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) September 30, 2022 December 31, 2021 Commercial and industrial $ 522,281 $ 320,827 Paycheck Protection Program 13,148 30,742 Real estate – construction, commercial 145,066 146,523 Real estate – construction, residential 77,085 58,857 Real estate – mortgage, commercial 800,134 701,503 Real estate – mortgage, residential 569,931 493,982 Real estate – mortgage, farmland 6,757 6,173 Consumer 38,400 49,877 Gross loans 2,172,802 1,808,484 Less: deferred loan fees, net of costs ( 1,312 ) ( 906 ) Total $ 2,171,490 $ 1,807,578 The Company has pledged certain commercial and residential mortgages as collateral for borrowings with the FHLB. Loans totaling $ 300.8 million and $ 478.3 million were pledged as of September 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 $ 599 thousand and $ 17.9 million as of September 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) September 30, 2022 December 31, 2021 PCI loans Outstanding principal balance $ 73,659 $ 97,418 Recorded investment 65,190 84,029 Purchased performing loans Outstanding principal balance 559,982 706,147 Recorded investment 558,078 703,333 Total acquired loans Outstanding principal balance 633,641 803,565 Recorded investment 623,268 787,362 The following table presents the changes in the accretable yield for PCI loans for the periods stated. For the three months ended September 30, For the nine months ended September 30, (Dollars in thousands) 2022 2021 2022 2021 Balance, beginning of period $ 12,945 $ 7,830 $ 16,849 $ 123 Additions — — — 10,030 Accretion ( 1,108 ) ( 1,239 ) ( 6,370 ) ( 3,704 ) Reclassification of nonaccretable difference due to improvement in expected cash flows — — 2,515 106 Other changes, net — — ( 1,157 ) 36 Balance, end of period $ 11,837 $ 6,591 $ 11,837 $ 6,591 The following tables present the aging of the recorded investment of loans held for investment as of the dates stated. September 30, 2022 (Dollars in thousands) 30-59 60-89 Greater than Nonaccrual Total Past PCI Loans Current Total Commercial and industrial $ 237 $ 162 $ — $ 1,815 $ 2,214 $ 3,461 $ 516,606 $ 522,281 Paycheck Protection Program — — — — — — 13,148 13,148 Real estate – construction, commercial — 47 — 716 763 1,201 143,102 145,066 Real estate – construction, residential 1,207 269 — 11 1,487 — 75,598 77,085 Real estate – mortgage, commercial 196 262 — 1,841 2,299 54,433 743,402 800,134 Real estate – mortgage, residential 864 939 — 5,088 6,891 5,732 557,308 569,931 Real estate – mortgage, farmland — 403 81 — 484 — 6,273 6,757 Consumer 419 57 — 569 1,045 363 36,992 38,400 Less: deferred loan fees, net of costs — — — — — — ( 1,312 ) ( 1,312 ) Total Loans $ 2,923 $ 2,139 $ 81 $ 10,040 $ 15,183 $ 65,190 $ 2,091,117 $ 2,171,490 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. September 30, 2022 (Dollars in thousands) 30-89 Greater than Current Total Commercial and industrial $ — $ — $ 3,461 $ 3,461 Real estate – construction, commercial — — 1,201 1,201 Real estate – mortgage, commercial — — 54,433 54,433 Real estate – mortgage, residential 553 — 5,179 5,732 Consumer — — 363 363 Total PCI Loans $ 553 $ — $ 64,637 $ 65,190 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. September 30, 2022 (Dollars in thousands) Individually Collectively Total Loan Balances Related Allowance for Loan Losses PCI loans: Commercial and industrial $ — $ 3,461 $ 3,461 $ — Real estate – construction, commercial — 1,201 1,201 — Real estate – mortgage, commercial — 54,433 54,433 — Real estate – mortgage, residential — 5,732 5,732 11 Consumer — 363 363 — Total PCI loans — 65,190 65,190 11 Originated and purchased performing loans: Commercial and industrial 5,705 513,115 518,820 13,154 Real estate – construction, commercial 521 143,344 143,865 1,078 Real estate – construction, residential — 77,085 77,085 127 Real estate – mortgage, commercial 2,762 742,939 745,701 2,539 Real estate – mortgage, residential 1,337 562,862 564,199 2,542 Real estate – mortgage, farmland — 6,757 6,757 33 Consumer — 38,037 38,037 1,050 Total originated and purchased performing loans 10,325 2,084,139 2,094,464 20,523 Gross loans 10,325 2,149,329 2,159,654 20,534 Less: deferred loan fees, net of costs — ( 1,312 ) ( 1,312 ) — Total $ 10,325 $ 2,148,017 $ 2,158,342 $ 20,534 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 $ 13.1 million and $ 30.7 million as of September 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. 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. September 30, 2022 December 31, 2021 (Dollars in thousands) Recorded Unpaid Related Recorded Unpaid Related With no specific allowance recorded: Commercial and industrial $ 1,689 $ 5,165 $ — $ — $ — $ — Real estate – construction, commercial 521 521 — 527 527 — Real estate – mortgage, commercial 2,715 2,829 — — — — Real estate – mortgage, residential 1,195 1,188 — — — — With an allowance recorded: Commercial and industrial $ 4,016 $ 4,016 $ 747 $ 4,612 $ 4,612 $ 836 Real estate – mortgage, commercial 47 662 301 3,194 3,849 1 Real estate – mortgage, residential 142 142 15 1,400 1,400 42 Total $ 10,325 $ 14,523 $ 1,063 $ 9,733 $ 10,388 $ 879 For the three months ended September 30, 2022 September 30, 2021 (Dollars in thousands) Average Interest Average Interest With no specific allowance recorded: Commercial and industrial $ 5,197 $ — $ 4,710 $ 53 Real estate – construction, commercial 521 8 532 8 Real estate – mortgage, commercial 2,839 26 1,378 21 Real estate – mortgage, residential 1,188 5 1,421 5 With an allowance recorded: Commercial and industrial $ 4,024 $ 44 $ — $ — Real estate – mortgage, commercial 851 1 — — Real estate – mortgage, residential 142 1 — — Total $ 14,762 $ 85 $ 8,041 $ 87 For the nine months ended September 30, 2022 September 30, 2021 (Dollars in thousands) Average Interest Average Interest With no specific allowance recorded: Commercial and industrial $ 5,568 $ 74 $ 4,390 $ 149 Real estate – construction, commercial 522 16 537 24 Real estate – mortgage, commercial 6,991 174 1,402 62 Real estate – mortgage, residential 1,324 22 1,078 11 With an allowance recorded: — — Commercial and industrial $ 4,644 $ 77 $ — $ — Real estate – mortgage, commercial 1,503 3 — — Real estate – mortgage, residential 86 6 — — Total $ 20,639 $ 372 $ 7,407 $ 246 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 11 TDRs totaling $ 1.9 million as of September 30, 2022 and eight TDRs totaling $ 688 thousand as of December 31, 2021. No residential mortgage loans were in the process of foreclosure as of September 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 September 30, For the nine months ended September 30, (Dollars in thousands) 2022 2021 2022 2021 ALL, beginning of period $ 17,242 $ 13,007 $ 12,121 $ 13,827 Charge-offs Commercial and industrial ( 6 ) ( 18 ) ( 3,752 ) ( 968 ) Real estate – construction ( 39 ) — ( 162 ) — Real estate – mortgage ( 51 ) ( 133 ) ( 1,145 ) ( 146 ) Consumer ( 651 ) ( 361 ) ( 1,255 ) ( 757 ) Total charge-offs ( 747 ) ( 512 ) ( 6,314 ) ( 1,871 ) Recoveries Commercial and industrial 6 26 43 210 Real estate – construction 24 — 40 — Real estate – mortgage 2 5 393 108 Consumer 107 88 357 340 Total recoveries 139 119 833 658 Net charge-offs ( 608 ) ( 393 ) ( 5,481 ) ( 1,213 ) Provision for loan losses 3,900 — 13,894 — ALL, end of period $ 20,534 $ 12,614 $ 20,534 $ 12,614 The following tables present the Company’s loan portfolio by internal loan grade as of the dates stated. September 30, 2022 (Dollars in thousands) Grade Grade Grade Grade Grade Grade Grade Grade Total PCI loans: Commercial and industrial $ — $ — $ 990 $ 1,445 $ 1 $ 510 $ 98 $ 417 $ 3,461 Real estate – construction, commercial — — — 24 — — 1,177 — 1,201 Real estate – mortgage, commercial — — — 18,466 26,615 7,051 2,302 — 54,434 Real estate – mortgage residential — — — 1,387 1,430 1,172 1,742 — 5,731 Consumer loans — — — — — 356 7 — 363 Total PCI loans — — 990 21,322 28,046 9,089 5,326 417 65,190 Originated and purchased performing loans: Commercial and industrial 368 887 207,059 292,346 11,039 1,201 5,540 380 518,820 Paycheck Protection Program 13,148 — — — — — — — 13,148 Real estate – construction, commercial — 369 14,410 117,634 10,565 65 822 — 143,865 Real estate – construction, residential — — 8,904 66,558 1,623 — — — 77,085 Real estate – mortgage, commercial — 2,190 235,649 453,618 46,213 5,052 2,978 — 745,700 Real estate – mortgage residential 840 7,817 239,060 298,608 10,501 24 7,350 — 564,200 Real estate – mortgage, farmland 606 — 1,364 4,660 127 — — — 6,757 Consumer loans 179 — 17,965 18,887 362 1 643 — 38,037 Total originated and purchased performing loans: 15,141 11,263 724,411 1,252,311 80,430 6,343 17,333 380 2,107,612 Gross loans $ 15,141 $ 11,263 $ 725,401 $ 1,273,633 $ 108,476 $ 15,432 $ 22,659 $ 797 $ 2,172,802 Less: deferred loan fees, net of costs ( 1,312 ) Total $ 2,171,490 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 |