Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2022

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 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	$	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 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	$	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 Days Past Due		Greater than 90 Days Past Due & Accruing		Current Loans		Total 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		146		—		7,407		7,553
Consumer		—		—		590		590
Total PCI Loans	$	146	$	—	$	57,695	$	57,841


	December 31, 2021
(Dollars in thousands)	30-89 Days Past Due		Greater than 90 Days Past Due & Accruing		Current Loans		Total 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		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 Evaluated for Impairment		Collectively Evaluated for Impairment			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 Evaluated for Impairment		Collectively Evaluated for Impairment			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 Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
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 Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
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 1 Prime		Grade 2 Desirable		Grade 3 Good		Grade 4 Acceptable		Grade 5 Pass/Watch		Grade 6 Special Mention		Grade 7 Substandard		Grade 8 Doubtful		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 1 Prime		Grade 2 Desirable		Grade 3 Good		Grade 4 Acceptable		Grade 5 Pass/Watch		Grade 6 Special Mention		Grade 7 Substandard		Grade 8 Doubtful		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