Loans and Allowance for Loan Losses | Note 4 – Loans and Allowance for Loan Losses The following table presents loans held for investment, including Paycheck Protection Program ("PPP") loans, as of the dates stated. (Dollars in thousands) March 31, 2022 December 31, 2021 Commercial and industrial $ 380,754 $ 320,827 Paycheck Protection Program 22,902 30,742 Real estate – construction, commercial 124,523 146,523 Real estate – construction, residential 60,195 58,857 Real estate – mortgage, commercial 748,223 701,503 Real estate – mortgage, residential 487,257 493,982 Real estate – mortgage, farmland 6,062 6,173 Consumer 37,368 49,877 Gross loans 1,867,284 1,808,484 Less: deferred loan fees, net of costs ( 1,087 ) ( 906 ) Total $ 1,866,197 $ 1,807,578 The Company has pledged certain commercial and residential mortgages as collateral for borrowings with the FHLB. Loans totaling $ 423.3 million and $ 478.3 million were pledged as of March 31, 2022 and December 31, 2021, respectively. Additionally, PPP loans were pledged as collateral for the FRB's Paycheck Protection Program Liquidity Facility ("PPPLF") advances in the amount of $ 15.2 million and $ 17.9 million as of March 31, 2022 and December 31, 2021, respectively. As a result of the Bay Banks Merger and the 2019 acquisition of Virginia Community Bankshares, Inc., the acquired loan portfolios were initially measured at fair value as of the respective acquisition dates and subsequently accounted for as either purchased performing loans or purchased credit-impaired ("PCI") loans. The following table presents the outstanding principal balance and related recorded investment of these acquired loans included in the consolidated balance sheets as of the dates stated. (Dollars in thousands) March 31, 2022 December 31, 2021 PCI loans Outstanding principal balance $ 68,778 $ 97,418 Recorded investment 57,841 84,029 Purchased performing loans Outstanding principal balance 665,979 706,147 Recorded investment 663,397 703,333 Total acquired loans Outstanding principal balance 734,757 803,565 Recorded investment 721,238 787,362 The following table presents the changes in the accretable yield for PCI loans for the periods stated. For the three months ended March 31, (Dollars in thousands) 2022 2021 Balance, beginning of period $ 16,849 $ 123 Additions — 10,030 Accretion ( 3,512 ) ( 840 ) Reclassification of nonaccretable difference due to improvement in expected cash flows — 104 Other changes, net — 22 Balance, end of period $ 13,337 $ 9,439 The following tables present the aging of the recorded investment of loans held for investment as of the dates stated. March 31, 2022 (Dollars in thousands) 30-59 60-89 Greater than Nonaccrual Total Past PCI Loans Current Total Commercial and industrial $ 2,278 $ 1,117 $ 212 $ 3,378 $ 6,985 $ 6,471 $ 367,298 $ 380,754 Paycheck Protection Program — — — — — — 22,902 22,902 Real estate – construction, commercial 3,894 269 — 88 4,251 1,196 119,076 124,523 Real estate – construction, residential 1,383 663 457 240 2,743 — 57,452 60,195 Real estate – mortgage, commercial 717 1,202 — 3,284 5,203 42,031 700,989 748,223 Real estate – mortgage, residential 6,392 2,000 362 5,221 13,975 7,553 465,729 487,257 Real estate – mortgage, farmland 339 — — — 339 — 5,723 6,062 Consumer 715 205 239 703 1,862 590 34,916 37,368 Less: deferred loan fees, net of costs — — — — — — ( 1,087 ) ( 1,087 ) Total Loans $ 15,718 $ 5,456 $ 1,270 $ 12,914 $ 35,358 $ 57,841 $ 1,772,998 $ 1,866,197 December 31, 2021 (Dollars in thousands) 30-59 60-89 Greater than Nonaccrual Total Past Nonaccrual PCI Loans Current Total Commercial and industrial $ 2,338 $ — $ 30 $ 6,066 $ 8,434 $ 8,903 $ 303,490 $ 320,827 Paycheck Protection Program — — — — — — 30,742 30,742 Real estate – construction, commercial 271 — — 88 359 14,754 131,410 146,523 Real estate – construction, residential 651 98 279 413 1,441 — 57,416 58,857 Real estate – mortgage, commercial 53 — — 3,024 3,077 51,872 646,554 701,503 Real estate – mortgage, residential 13,950 1,587 359 5,190 21,086 7,621 465,275 493,982 Real estate – mortgage, farmland — — — — — — 6,173 6,173 Consumer 902 583 249 396 2,130 879 46,868 49,877 Less: deferred loan fees, net of costs — — — — — — ( 906 ) ( 906 ) Total Loans $ 18,165 $ 2,268 $ 917 $ 15,177 $ 36,527 $ 84,029 $ 1,687,022 $ 1,807,578 The following tables present the aging of the recorded investment of PCI loans as of the dates stated. March 31, 2022 (Dollars in thousands) 30-89 Greater than Current Total Commercial and industrial $ — $ — $ 6,471 $ 6,471 Real estate – construction, commercial — — 1,196 1,196 Real estate – mortgage, commercial — — 42,031 42,031 Real estate – mortgage, residential 146 — 7,407 7,553 Consumer — — 590 590 Total PCI Loans $ 146 $ — $ 57,695 $ 57,841 December 31, 2021 (Dollars in thousands) 30-89 Greater than Current Total Commercial and industrial $ — $ — $ 8,903 $ 8,903 Real estate – construction, commercial — — 14,754 14,754 Real estate – mortgage, commercial — — 51,872 51,872 Real estate – mortgage, residential 147 — 7,474 7,621 Consumer — 4 875 879 Total PCI Loans $ 147 $ 4 $ 83,878 $ 84,029 The following tables present a summary of the loan portfolio individually and collectively evaluated for impairment as of the dates stated. March 31, 2022 (Dollars in thousands) Individually Collectively Total Loan Balances Related Allowance for Loan Losses PCI loans: Commercial and industrial $ — $ 6,471 $ 6,471 $ — Real estate – construction, commercial — 1,196 1,196 — Real estate – mortgage, commercial — 42,031 42,031 — Real estate – mortgage, residential — 7,553 7,553 117 Consumer — 590 590 — Total PCI loans — 57,841 57,841 117 Originated and purchased performing loans: Commercial and industrial 6,808 367,475 374,283 6,510 Real estate – construction, commercial 523 122,804 123,327 1,282 Real estate – construction, residential — 60,195 60,195 469 Real estate – mortgage, commercial 11,304 694,888 706,192 1,367 Real estate – mortgage, residential 1,403 478,301 479,704 1,382 Real estate – mortgage, farmland — 6,062 6,062 21 Consumer — 36,778 36,778 865 Total originated and purchased performing loans 20,038 1,766,503 1,786,541 11,896 Gross loans 20,038 1,824,344 1,844,382 12,013 Less: deferred loan fees, net of costs — ( 1,087 ) ( 1,087 ) — Total $ 20,038 $ 1,823,257 $ 1,843,295 $ 12,013 December 31, 2021 (Dollars in thousands) Individually Collectively Total Loan Balances Related Allowance for Loan Losses PCI loans: Commercial and industrial $ — $ 8,903 $ 8,903 $ — Real estate – construction, commercial — 14,754 14,754 — Real estate – mortgage, commercial — 51,872 51,872 — Real estate – mortgage, residential — 7,621 7,621 117 Consumer — 879 879 — Total PCI loans — 84,029 84,029 117 Originated and purchased performing loans: Commercial and industrial 4,612 307,312 311,924 7,133 Real estate – construction, commercial 527 131,242 131,769 953 Real estate – construction, residential — 58,857 58,857 395 Real estate – mortgage, commercial 3,194 646,437 649,631 1,403 Real estate – mortgage, residential 1,400 484,961 486,361 1,184 Real estate – mortgage, farmland — 6,173 6,173 23 Consumer — 48,998 48,998 913 Total originated and purchased performing loans 9,733 1,683,980 1,693,713 12,004 Gross loans 9,733 1,768,009 1,777,742 12,121 Less: deferred loan fees, net of costs — ( 570 ) ( 570 ) — Total $ 9,733 $ 1,767,439 $ 1,777,172 $ 12,121 The tables above exclude gross PPP loans of $ 22.9 million and $ 30.7 million as of March 31, 2022 and December 31, 2021, respectively. PPP loans are fully guaranteed by the U.S. government; therefore, the Company recorded no allowance for loan losses ("ALL") for these loans as of March 31, 2022 and December 31, 2021. In future periods, the Company may be required to establish an ALL for these loans, which would result in a provision for loan losses charged to earnings. The following tables present information related to impaired loans by loan type as of the dates and for the periods stated. March 31, 2022 December 31, 2021 (Dollars in thousands) Recorded Unpaid Related Recorded Unpaid Related With no specific allowance recorded: Commercial and industrial $ 3,521 $ 6,054 $ — $ — $ — $ — Real estate – construction, commercial 523 522 — 527 527 — Real estate – mortgage, commercial 11,216 12,172 — — — — Real estate – mortgage, residential 1,345 1,339 — — — — With an allowance recorded: Commercial and industrial $ 3,287 $ 3,285 $ 640 $ 4,612 $ 4,612 $ 836 Real estate – mortgage, commercial 88 87 1 3,194 3,849 1 Real estate – mortgage, residential 58 59 15 1,400 1,400 42 Total $ 20,038 $ 23,518 $ 656 $ 9,733 $ 10,388 $ 879 For the three months ended March 31, 2022 March 31, 2021 (Dollars in thousands) Average Interest Average Interest With no specific allowance recorded: Commercial and industrial $ 5,305 $ 62 $ 3,250 $ 35 Real estate – construction, commercial 524 — 542 8 Real estate – mortgage, commercial 11,880 48 1,384 14 Real estate – mortgage, residential 1,342 14 583 6 With an allowance recorded: Commercial and industrial $ 3,290 $ — $ — $ — Real estate – mortgage, commercial 88 — — — Real estate – mortgage, residential 59 — — — Total $ 22,488 $ 124 $ 5,759 $ 63 Impaired loans also include certain loans that have been modified in troubled debt restructurings ("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 nine TDRs totaling $ 673 thousand as of March 31, 2022 and eight TDRs totaling $ 688 thousand as of December 31, 2021. No residential mortgage loans were in the process of foreclosure as of March 31, 2022. The following table presents an analysis of the change in the ALL by loan type as of the dates and for the periods stated. For the three months ended March 31, (Dollars in thousands) 2022 2021 ALL, beginning of period $ 12,121 $ 13,827 Charge-offs Commercial and industrial ( 2,401 ) ( 359 ) Real estate – construction ( 123 ) — Real estate – mortgage ( 16 ) ( 12 ) Consumer ( 279 ) ( 263 ) Total charge-offs ( 2,819 ) ( 634 ) Recoveries Commercial and industrial 74 56 Real estate – construction 12 — Real estate – mortgage 4 16 Consumer 121 137 Total recoveries 211 209 Net charge-offs ( 2,608 ) ( 425 ) Provision for loan losses 2,500 — ALL, end of period $ 12,013 $ 13,402 The following tables present the Company’s loan portfolio by internal loan grade as of the dates stated. March 31, 2022 (Dollars in thousands) Grade Grade Grade Grade Grade Grade Grade Grade Total PCI loans: Commercial and industrial $ — $ — $ 1,503 $ 2,524 $ 2 $ 989 $ 1,453 $ — $ 6,471 Real estate – construction, commercial — — — 5 — — 1,191 — 1,196 Real estate – mortgage, commercial — — — 4,340 19,183 16,073 2,435 — 42,031 Real estate – mortgage residential — — — 142 1,653 2,701 3,057 — 7,553 Consumer loans — — — — 215 366 8 — 589 Total PCI loans — — 1,503 7,011 21,053 20,129 8,144 — 57,840 Originated and purchased performing loans: Commercial and industrial 290 768 195,187 157,865 9,976 2,836 4,722 2,639 374,283 Paycheck Protection Program 22,902 — — — — — — — 22,902 Real estate – construction, commercial — 395 22,895 90,618 8,632 149 637 — 123,326 Real estate – construction, residential — — 10,390 47,331 2,235 — 240 — 60,196 Real estate – mortgage, commercial — 2,300 264,816 398,340 24,102 5,202 11,432 — 706,192 Real estate – mortgage residential — 7,925 254,089 199,388 10,552 873 6,877 — 479,704 Real estate – mortgage, farmland 339 — 879 4,713 131 — — — 6,062 Consumer loans 306 2 15,700 19,728 433 1 609 — 36,779 Total originated and purchased performing loans: 23,837 11,390 763,956 917,983 56,061 9,061 24,517 2,639 1,809,444 Gross loans $ 23,837 $ 11,390 $ 765,459 $ 924,994 $ 77,114 $ 29,190 $ 32,661 $ 2,639 $ 1,867,284 Less: deferred loan fees, net of costs ( 1,087 ) Total $ 1,866,197 December 31, 2021 (Dollars in thousands) Grade Grade Grade Grade Grade Grade Grade Grade Total PCI loans: Commercial and industrial $ — $ — $ — $ 1,567 $ 2,818 $ 2,748 $ 1,770 $ — $ 8,903 Real estate – construction, commercial — — — 2,423 — 11,010 1,321 — 14,754 Real estate – mortgage, commercial — — — 2,642 3,892 33,487 11,851 — 51,872 Real estate – mortgage residential — — — 142 1,657 2,709 3,113 — 7,621 Consumer loans — — — — 388 481 10 — 879 Total PCI loans — — — 6,774 8,755 50,435 18,065 — 84,029 Originated and purchased performing loans: Commercial and industrial 291 560 156,519 133,738 11,256 3,180 6,380 — 311,924 Paycheck Protection Program 30,742 — — — — — — — 30,742 Real estate – construction, commercial — 412 28,973 91,900 7,995 1,846 643 — 131,769 Real estate – construction, residential — — 14,610 40,418 3,416 — 413 — 58,857 Real estate – mortgage, commercial — 2,382 307,067 283,165 34,750 17,133 5,134 — 649,631 Real estate – mortgage residential 990 9,218 276,992 180,980 11,107 974 6,100 — 486,361 Real estate – mortgage, farmland 340 — 1,067 4,766 — — — — 6,173 Consumer loans 262 3 16,920 30,691 542 — 580 — 48,998 Total originated and purchased performing loans: 32,625 12,575 802,148 765,658 69,066 23,133 19,250 — 1,724,455 Gross loans $ 32,625 $ 12,575 $ 802,148 $ 772,432 $ 77,821 $ 73,568 $ 37,315 $ — $ 1,808,484 Less: deferred loan fees, net of costs ( 906 ) Total $ 1,807,578 |