 424 Doubtful — — — — — — — — — $ 715 $ 59 $ 75 $ 235 $ 425 $ 4,337 $ 67,831 $ 169 $ 73,846 Weighted average risk grade 3.00 3.00 3.00 3.00 3.77 3.79 3.09 4.31 3.14 Commercial loans Pass $ 95,085 $ 10,415 $ 11,923 $ 10,648 $ 10,522 $ 18,284 $ 134,302 $ 5,338 $ 296,517 Special Mention — — — — — — 845 — 845 Substandard — 9 — 1,508 — 1,938 1,163 — 4,618 Doubtful — — — — — — — — — $ 95,085 $ 10,424 $ 11,923 $ 12,156 $ 10,522 $ 20,222 $ 136,310 $ 5,338 $ 301,980 Weighted average risk grade 3.43 3.36 3.79 3.77 2.95 3.96 3.43 3.95 3.48 Paycheck Protection Program loans Pass $ 56,087 $ 21,232 $ — $ — $ — $ — $ — $ — $ 77,319 Special Mention — — — — — — — — — Substandard — — — — — — — — — Doubtful — — — — — — — — — $ 56,087 $ 21,232 $ — $ — $ — $ — $ — $ — $ 77,319 Weighted average risk grade 2.00 2.00 N/A N/A N/A N/A N/A N/A 2.00 Revolving Loans Revolving Converted 2021 2020 2019 2018 2017 Prior Loans To Term Total Consumer loans Pass $ 48,107 $ 2,351 $ 1,002 $ 914 $ 237 $ 5,766 $ 2,519 $ — $ 60,896 Special Mention — — — — — 82 — — 82 Substandard — — — 7 9 2 — — 18 Doubtful — — — — — — — — — $ 48,107 $ 2,351 $ 1,002 $ 921 $ 246 $ 5,850 $ 2,519 $ — $ 60,996 Weighted average risk grade 3.55 3.99 3.99 4.02 4.07 4.01 4.00 N/A 3.65 PCD Pass $ — $ — $ — $ — $ — $ 5,145 $ 30 $ — $ 5,175 Special Mention — — — — — 1,391 — — 1,391 Substandard — — — — 1,717 172 — — 1,889 Doubtful — — — — — — — — — $ — $ — $ — $ — $ 1,717 $ 6,708 $ 30 $ — $ 8,455 Weighted average risk grade N/A N/A N/A N/A 6.00 4.08 3.00 N/A 4.47 Total $ 625,938 $ 195,405 $ 184,395 $ 180,634 $ 207,085 $ 706,059 $ 223,312 $ 17,158 $ 2,339,986 Weighted average risk grade 3.12 3.24 3.50 3.38 3.45 3.64 3.35 3.92 3.39 Revolving loans that converted to term during 2021 were as follows (in thousands): For the year ended December 31, 2021 Commercial real estate - owner occupied $ 298 Commercial real estate - non-owner occupied 601 Residential 1-4 family 1,706 Multi- family residential 302 Commercial loans 561 Total loans $ 3,468 The amount of foreclosed residential real estate property held at December 31, 2021 and 2020 was $0.9 million and $1.0 million, respectively. The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was zero and $1.4 million at December 31, 2021 and 2020, respectively. Allowance For Credit Losses – Loans The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless (i) management has a reasonable expectation that a TDR will be executed with an individual borrower or (ii) such extension or renewal options are not unconditionally cancellable by us and, in such cases, the borrower is likely to meet applicable conditions and likely to request extension or renewal. Relevant available information includes historical credit loss experience, current conditions and reasonable and supportable forecasts. While historical credit loss experience provides the basis for the estimation of expected credit losses, adjustments to historical loss information may be made for differences in current portfolio-specific risk characteristics, environmental conditions or other relevant factors. The allowance for credit losses is measured on a collective basis for portfolios of loans when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Expected credit losses for collateral dependent loans, including loans where the borrower is experiencing financial difficulty but foreclosure is not probable, are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate. Credit loss expense related to loans reflects the totality of actions taken on all loans for a particular period including any necessary increases or decreases in the allowance related to changes in credit loss expectations associated with specific loans or pools of loans. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate appropriateness of the allowance is dependent upon a variety of factors beyond our control, including the performance of our loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. Common characteristics and risk profiles include the type/purpose of loan, underlying collateral, geographical similarity and historical/expected credit loss patterns. In developing these loan pools for the purposes of modeling expected credit losses, we also analyzed the degree of correlation in how loans within each portfolio respond when subjected to varying economic conditions and scenarios as well as other portfolio stress factors. For allowance modeling purposes, our loan pools include (i) commercial real estate - owner occupied, (ii) commercial real estate - non-owner occupied, (iii) construction and land development, (iv) commercial, (v) agricultural loans, (vi) residential 1-4 family and (vii) consumer loans. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of inputs: (i) probability of default (“PD”), which is the likelihood that the loan will stop performing/default, (ii) probability of attrition (“PA”), which is the likelihood that a loan will pay-off prior to maturity, (iii) loss given default (“LGD”), which is the expected loss rate for loans in default and (iv) exposure at default (“EAD”), which is the estimated outstanding principal balance of the loans upon default, including the expected funding of unfunded commitments outstanding as of the measurement date. Inputs are pool-specific, though not necessarily solely reliant on internally-sourced data. Internal data is supplemented by, but not replaced by, peer data when required, primarily to determine the PD input. The various pool-specific inputs may be adjusted for current macroeconomic assumptions, as further discussed below, and other factors such as differences in underwriting standards, portfolio mix, or when historical asset terms do not reflect the contractual terms of the financial assets being evaluated as of the measurement date. Each time we measure expected credit losses, we assess the relevancy of historical information and consider any necessary adjustments to address any differences in current asset-specific characteristics. Significant macroeconomic variables utilized in our allowance models include, among other things, (i) VA Gross Domestic Product, (ii) VA House Price Index, and (iii) VA unemployment rates. The macroeconomic variables utilized as inputs in forecast modeling were subjected to a variety of analysis procedures and were selected primarily based on statistical relevancy and correlation to historical credit losses, where historical credit losses may be fully internally-sourced or supplemented with peer data. PDs were estimated by analyzing the relationship between the historical performance of each loan pool and historical economic trends over a complete economic cycle. Historical performance data is either fully internally-sourced or supplemented with peer data where necessary. PDs are adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over a reasonable and supportable forecast period. We have determined that we are reasonably able to forecast the macroeconomic variables used in our forecast modeling processes with an acceptable degree of confidence for a total of four quarters. This forecast period is followed by an additional eight quarter reversion process whereby the forecasted macroeconomic variables are reverted to their historical mean on a straight-line basis. By reverting these economic inputs to their historical mean and considering loan/borrower specific attributes, our allowance models are intended to yield a measurement of expected credit losses that reflects average historical loss rates (which may be supplemented by peer data) for periods subsequent to the initial twelve-quarters consisting of the forecast and reversion periods. The LGD is linked to PD based on benchmark historical loss averages for each loan pool. LGD is dynamic with PD; as PD increases, so will LGD, and vice versa. In this context, “benchmark” refers to the use of third-party data, and “historical loss averages” refers to the fraction of defaulted balance that tends to be lost. By nature of its connection to PD, LGD is by extension adjusted to reflect the current impact of certain macroeconomic variables as well as their expected changes over the four-quarter forecast period and eight-quarter reversion process, which management considers to be both reasonable and supportable. This same forecast/reversion period is used for all macroeconomic variables used in all of our economic forecast models. PA and EAD are estimated using either a Discounted Cash Flow or Remaining Life model, both of which use various timing inputs to estimate the loan balance that remains at various future points in time, and thus also at the time of a default event. Management qualitatively adjusts allowance model results for risk factors that are not considered within our quantitative modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. Qualitative factor (“Q-Factor”) adjustments are driven by key risk indicators that management tracks on a pool-by-pool basis. The risk factors are large relationship concentrations, borrower debt service coverage exceptions, loan-to-value exceptions, and excessive growth |