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) June 30, 2022 December 31, 2021 Commercial and industrial $ 496,962 $ 320,827 Paycheck Protection Program 15,654 30,742 Real estate – construction, commercial 122,455 146,523 Real estate – construction, residential 70,860 58,857 Real estate – mortgage, commercial 791,465 701,503 Real estate – mortgage, residential 522,219 493,982 Real estate – mortgage, farmland 6,880 6,173 Consumer 39,092 49,877 Gross loans 2,065,587 1,808,484 Less: deferred loan fees, net of costs ( 1,550 ) ( 906 ) Total $ 2,064,037 $ 1,807,578 The Company has pledged certain commercial and residential mortgages as collateral for borrowings with the FHLB. Loans totaling $ 404.5 million and $ 478.3 million were pledged as of June 30, 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 $ 60 thousand and $ 17.9 million as of June 30, 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) June 30, 2022 December 31, 2021 PCI loans Outstanding principal balance $ 75,897 $ 97,418 Recorded investment 66,021 84,029 Purchased performing loans Outstanding principal balance 607,497 706,147 Recorded investment 605,152 703,333 Total acquired loans Outstanding principal balance 683,394 803,565 Recorded investment 671,173 787,362 The following table presents the changes in the accretable yield for PCI loans for the periods stated. For the three months ended June 30, For the six months ended June 30, (Dollars in thousands) 2022 2021 2022 2021 Balance, beginning of period $ 13,337 $ 9,439 $ 16,849 $ 123 Additions — — — 10,030 Accretion ( 1,750 ) ( 1,625 ) ( 5,262 ) ( 2,465 ) Reclassification of nonaccretable difference due to improvement in expected cash flows 2,515 2 2,515 106 Other changes, net ( 1,157 ) 14 ( 1,157 ) 36 Balance, end of period $ 12,945 $ 7,830 $ 12,945 $ 7,830 The following tables present the aging of the recorded investment of loans held for investment as of the dates stated. June 30, 2022 (Dollars in thousands) 30-59 60-89 Greater than Nonaccrual Total Past PCI Loans Current Total Commercial and industrial $ 652 $ 11 $ — $ 3,993 $ 4,656 $ 3,516 $ 488,790 $ 496,962 Paycheck Protection Program — — — — — — 15,654 15,654 Real estate – construction, commercial 1,794 521 — 352 2,667 1,191 118,597 122,455 Real estate – construction, residential — 183 — 329 512 — 70,348 70,860 Real estate – mortgage, commercial 1,397 — — 952 2,349 55,042 734,074 791,465 Real estate – mortgage, residential 602 2,428 — 5,599 8,629 5,903 507,687 522,219 Real estate – mortgage, farmland 625 — — — 625 — 6,255 6,880 Consumer 768 76 308 648 1,800 369 36,923 39,092 Less: deferred loan fees, net of costs — — — — — — ( 1,550 ) ( 1,550 ) Total Loans $ 5,838 $ 3,219 $ 308 $ 11,873 $ 21,238 $ 66,021 $ 1,976,778 $ 2,064,037 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. June 30, 2022 (Dollars in thousands) 30-89 Greater than Current Total Commercial and industrial $ — $ — $ 3,516 $ 3,516 Real estate – construction, commercial — — 1,191 1,191 Real estate – mortgage, commercial — — 55,042 55,042 Real estate – mortgage, residential 24 — 5,879 5,903 Consumer — — 369 369 Total PCI Loans $ 24 $ — $ 65,997 $ 66,021 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. June 30, 2022 (Dollars in thousands) Individually Collectively Total Loan Balances Related Allowance for Loan Losses PCI loans: Commercial and industrial $ — $ 3,516 $ 3,516 $ — Real estate – construction, commercial — 1,191 1,191 — Real estate – mortgage, commercial — 55,042 55,042 — Real estate – mortgage, residential — 5,903 5,903 11 Consumer — 369 369 — Total PCI loans — 66,021 66,021 11 Originated and purchased performing loans: Commercial and industrial 7,858 485,588 493,446 10,435 Real estate – construction, commercial 527 121,928 122,455 284 Real estate – construction, residential — 69,669 69,669 117 Real estate – mortgage, commercial 9,013 727,410 736,423 2,903 Real estate – mortgage, residential 1,500 514,816 516,316 2,345 Real estate – mortgage, farmland — 6,880 6,880 25 Consumer — 38,723 38,723 1,122 Total originated and purchased performing loans 18,898 1,965,014 1,983,912 17,231 Gross loans 18,898 2,031,035 2,049,933 17,242 Less: deferred loan fees, net of costs — ( 1,550 ) ( 1,550 ) — Total $ 18,898 $ 2,029,485 $ 2,048,383 $ 17,242 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 PPP loans of $ 15.7 million and $ 30.7 million as of June 30, 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 June 30, 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. June 30, 2022 December 31, 2021 (Dollars in thousands) Recorded Unpaid Related Recorded Unpaid Related With no specific allowance recorded: Commercial and industrial $ 4,290 $ 8,061 $ — $ — $ — $ — Real estate – construction, commercial 527 521 — 527 527 — Real estate – mortgage, commercial 5,973 6,229 — — — — Real estate – mortgage, residential 1,442 1,439 — — — — With an allowance recorded: Commercial and industrial $ 3,568 $ 5,875 $ 360 $ 4,612 $ 4,612 $ 836 Real estate – mortgage, commercial 3,040 3,039 1 3,194 3,849 1 Real estate – mortgage, residential 58 58 14 1,400 1,400 42 Total $ 18,898 $ 25,222 $ 375 $ 9,733 $ 10,388 $ 879 For the three months ended June 30, 2022 June 30, 2021 (Dollars in thousands) Average Interest Average Interest With no specific allowance recorded: Commercial and industrial $ 6,203 $ 12 $ 4,324 $ 49 Real estate – construction, commercial 521 8 537 8 Real estate – mortgage, commercial 6,254 100 185 3 Real estate – mortgage, residential 1,441 3 920 7 With an allowance recorded: Commercial and industrial $ 6,619 $ 33 $ — $ — Real estate – mortgage, commercial 3,570 2 1,207 17 Real estate – mortgage, residential 58 5 57 — Total $ 24,666 $ 163 $ 7,230 $ 84 For the six months ended June 30, 2022 June 30, 2021 (Dollars in thousands) Average Interest Average Interest With no specific allowance recorded: Commercial and industrial $ 5,754 $ 74 $ 4,409 $ 99 Real estate – construction, commercial 523 8 539 16 Real estate – mortgage, commercial 9,067 148 210 7 Real estate – mortgage, residential 1,392 17 890 13 With an allowance recorded: Commercial and industrial $ 4,955 $ 33 $ — $ — Real estate – mortgage, commercial 1,829 2 1,211 34 Real estate – mortgage, residential 59 5 116 — Total $ 23,579 $ 287 $ 7,375 $ 169 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 nonperforming 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 10 TDRs totaling $ 1.5 million as of June 30, 2022 and eight TDRs totaling $ 688 thousand as of December 31, 2021. Three residential mortgage loans with a total recorded investment o f $ 449 thousand were in the process of foreclosure as of June 30, 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 June 30, For the six months ended June 30, (Dollars in thousands) 2022 2021 2022 2021 ALL, beginning of period $ 12,013 $ 13,402 $ 12,121 $ 13,827 Charge-offs Commercial and industrial ( 1,383 ) ( 857 ) ( 3,746 ) ( 1,216 ) Real estate – construction — — ( 123 ) — Real estate – mortgage ( 1,079 ) ( 1 ) ( 1,093 ) ( 13 ) Consumer ( 329 ) ( 133 ) ( 605 ) ( 396 ) Total charge-offs ( 2,791 ) ( 991 ) ( 5,567 ) ( 1,625 ) Recoveries Commercial and industrial 2 394 37 450 Real estate – construction 4 — 16 — Real estate – mortgage 387 87 391 103 Consumer 133 115 250 252 Total recoveries 526 596 694 805 Net charge-offs ( 2,265 ) ( 395 ) ( 4,873 ) ( 820 ) Provision for loan losses 7,494 — 9,994 — ALL, end of period $ 17,242 $ 13,007 $ 17,242 $ 13,007 The following tables present the Company’s loan portfolio by internal loan grade as of the dates stated. June 30, 2022 (Dollars in thousands) Grade Grade Grade Grade Grade Grade Grade Grade Total PCI loans: Commercial and industrial $ — $ — $ 991 $ 1,512 $ 1 $ 627 $ — $ 385 $ 3,516 Real estate – construction, commerecial — — — 23 — — 1,168 — 1,191 Real estate – mortgage, commercial — — — 18,636 20,015 14,040 2,351 — 55,042 Real estate – mortgage residential — — — 1,002 1,444 1,675 1,782 — 5,903 Consumer loans — — — — — 361 8 — 369 Total PCI loans — — 991 21,173 21,460 16,703 5,309 385 66,021 Originated and purchased performing loans: Commercial and industrial 9,281 909 185,605 274,411 10,675 2,748 5,966 3,851 493,446 Paycheck Protection Program 15,654 — — — — — — 15,654 Real estate – construction, commercial — 378 17,900 93,728 8,174 65 2,210 — 122,455 Real estate – construction, residential — — 9,915 58,743 1,849 — ( 1,031 ) 193 69,669 Real estate – mortgage, commercial — 2,242 258,116 417,539 43,162 5,081 6,318 3,965 736,423 Real estate – mortgage residential — 7,417 243,445 245,797 10,630 25 9,002 — 516,316 Real estate – mortgage, farmland 625 — 664 5,462 129 — — — 6,880 Consumer loans 287 — 16,067 20,126 1,463 1 779 — 38,723 Total originated and purchased performing loans: 25,847 10,946 731,712 1,115,806 76,082 7,920 23,244 8,009 1,999,566 Gross loans $ 25,847 $ 10,946 $ 732,703 $ 1,136,979 $ 97,542 $ 24,623 $ 28,553 $ 8,394 $ 2,065,587 Less: deferred loan fees, net of costs ( 1,550 ) Total $ 2,064,037 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 |