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Loans and Allowance for Loan Losses | 9 Months Ended
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Sep. 30, 2021
Receivables [Abstract] |
Loans and Allowance for Loan Losses | Note 5 – 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, 2021 |  |  | December 31, 2020 |
Commercial and industrial |  | $ | 309,058 |  |  | $ | 123,675 |
Paycheck Protection Program |  |  | 47,325 |  |  |  | 292,068 |
Real estate – construction, commercial |  |  | 139,286 |  |  |  | 54,702 |
Real estate – construction, residential |  |  | 51,098 |  |  |  | 18,040 |
Real estate – mortgage, commercial |  |  | 680,309 |  |  |  | 273,499 |
Real estate – mortgage, residential |  |  | 499,361 |  |  |  | 213,404 |
Real estate – mortgage, farmland |  |  | 6,317 |  |  |  | 3,615 |
Consumer |  |  | 67,787 |  |  |  | 46,684 |
Gross loans |  |  | 1,800,541 |  |  |  | 1,025,687 |
Less: Deferred loan fees, net of costs |  |  | (1,440 | ) |  |  | (4,271 | )
Total |  | $ | 1,799,101 |  |  | $ | 1,021,416 |
In 2020, the Company participated in the PPP under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (“PPP 1”). Through the PPP 1, 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 1 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 1 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 1 loans in 2020, and as of September 30, 2021, $32.6 million of PPP 1 loans were outstanding, including those acquired in the Bay Banks Merger. In 2021 the Company participated in the PPP pursuant to the Economic Aid Act, passed into law on December 27, 2020 (“PPP 2”). The PPP 2 was for applications received by May 31, 2021. The Company funded over 20,000 PPP 2 loans for approximately $730 million. PPP 2 loans have a contractual term of five years and earn an annual interest rate of 1%. Banks originating PPP 2 loans earned processing fees that were tiered depending on the size of the loan. Specifically, processing fees for loans of not more than $50,000 equaled 50% of the loan balance or $2,500, whichever was less; processing fees for loans more than $50,000 and not more than $350,000 equaled 5% of the loan balance, and processing fees for loans above $350,000 equaled 3% of the loan balance. Of the PPP 2 loans originated in 2021, approximately 19,500 with principal balances of $712.6 million were sold on June 28, 2021. Gross proceeds from the sale were $705.9 million and the Company recorded a pre-tax gain in noninterest income of $24.3 million on the sale after giving effect to $30.9 million of unamortized fees, net of deferred costs, and the sale discount. As of September 30, 2021, the Company held PPP 2 loans with aggregate principal balances and unamortized fees, net of deferred costs, of $14.7 million and $676 thousand, respectively. The Company believes that the majority of PPP 1 and PPP 2 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. The Company is accounting for the PPP processing fees in accordance with ASC 310-20, Receivables - Nonrefundable Fees and Other Costs, which requires fees, net of costs, to be deferred and amortized as a component of loan yield over the expected life of the loans, which the Company believes is 1.5 years for PPP 1 loans and one to three years for PPP 2 loans, depending on the individual loan balance. Of the $11.5 million of processing fees received in 2020 for PPP 1 loans, approximately $0 of unamortized fees remain as of September 30, 2021, with $228 thousand and $4.8 million recognized as a component of interest income for the three and nine months ended September 30, 2021, respectively. PPP 2 processing fees, net of costs, totaled $40.8 million through the first nine months of 2021, of which $484 thousand and $12.1 million were recognized as interest income for the three and nine months ended September 30, 2021, respectively, and $30.9 million was recognized as part of the gain on sale in the second quarter of 2021. 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 and the Economic Aid Act, banks have the option to temporarily suspend certain requirements of GAAP related to TDRs to the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency terminates 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 were not designated as TDRs as of September 30, 2021 and December 31, 2020. In response to the COVID-19 pandemic, during 2020, the Company approved over 550 loan deferrals for a total of $110.6 million. In addition, Bay Banks approved nearly 400 loan deferrals for approximately $160.0 million. Most of these loans are now past the deferment period and are back on normal payment schedules, and as of September 30, 2021, 16 loans were in deferment for a total of approximately $4.7 million. The Company has pledged certain commercial and residential mortgages as collateral for borrowings with the FHLB. Loans totaling $517.6 million and $213.3 million were pledged as of September 30, 2021 and December 31, 2020, respectively. Additionally, PPP loans were pledged as collateral for PPPLF advances in the amount of $33.9 million and $281.6 million as of September 30, 2021 and December 31, 2020, 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 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, 2021 |  |  | December 31, 2020 |
PCI loans |  |  |  |  |  |
Outstanding principal balance |  | $ | 98,076 |  |  | $ | 1,278 |
Recorded investment |  |  | 84,044 |  |  |  | 1,085 |
Purchased performing loans |  |  |  |  |  |
Outstanding principal balance |  |  | 784,302 |  |  |  | 97,301 |
Recorded investment |  |  | 781,348 |  |  |  | 96,317 |
Total acquired loans |  |  |  |  |  |
Outstanding principal balance |  |  | 882,378 |  |  |  | 98,579 |
Recorded investment |  |  | 865,392 |  |  |  | 97,402 |
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) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Balance, beginning of period |  | $ | 7,830 |  |  | $ | 153 |  |  | $ | 123 |  |  | $ | 185 |
Additions |  |  | — |  |  |  | — |  |  |  | 10,030 |  |  |  | — |
Accretion |  |  | (1,239 | ) |  |  | (16 | ) |  |  | (3,704 | ) |  |  | (48 | )
Reclassification of nonaccretable difference due to improvement in expected cash flows |  |  | — |  |  |  | — |  |  |  | 106 |  |  |  | — |
Other changes, net |  |  | — |  |  |  | — |  |  |  | 36 |  |  |  | — |
Balance, end of period |  | $ | 6,591 |  |  | $ | 137 |  |  | $ | 6,591 |  |  | $ | 137 |
The following tables present the aging of the recorded investment of loans held for investment as of the dates stated.
|  | September 30, 2021 |
(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 |  |  | PCI Loans |  |  | Current Loans |  |  | Total Loans |
Commercial and industrial |  | $ | 338 |  |  | $ | 332 |  |  | $ | — |  |  | $ | 6,270 |  |  | $ | 6,940 |  |  | $ | 8,947 |  |  | $ | 293,171 |  |  | $ | 309,058 |
Paycheck Protection Program |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 47,325 |  |  |  | 47,325 |
Real estate – construction, commercial |  |  | 2,696 |  |  |  | 21 |  |  |  | 65 |  |  |  | 88 |  |  |  | 2,870 |  |  |  | 14,015 |  |  |  | 122,401 |  |  |  | 139,286 |
Real estate – construction, residential |  |  | — |  |  |  | — |  |  |  | 451 |  |  |  | 254 |  |  |  | 705 |  |  |  | — |  |  |  | 50,393 |  |  |  | 51,098 |
Real estate – mortgage, commercial |  |  | 2,006 |  |  |  | 15 |  |  |  | 24 |  |  |  | 3,191 |  |  |  | 5,236 |  |  |  | 52,371 |  |  |  | 622,702 |  |  |  | 680,309 |
Real estate – mortgage, residential |  |  | 989 |  |  |  | 1,601 |  |  |  | 1,726 |  |  |  | 2,605 |  |  |  | 6,921 |  |  |  | 7,671 |  |  |  | 484,769 |  |  |  | 499,361 |
Real estate – mortgage, farmland |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,317 |  |  |  | 6,317 |
Consumer |  |  | 702 |  |  |  | 236 |  |  |  | 112 |  |  |  | 369 |  |  |  | 1,419 |  |  |  | 1,040 |  |  |  | 65,328 |  |  |  | 67,787 |
Less: Deferred loan fees, net of costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,440 | ) |  |  | (1,440 | )
Total Loans |  | $ | 6,731 |  |  | $ | 2,205 |  |  | $ | 2,378 |  |  | $ | 12,777 |  |  | $ | 24,091 |  |  | $ | 84,044 |  |  | $ | 1,690,966 |  |  | $ | 1,799,101 |
|  | 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 |  |  | PCI Loans |  |  | Current Loans |  |  | Total Loans |
Commercial and industrial |  | $ | 1,117 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,310 |  |  | $ | 2,427 |  |  | $ | — |  |  | $ | 121,248 |  |  | $ | 123,675 |
Paycheck Protection Program |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 292,068 |  |  |  | 292,068 |
Real estate – construction, commercial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 35 |  |  |  | 54,667 |  |  |  | 54,702 |
Real estate – construction, residential |  |  | 262 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 262 |  |  |  | — |  |  |  | 17,778 |  |  |  | 18,040 |
Real estate – mortgage, commercial |  |  | 771 |  |  |  | 211 |  |  |  | — |  |  |  | 3,643 |  |  |  | 4,625 |  |  |  | 808 |  |  |  | 268,066 |  |  |  | 273,499 |
Real estate – mortgage, residential |  |  | 1,062 |  |  |  | — |  |  |  | 46 |  |  |  | 881 |  |  |  | 1,989 |  |  |  | 242 |  |  |  | 211,173 |  |  |  | 213,404 |
Real estate – mortgage, farmland |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,615 |  |  |  | 3,615 |
Consumer |  |  | 935 |  |  |  | 334 |  |  |  | — |  |  |  | 714 |  |  |  | 1,983 |  |  |  | — |  |  |  | 44,701 |  |  |  | 46,684 |
Less: Deferred loan fees, net of costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,271 | ) |  |  | (4,271 | )
Total Loans |  | $ | 4,147 |  |  | $ | 545 |  |  | $ | 46 |  |  | $ | 6,548 |  |  | $ | 11,286 |  |  | $ | 1,085 |  |  | $ | 1,009,045 |  |  | $ | 1,021,416 |
The following tables present the aging of the recorded investment of PCI loans as of the dates stated.
|  | September 30, 2021 |
(Dollars in thousands) |  | 30-89 Days Past Due |  |  | Greater than 90 Days Past Due & Accruing |  |  | Current Loans |  |  | Total Loans |
Commercial and industrial |  | $ | — |  |  | $ | — |  |  | $ | 8,947 |  |  | $ | 8,947 |
Real estate – construction, commercial |  |  | 21 |  |  |  | 65 |  |  |  | 13,929 |  |  |  | 14,015 |
Real estate – mortgage, commercial |  |  | 148 |  |  |  | 24 |  |  |  | 52,199 |  |  |  | 52,371 |
Real estate – mortgage, residential |  |  | 552 |  |  |  | 1,726 |  |  |  | 5,393 |  |  |  | 7,671 |
Consumer |  |  | 5 |  |  |  | — |  |  |  | 1,035 |  |  |  | 1,040 |
Total PCI Loans |  | $ | 726 |  |  | $ | 1,815 |  |  | $ | 81,503 |  |  | $ | 84,044 |
|  | December 31, 2020 |
(Dollars in thousands) |  | 30-89 Days Past Due |  |  | Greater than 90 Days Past Due & Accruing |  |  | Current Loans |  |  | Total Loans |
Real estate – construction, commercial |  |  | — |  |  |  | — |  |  |  | 35 |  |  |  | 35 |
Real estate – mortgage, commercial |  |  | 224 |  |  |  | — |  |  |  | 584 |  |  |  | 808 |
Real estate – mortgage, residential |  |  | 35 |  |  |  | — |  |  |  | 207 |  |  |  | 242 |
Total PCI Loans |  | $ | 259 |  |  | $ | — |  |  | $ | 826 |  |  | $ | 1,085 |
The Company prepares a quarterly analysis of the ALL, with the objective of quantifying portfolio risk into a dollar amount of inherent losses. The ALL is increased through a provision for loan losses charged against income and decreased by loans charged-off (net of recoveries, if any). Management’s periodic evaluation of the adequacy of the ALL is based on past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, and current economic conditions. While management uses the best information available to make evaluations, future adjustments may be necessary, if economic or other conditions differ substantially from the assumptions used. The ALL consists of specific and general components. The specific component relates to loans that are identified as impaired, which generally include loans risk rated substandard or worse with balances of $500 thousand or more and all loans classified as TDRs. For loans that are classified as impaired, an allowance is established when the discounted cash flows or the net realizable value of underlying collateral, which is equal to the estimated fair value less estimated costs to sell, of the impaired loan is lower than the carrying value of that loan. The general component covers those loans not classified as impaired and those loans classified as impaired that are not individually evaluated for impairment and is based on historical loss experience adjusted for other internal or external influences on credit quality that are not fully reflected in the historical data. The Company follows applicable guidance issued by the FASB, which requires that losses be accrued when they are probable of occurring and can be estimated. It also requires that impaired loans, within its scope, be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, except that as a practical expedient, a creditor may measure impairment based on a loan’s observable market price, or the fair value of the underlying collateral if the loan is collateral dependent. PPP loans are fully guaranteed by the U.S. government; therefore, the Company recorded no ALL for these loans as of September 30, 2021 and December 31, 2020. 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 a summary of the loan portfolio individually and collectively evaluated for impairment as of the dates stated.
|  | September 30, 2021 |
(Dollars in thousands) |  | Individually Evaluated for Impairment |  |  | Collectively Evaluated for Impairment |  |  | Total |
Originated and purchased performing loans: |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 4,697 |  |  | $ | 295,414 |  |  | $ | 300,111 |
Real estate – construction, commercial |  |  | 531 |  |  |  | 124,740 |  |  |  | 125,271 |
Real estate – construction, residential |  |  | — |  |  |  | 51,098 |  |  |  | 51,098 |
Real estate – mortgage, commercial |  |  | 1,333 |  |  |  | 626,605 |  |  |  | 627,938 |
Real estate – mortgage, residential |  |  | 1,672 |  |  |  | 490,018 |  |  |  | 491,690 |
Real estate – mortgage, farmland |  |  | — |  |  |  | 6,317 |  |  |  | 6,317 |
Consumer |  |  | — |  |  |  | 66,747 |  |  |  | 66,747 |
Total originated and purchased performing loans |  |  | 8,233 |  |  |  | 1,660,939 |  |  |  | 1,669,172 |
PCI loans: |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | — |  |  |  | 8,947 |  |  |  | 8,947 |
Real estate – construction, commercial |  |  | — |  |  |  | 14,015 |  |  |  | 14,015 |
Real estate – mortgage, commercial |  |  | — |  |  |  | 52,371 |  |  |  | 52,371 |
Real estate – mortgage, residential |  |  | — |  |  |  | 7,671 |  |  |  | 7,671 |
Consumer |  |  | — |  |  |  | 1,040 |  |  |  | 1,040 |
Total PCI loans |  |  | — |  |  |  | 84,044 |  |  |  | 84,044 |
Gross loans |  |  | 8,233 |  |  |  | 1,744,983 |  |  |  | 1,753,216 |
Less: Deferred loan fees, net of costs |  |  | — |  |  |  | (763 | ) |  |  | (763 | )
Total |  | $ | 8,233 |  |  | $ | 1,744,220 |  |  | $ | 1,752,453 |
|  | December 31, 2020 |
(Dollars in thousands) |  | Individually Evaluated for Impairment |  |  | Collectively Evaluated for Impairment |  |  | Total |
Originated and purchased performing loans: |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 234 |  |  | $ | 123,441 |  |  | $ | 123,675 |
Real estate – construction, commercial |  |  | — |  |  |  | 54,667 |  |  |  | 54,667 |
Real estate – construction, residential |  |  | — |  |  |  | 18,040 |  |  |  | 18,040 |
Real estate – mortgage, commercial |  |  | 1,645 |  |  |  | 271,046 |  |  |  | 272,691 |
Real estate – mortgage, residential |  |  | 452 |  |  |  | 212,710 |  |  |  | 213,162 |
Real estate – mortgage, farmland |  |  | — |  |  |  | 3,615 |  |  |  | 3,615 |
Consumer |  |  | — |  |  |  | 46,684 |  |  |  | 46,684 |
Total originated and purchased performing loans |  |  | 2,331 |  |  |  | 730,203 |  |  |  | 732,534 |
PCI loans: |  |  |  |  |  |  |  |  |
Real estate – construction, commercial |  |  | — |  |  |  | 35 |  |  |  | 35 |
Real estate – mortgage, commercial |  |  | — |  |  |  | 808 |  |  |  | 808 |
Real estate – mortgage, residential |  |  | — |  |  |  | 242 |  |  |  | 242 |
Total PCI loans |  |  | — |  |  |  | 1,085 |  |  |  | 1,085 |
Gross loans |  |  | 2,331 |  |  |  | 731,288 |  |  |  | 733,619 |
Less: Deferred loan fees, net of costs |  |  | — |  |  |  | (736 | ) |  |  | (736 | )
Total |  | $ | 2,331 |  |  | $ | 730,552 |  |  | $ | 732,883 |
The tables above exclude gross PPP loans of $47.3 million and $292.1 million as of September 30, 2021 and December 2020, respectively. The following tables present information related to impaired loans by loan type as of the dates presented.
|  | September 30, 2021 |  |  | December 31, 2020 |
(Dollars in thousands) |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |  |  | Recorded Investment |  |  | Unpaid Principal Balance |  |  | Related Allowance |
With no specific allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 4,697 |  |  | $ | 4,697 |  |  | $ | — |  |  | $ | 234 |  |  | $ | 234 |  |  | $ | 144 |
Real estate – construction, commercial |  |  | 531 |  |  |  | 531 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Real estate – mortgage, commercial |  |  | 1,333 |  |  |  | 1,432 |  |  |  | — |  |  |  | 1,645 |  |  |  | 2,030 |  |  |  | — |
Real estate – mortgage, residential |  |  | 1,672 |  |  |  | 1,672 |  |  |  | — |  |  |  | 452 |  |  |  | 571 |  |  |  | — |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate – mortgage, commercial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Real estate – mortgage, residential |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  | $ | 8,233 |  |  | $ | 8,332 |  |  | $ | — |  |  | $ | 2,331 |  |  | $ | 2,835 |  |  | $ | 144 |
|  | For the three months ended |
|  | September 30, 2021 |  |  | September 30, 2020 |
(Dollars in thousands) |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no specific allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 4,710 |  |  | $ | 53 |  |  | $ | — |  |  | $ | — |
Real estate – construction, commercial |  |  | 532 |  |  |  | 8 |  |  |  | — |  |  |  | — |
Real estate – mortgage, commercial |  |  | 1,378 |  |  |  | 21 |  |  |  | — |  |  |  | — |
Real estate – mortgage, residential |  |  | 1,421 |  |  |  | 5 |  |  |  | 696 |  |  |  | 28 |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | — |  |  |  | — |  |  |  | 375 |  |  |  | — |
Real estate – mortgage, commercial |  |  | — |  |  |  | — |  |  |  | 337 |  |  |  | 1 |
Real estate – mortgage, residential |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  | $ | 8,041 |  |  | $ | 87 |  |  | $ | 1,408 |  |  | $ | 29 |
|  | For the nine months ended |
|  | September 30, 2021 |  |  | September 30, 2020 |
(Dollars in thousands) |  | Average Recorded Investment |  |  | Interest Income Recognized |  |  | Average Recorded Investment |  |  | Interest Income Recognized |
With no specific allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 4,390 |  |  | $ | 149 |  |  | $ | — |  |  | $ | — |
Real estate – construction, commercial |  |  | 537 |  |  |  | 24 |  |  |  | — |  |  |  | — |
Real estate – mortgage, commercial |  |  | 1,402 |  |  |  | 62 |  |  |  | — |  |  |  | — |
Real estate – mortgage, residential |  |  | 1,078 |  |  |  | 11 |  |  |  | 696 |  |  |  | 28 |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | — |  |  |  | — |  |  |  | 375 |  |  |  | 1 |
Real estate – mortgage, commercial |  |  | — |  |  |  | — |  |  |  | 337 |  |  |  | 7 |
Real estate – mortgage, residential |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  | $ | 7,407 |  |  | $ | 246 |  |  | $ | 1,408 |  |  | $ | 36 |
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 four TDRs totaling $235 thousand as of September 30, 2021, two of which were classified as TDRs due to a change in interest rate and payment terms and two of which were classified as TDRs due to a change in payment terms. The Company had two TDRs totaling $142 thousand as of December 31, 2020, one of which 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 presents an analysis of the change in the ALL by loan type as of and for the periods stated.
|  | For the three months ended September 30, |  |  | For the nine months ended September 30, |
(Dollars in thousands) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
ALL, beginning of period |  | $ | 13,007 |  |  | $ | 8,206 |  |  | $ | 13,827 |  |  | $ | 4,572 |
Charge-offs |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | (18 | ) |  |  | — |  |  |  | (968 | ) |  |  | — |
Real estate – mortgage |  |  | (133 | ) |  |  | — |  |  |  | (146 | ) |  |  | — |
Consumer |  |  | (361 | ) |  |  | (213 | ) |  |  | (757 | ) |  |  | (787 | )
Total charge-offs |  |  | (512 | ) |  |  | (213 | ) |  |  | (1,871 | ) |  |  | (787 | )
Recoveries |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 26 |  |  |  | 33 |  |  |  | 210 |  |  |  | 34 |
Real estate – mortgage |  |  | 5 |  |  |  | — |  |  |  | 108 |  |  |  | — |
Consumer |  |  | 88 |  |  |  | 97 |  |  |  | 340 |  |  |  | 229 |
Total recoveries |  |  | 119 |  |  |  | 130 |  |  |  | 658 |  |  |  | 263 |
Net charge-offs |  |  | (393 | ) |  |  | (83 | ) |  |  | (1,213 | ) |  |  | (524 | )
Provision for loan losses |  |  | — |  |  |  | 4,000 |  |  |  | — |  |  |  | 8,075 |
ALL, end of period |  | $ | 12,614 |  |  | $ | 12,123 |  |  | $ | 12,614 |  |  | $ | 12,123 |
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 (loan grade). 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 following tables present the Company’s loan portfolio by internal loan grade as of the dates stated.
|  | September 30, 2021 |
(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 |  | $ | 591 |  |  | $ | 3,521 |  |  | $ | 142,771 |  |  | $ | 135,275 |  |  | $ | 14,247 |  |  | $ | 4,505 |  |  | $ | 8,148 |  |  | $ | 309,058 |
Paycheck Protection Program |  |  | 47,325 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 47,325 |
Real estate – construction, commercial |  |  | — |  |  |  | 516 |  |  |  | 32,633 |  |  |  | 86,430 |  |  |  | 6,845 |  |  |  | 10,849 |  |  |  | 2,013 |  |  |  | 139,286 |
Real estate – construction, residential |  |  | 7 |  |  |  | — |  |  |  | 16,715 |  |  |  | 29,246 |  |  |  | 4,875 |  |  |  | — |  |  |  | 255 |  |  |  | 51,098 |
Real estate – mortgage, commercial |  |  | 4,358 |  |  |  | 2,447 |  |  |  | 317,296 |  |  |  | 244,322 |  |  |  | 34,810 |  |  |  | 60,845 |  |  |  | 16,231 |  |  |  | 680,309 |
Real estate – mortgage residential |  |  | 1,286 |  |  |  | 9,068 |  |  |  | 291,246 |  |  |  | 173,404 |  |  |  | 13,621 |  |  |  | 4,422 |  |  |  | 6,314 |  |  |  | 499,361 |
Real estate – mortgage, farmland |  |  | 366 |  |  |  | — |  |  |  | 1,122 |  |  |  | 4,829 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,317 |
Consumer |  |  | 339 |  |  |  | 8 |  |  |  | 17,768 |  |  |  | 47,346 |  |  |  | 1,279 |  |  |  | 489 |  |  |  | 558 |  |  |  | 67,787 |
Gross loans |  | $ | 54,272 |  |  | $ | 15,560 |  |  | $ | 819,551 |  |  | $ | 720,852 |  |  | $ | 75,677 |  |  | $ | 81,110 |  |  | $ | 33,519 |  |  | $ | 1,800,541 |
Less: Deferred loan fees, net of costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,440 | )
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,799,101 |
|  | 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 |  |  | $ | 85,928 |  |  | $ | 7,251 |  |  | $ | 4 |  |  | $ | 5,336 |  |  | $ | 123,675 |
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 |  |  | 324 |  |  |  | 36 |  |  |  | 17,062 |  |  |  | 28,033 |  |  |  | 521 |  |  |  | 1 |  |  |  | 707 |  |  |  | 46,684 |
Gross loans |  | $ | 293,680 |  |  | $ | 10,240 |  |  | $ | 293,903 |  |  | $ | 366,106 |  |  | $ | 41,695 |  |  | $ | 3,349 |  |  | $ | 16,714 |  |  | $ | 1,025,687 |
Less: Deferred loan fees, net of costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (4,271 | )
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,021,416 |

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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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