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Loans and Allowance for Loan Losses | 12 Months Ended
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Dec. 31, 2022
Receivables [Abstract] |
Loans and Allowance for Loan Losses | Note 4. Loans and Allowance for Loan Losses (Restated) This note has been restated to reflect the changes described in the Explanatory Note and Note 23 to the Consolidated Financial Statements included in this Form 10-K/A. The following table presents loans held for investment, including Paycheck Protection Program ("PPP") loans, as of the dates stated.
|  | December 31, |
(Dollars in thousands) |  | 2022 |  |  | 2021 |
Commercial and industrial |  | $ | 590,049 |  |  | $ | 320,827 |
Paycheck Protection Program |  |  | 11,967 |  |  |  | 30,742 |
Real estate – construction, commercial |  |  | 183,301 |  |  |  | 146,523 |
Real estate – construction, residential |  |  | 76,599 |  |  |  | 58,857 |
Real estate – mortgage, commercial |  |  | 864,989 |  |  |  | 701,503 |
Real estate – mortgage, residential |  |  | 631,772 |  |  |  | 493,982 |
Real estate – mortgage, farmland |  |  | 6,599 |  |  |  | 6,173 |
Consumer |  |  | 47,423 |  |  |  | 49,877 |
Gross loans |  |  | 2,412,699 |  |  |  | 1,808,484 |
Less: deferred loan fees, net of costs |  |  | (1,640 | ) |  |  | (906 | )
Total |  | $ | 2,411,059 |  |  | $ | 1,807,578 |
The Company has pledged certain commercial and residential mortgages as collateral for borrowings with the FHLB. Loans totaling $436.0 million and $478.3 million were pledged as of December 31, 2022 and 2021, respectively. Additionally, PPP loans were pledged as collateral for Paycheck Protection Program Liquidity Facility ("PPPLF") advances in the amount of $51 thousand and $17.9 million as of December 31, 2022 and 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 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.
|  | December 31, |
(Dollars in thousands) |  | 2022 |  |  | 2021 |
PCI loans |  |  |  |  |  |
Outstanding principal balance |  | $ | 64,911 |  |  | $ | 97,418 |
Recorded investment |  |  | 58,748 |  |  |  | 84,029 |
Purchased performing loans |  |  |  |  |  |
Outstanding principal balance |  |  | 513,461 |  |  |  | 706,147 |
Recorded investment |  |  | 511,752 |  |  |  | 703,333 |
Total acquired loans |  |  |  |  |  |
Outstanding principal balance |  |  | 578,372 |  |  |  | 803,565 |
Recorded investment |  |  | 570,500 |  |  |  | 787,362 |
The following table presents the changes in the accretable yield for PCI loans for the periods stated.
|  | December 31, |
(Dollars in thousands) |  | 2022 |  |  | 2021 |
Balance, beginning of period |  | $ | 16,849 |  |  | $ | 123 |
Additions |  |  | — |  |  |  | 10,030 |
Accretion |  |  | (9,410 | ) |  |  | (5,381 | )
Reclassification of nonaccretable difference due to improvement in expected cash flows |  |  | 3,804 |  |  |  | 1,400 |
Other changes, net |  |  | (71 | ) |  |  | 10,677 |
Balance, end of period |  | $ | 11,172 |  |  | $ | 16,849 |
The following tables present the aging of the recorded investment of loans held for investment as of the dates stated.
|  | December 31, 2022 (Restated) |
(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 |  | $ | 488 |  |  | $ | 279 |  |  | $ | — |  |  | $ | 68,039 |  |  | $ | 68,806 |  |  | $ | 1,481 |  |  | $ | 519,762 |  |  | $ | 590,049 |
Paycheck Protection Program |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,967 |  |  |  | 11,967 |
Real estate – construction, commercial |  |  | 1,137 |  |  |  | 19 |  |  |  | — |  |  |  | 714 |  |  |  | 1,870 |  |  |  | — |  |  |  | 181,431 |  |  |  | 183,301 |
Real estate – construction, residential |  |  | 1,416 |  |  |  | 1,204 |  |  |  | — |  |  |  | — |  |  |  | 2,620 |  |  |  | 7 |  |  |  | 73,972 |  |  |  | 76,599 |
Real estate – mortgage, commercial |  |  | 6,198 |  |  |  | 297 |  |  |  | 6,234 |  |  |  | 1,658 |  |  |  | 14,387 |  |  |  | 51,223 |  |  |  | 799,379 |  |  |  | 864,989 |
Real estate – mortgage, residential |  |  | 4,544 |  |  |  | 231 |  |  |  | 1,998 |  |  |  | 5,143 |  |  |  | 11,916 |  |  |  | 5,678 |  |  |  | 614,178 |  |  |  | 631,772 |
Real estate – mortgage, farmland |  |  | — |  |  |  | 75 |  |  |  | — |  |  |  | — |  |  |  | 75 |  |  |  | — |  |  |  | 6,524 |  |  |  | 6,599 |
Consumer |  |  | 880 |  |  |  | 200 |  |  |  | 28 |  |  |  | 495 |  |  |  | 1,603 |  |  |  | 359 |  |  |  | 45,461 |  |  |  | 47,423 |
Less: deferred loan fees, net of costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,640 | ) |  |  | (1,640 | )
Total Loans |  | $ | 14,663 |  |  | $ | 2,305 |  |  | $ | 8,260 |  |  | $ | 76,049 |  |  | $ | 101,277 |  |  | $ | 58,748 |  |  | $ | 2,251,034 |  |  | $ | 2,411,059 |
|  | 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.
|  | December 31, 2022 |
(Dollars in thousands) |  | 30-89 Days Past Due |  |  | Greater than 90 Days Past Due & Accruing |  |  | Current Loans |  |  | Total Loans |
Commercial and industrial |  | $ | — |  |  | $ | — |  |  | $ | 1,481 |  |  | $ | 1,481 |
Real estate – construction, commercial |  |  | — |  |  |  | — |  |  |  | 7 |  |  |  | 7 |
Real estate – mortgage, commercial |  |  | — |  |  |  | — |  |  |  | 51,223 |  |  |  | 51,223 |
Real estate – mortgage, residential |  |  | 354 |  |  |  | — |  |  |  | 5,324 |  |  |  | 5,678 |
Consumer |  |  | — |  |  |  | — |  |  |  | 359 |  |  |  | 359 |
Total PCI Loans |  | $ | 354 |  |  | $ | — |  |  | $ | 58,394 |  |  | $ | 58,748 |
|  | 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 the allowance for loan losses and the amount of loans evaluated for impairment, individually and collectively, by loan type as of the dates stated.
|  | December 31, 2022 (Restated) |
(Dollars in thousands) |  | Individually Evaluated for Impairment |  |  | Collectively Evaluated for Impairment |  |  | Total Loan Balances |  |  | Related Allowance for Loan Losses |
PCI loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | — |  |  | $ | 1,481 |  |  | $ | 1,481 |  |  | $ | — |
Real estate – construction, commercial |  |  | — |  |  |  | 7 |  |  |  | 7 |  |  |  | — |
Real estate – mortgage, commercial |  |  | — |  |  |  | 51,223 |  |  |  | 51,223 |  |  |  | 3 |
Real estate – mortgage, residential |  |  | — |  |  |  | 5,678 |  |  |  | 5,678 |  |  |  | — |
Consumer |  |  | — |  |  |  | 359 |  |  |  | 359 |  |  |  | — |
Total PCI loans |  |  | — |  |  |  | 58,748 |  |  |  | 58,748 |  |  |  | 3 |
Originated and purchased performing loans: |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 67,654 |  |  |  | 520,914 |  |  |  | 588,568 |  |  |  | 23,073 |
Real estate – construction, commercial |  |  | 521 |  |  |  | 182,773 |  |  |  | 183,294 |  |  |  | 1,637 |
Real estate – construction, residential |  |  | — |  |  |  | 76,599 |  |  |  | 76,599 |  |  |  | 628 |
Real estate – mortgage, commercial |  |  | 4,634 |  |  |  | 809,132 |  |  |  | 813,766 |  |  |  | 2,353 |
Real estate – mortgage, residential |  |  | 834 |  |  |  | 625,260 |  |  |  | 626,094 |  |  |  | 1,760 |
Real estate – mortgage, farmland |  |  | — |  |  |  | 6,599 |  |  |  | 6,599 |  |  |  | 4 |
Consumer |  |  | — |  |  |  | 47,064 |  |  |  | 47,064 |  |  |  | 1,282 |
Total originated and purchased performing loans |  |  | 73,643 |  |  |  | 2,268,341 |  |  |  | 2,341,984 |  |  |  | 30,737 |
Gross loans |  |  | 73,643 |  |  |  | 2,327,089 |  |  |  | 2,400,732 |  |  |  | 30,740 |
Less: deferred loan fees, net of costs |  |  | — |  |  |  | (1,640 | ) |  |  | (1,640 | ) |  |  | — |
Total |  | $ | 73,643 |  |  | $ | 2,325,449 |  |  | $ | 2,399,092 |  |  | $ | 30,740 |
|  | 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 PPP loans of $12.0 million and $30.7 million as of December 31, 2022 and 2021, respectively. PPP loans are fully guaranteed by the U.S. government; therefore, the Company recorded no allowance for loan losses 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 presented.
|  | December 31, 2022 (Restated) |  |  | 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 |  | $ | 1,268 |  |  | $ | 1,289 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Real estate – construction, commercial |  |  | 521 |  |  |  | 521 |  |  |  | — |  |  |  | 527 |  |  |  | 527 |  |  |  | — |
Real estate – mortgage, commercial |  |  | 4,508 |  |  |  | 4,504 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Real estate – mortgage, residential |  |  | 834 |  |  |  | 834 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
With an allowance recorded: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  | $ | 66,386 |  |  | $ | 66,386 |  |  | $ | 11,605 |  |  | $ | 4,612 |  |  | $ | 4,612 |  |  | $ | 836 |
Real estate – mortgage, commercial |  |  | 126 |  |  |  | 126 |  |  |  | 1 |  |  |  | 3,194 |  |  |  | 3,849 |  |  |  | 1 |
Real estate – mortgage, residential |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,400 |  |  |  | 1,400 |  |  |  | 42 |
Total |  | $ | 73,643 |  |  | $ | 73,660 |  |  | $ | 11,606 |  |  | $ | 9,733 |  |  | $ | 10,388 |  |  | $ | 879 |
The increase in impaired loans was primarily attributable to a portfolio specialty finance loans (classified as commercial and industrial loans), totaling $68.7 million as of December 31, 2022, and risk graded as substandard as of the same date. These loans were deemed impaired per Company policy and individually evaluated for impairment. These impairment analyses resulted in an increase of $11.4 million in the allowance for loan losses as of December 31, 2022, which is included in the table above. Impaired loans also include TDRs. As of December 31, 2022, there were 12 TDRs totaling $38.3 million as compared to eight TDRs totaling $688 thousand as of December 31, 2021. Included in the $38.3 million of TDRs as of December 31, 2022 was one $37.3 million specialty finance loan (classified as a commercial and industrial loan) that was modified via an extension of terms and placed on nonaccrual status in the fourth quarter of 2022. The following table presents an analysis of the change in the allowance for loans losses by loan type as of the dates and for the periods stated.
|  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
(Dollars in thousands) |  | (Restated) |  |  |  |  |  |  |
Allowance for loan losses, beginning of period |  | $ | 12,121 |  |  | $ | 13,827 |  |  | $ | 4,572 |
Charge-offs |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | (4,779 | ) |  |  | (1,098 | ) |  |  | (6 | )
Real estate – construction |  |  | (162 | ) |  |  | (195 | ) |  |  | — |
Real estate – mortgage |  |  | (1,824 | ) |  |  | (125 | ) |  |  | (505 | )
Consumer |  |  | (1,686 | ) |  |  | (1,123 | ) |  |  | (994 | )
Total charge-offs |  |  | (8,451 | ) |  |  | (2,541 | ) |  |  | (1,505 | )
Recoveries |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 442 |  |  |  | 196 |  |  |  | 41 |
Real estate – construction |  |  | 40 |  |  |  | — |  |  |  | — |
Real estate – mortgage |  |  | 409 |  |  |  | 98 |  |  |  | 8 |
Consumer |  |  | 492 |  |  |  | 424 |  |  |  | 261 |
Total recoveries |  |  | 1,383 |  |  |  | 718 |  |  |  | 310 |
Net charge-offs |  |  | (7,068 | ) |  |  | (1,823 | ) |  |  | (1,195 | )
Provision for loan losses |  |  | 25,687 |  |  |  | 117 |  |  |  | 10,450 |
Allowance for loan losses, end of period |  | $ | 30,740 |  |  | $ | 12,121 |  |  | $ | 13,827 |
The Company categorizes loans into risk categories based on relevant information about the expected 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 uses the following definitions for loan risk ratings and periodically evaluates the appropriateness of these ratings across its loan portfolio: Risk Grade 1 – Strong: This grade is reserved for loans to the strongest of borrowers. These loans are to individuals or corporations that are well known to the Bank and are always secured with an almost guaranteed source of repayment such as a lien on a bank deposit account. Character, credit history, and ability of individuals or company principals are excellent and unquestioned. Source of income and industry of borrower appears stable. High liquidity, minimum risk, good ratios, and low handling cost are present. Risk Grade 2 – Minimal: This grade is reserved for loans to borrowers who are deemed exceptionally strong. These loans are within guidelines and where the borrowers have documented significant overall financial strength. These loans have excellent sources of repayment, significant balance sheet liquidity, no significant identifiable risk of collection, and conform in all respects to policy, guidelines, underwriting standards, and federal and state regulations (no exceptions of any kind). Risk Grade 3 – Acceptable: This grade is reserved for loans to borrowers who are deemed strong. These loans have adequate sources of repayment, with little identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics: (1) conformity in all respects with policy, guidelines, underwriting standards, and federal and state regulations (no exceptions of any kind), (2) documented historical cash flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt. Risk Grade 4 – Satisfactory: This grade is given to satisfactory loans containing more risk than Risk Grade 3 loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics: (1) general conformity to the Bank's underwriting requirements, with limited exceptions to policy, product, or underwriting guidelines. All exceptions noted have documented mitigating factors that offset any additional risk associated with the exceptions noted, (2) documented historical cash flow that meets or exceeds required minimum guidelines, or that can be supplemented with verifiable cash flow from other sources, and (3) adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor. Risk Grade 5 – Watch: This grade is for satisfactory loans containing acceptable but elevated risk. These loans are characterized by borrowers who have a marginal cash flow, marginal profitability, or have experienced an unprofitable year and declining financial condition. The borrower's management may be deemed to be satisfactory, the collateral securing the loan may create a loan-to-value ratio in excess of 90%, the debt service coverage ratio and global debt service coverage are unstable but mostly positive, and/or guarantor support, if any, is inadequate. Loans classified as Watch warrant additional monitoring by management. Risk Grade 6 – Special Mention: This grade is for loans that have potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the Bank's credit position at some future date. Special Mention loans are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Special mention credits typically exhibit underwriting guideline tolerances and/or exceptions with no mitigating factors, or emerging weaknesses that may or may not be cured as time passes. Risk Grade 7 – Substandard: A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded further to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action. The weaknesses may include, but are not limited to: (1) high debt to worth ratios, (2) declining or negative earnings trends, (3) declining or inadequate liquidity, (4) improper loan structure, (5) questionable repayment sources, (6) lack of well-defined secondary repayment source, and (7) unfavorable competitive comparisons. Such loans are no longer considered to be adequately protected due to the borrower's declining net worth, lack of earnings capacity, declining collateral margins, and/or unperfected collateral positions. A possibility of loss of a portion of the loan balance cannot be ruled out. The repayment ability of the borrower is marginal or weak and the loan may have exhibited excessive overdue status or extensions and/or renewals. Risk Grade 8 – Doubtful: Loans classified doubtful have all the weaknesses inherent in loans classified substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the Bank's position, which can include, but not limited to (1) an injection of capital, (2) alternative financing, and (3) liquidation of assets or the pledging of additional collateral. Doubtful is a temporary grade where a loss is expected but is presently not quantified with any degree of accuracy. Once the loss position is determined, the amount is charged off against the allowance for loan losses. Risk Grade 9 – Loss: Loans classified loss are considered uncollectible and of such little value that their continuance as assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer charging off the worthless loan, even though partial recovery may be effected in the future. Probable loss portions of doubtful loans are charged off promptly against the allowance for loan losses. There were no loans classified as doubtful or loss as of December 31, 2022 and December 31, 2021. The following tables present the Company's loan portfolio (PCI and originated and purchased performing) by internal loan grades as of the dates stated. PPP loans are risk graded strong because they are fully guaranteed by the U.S. government.
|  | December 31, 2022 (Restated) |
(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 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,369 |  |  | $ | — |  |  | $ | 112 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,481 |
Real estate – construction, commercial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 7 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 7 |
Real estate – mortgage, commercial |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 22,778 |  |  |  | 26,059 |  |  |  | 1,700 |  |  |  | 686 |  |  |  | — |  |  |  | 51,223 |
Real estate – mortgage residential |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,453 |  |  |  | 1,985 |  |  |  | — |  |  |  | 2,240 |  |  |  | — |  |  |  | 5,678 |
Consumer |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 353 |  |  |  | — |  |  |  | 6 |  |  |  | — |  |  |  | 359 |
Total PCI loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 25,607 |  |  |  | 28,397 |  |  |  | 1,812 |  |  |  | 2,932 |  |  |  | — |  |  |  | 58,748 |
Originated and purchased performing loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commercial and industrial |  |  | 318 |  |  |  | 885 |  |  |  | 192,393 |  |  |  | 291,204 |  |  |  | 31,902 |  |  |  | 2,834 |  |  |  | 69,032 |  |  |  | — |  |  |  | 588,568 |
Paycheck Protection Program |  |  | 11,967 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,967 |
Real estate – construction, commercial |  |  | — |  |  |  | 361 |  |  |  | 14,223 |  |  |  | 156,027 |  |  |  | 8,504 |  |  |  | 3,365 |  |  |  | 814 |  |  |  | — |  |  |  | 183,294 |
Real estate – construction, residential |  |  | — |  |  |  | — |  |  |  | 3,110 |  |  |  | 72,327 |  |  |  | 1,162 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 76,599 |
Real estate – mortgage, commercial |  |  | — |  |  |  | 2,330 |  |  |  | 187,648 |  |  |  | 561,554 |  |  |  | 54,352 |  |  |  | 2,048 |  |  |  | 5,834 |  |  |  | — |  |  |  | 813,766 |
Real estate – mortgage residential |  |  | — |  |  |  | 7,311 |  |  |  | 233,697 |  |  |  | 365,511 |  |  |  | 11,858 |  |  |  | — |  |  |  | 7,717 |  |  |  | — |  |  |  | 626,094 |
Real estate – mortgage, farmland |  |  | 549 |  |  |  | — |  |  |  | 1,315 |  |  |  | 4,609 |  |  |  | 126 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 6,599 |
Consumer |  |  | 197 |  |  |  | — |  |  |  | 21,330 |  |  |  | 24,731 |  |  |  | 256 |  |  |  | — |  |  |  | 550 |  |  |  | — |  |  |  | 47,064 |
Total originated and purchased performing loans: |  |  | 13,031 |  |  |  | 10,887 |  |  |  | 653,716 |  |  |  | 1,475,963 |  |  |  | 108,160 |  |  |  | 8,247 |  |  |  | 83,947 |  |  |  | — |  |  |  | 2,353,951 |
Gross loans |  | $ | 13,031 |  |  | $ | 10,887 |  |  | $ | 653,716 |  |  | $ | 1,501,570 |  |  | $ | 136,557 |  |  | $ | 10,059 |  |  | $ | 86,879 |  |  | $ | — |  |  | $ | 2,412,699 |
Less: deferred loan fees, net of costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1,640 | )
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 2,411,059 |
|  | 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 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 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 |  |  | 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 |

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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 -Topic 310 -SubTopic 10 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//310-10/tableOfContent + Details
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