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Loans
12 Months Ended
Dec. 31, 2022
Loans and Leases Receivable Disclosure [Abstract]  
Loans

Note 4 – Loans

The composition of the loan portfolio by major loan classification appears below. Note that all loan balances are presented net of credit and other fair value discounts, when applicable.

 

(Dollars in thousands)

 

December 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Commercial

 

$

71,139

 

 

$

96,696

 

Real estate construction and land

 

 

37,541

 

 

 

79,331

 

1-4 family residential mortgages

 

 

323,185

 

 

 

358,148

 

Commercial mortgages

 

 

459,125

 

 

 

473,632

 

Consumer

 

 

45,425

 

 

 

53,404

 

Total loans

 

$

936,415

 

 

$

1,061,211

 

Less: Allowance for loan losses

 

 

(5,552

)

 

 

(5,984

)

Net loans

 

$

930,863

 

 

$

1,055,227

 

 

 

 

 

 

 

 

 

The balances in the table above include unamortized premiums and net deferred loan costs and fees. Unamortized premiums on loans purchased were $1.4 million and $1.1 million as of December 31, 2022 and December 31, 2021, respectively. Net deferred loan fees totaled $755 thousand and $865 thousand as of December 31, 2022 and December 31, 2021, respectively.

Commercial loans reported above include (i) organic loans originated by the Bank’s commercial lenders, (ii) PPP loans through the SBA as discussed above, (iii) the government guaranteed portion of loans which the Company purchased that are 100% guaranteed by either the United States Department of Agriculture (USDA) or the SBA; and (iv) syndicated loans, also referred to as shared national credits, purchased from national lending correspondents. The government guaranteed loans and the shared national credits are typically purchased at a premium. In the event of early prepayment, the Bank may need to write off any unamortized premium.

Real estate construction and land loans consist primarily of loans for the purchase or refinance of unimproved lots or raw land. Additionally, the Company finances the construction of real estate projects typically where the permanent mortgage will remain with the Company.

1-4 family residential mortgages include consumer purpose 1-4 family residential properties and home equity loans, as well as investor-owned residential real estate. The Company typically originates residential mortgages with the intention of retaining in its portfolio adjustable-rate mortgages and shorter-term, fixed-rate loans. Currently, the Company only originates investor-owned residential mortgage loans.

In addition, residential mortgages includes packages of 1-4 family residential mortgages that have been purchased, with each purchased loan individually underwritten by the Company prior to the closing of the sale. The balance in these purchased loan packages totaled approximately $8.3 million and $10.6 million as of December 31, 2022 and December 31, 2021, respectively.

Commercial mortgages are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts, and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan.

Consumer loans are generally small loans spread across many borrowers and are underwritten after determining the ability of the consumer borrower to repay their obligations as agreed. Consumer loans may be secured or unsecured and are comprised of revolving lines, installment loans and other consumer loans. Included in consumer loans are private student loan packages that were purchased beginning in 2015. As of December 31, 2022, the balance in these purchased student loan packages totaled approximately $25.2 million compared to $30.7 million at December 31, 2021. Deposit account overdrafts are included in the consumer loan balances and totaled $180 thousand and $205 thousand at December 31, 2022 and December 31, 2021, respectively.

Acquired Loans. Loans acquired in business combinations are recorded in the Consolidated Balance Sheets at fair value at the acquisition date under the acquisition method of accounting. The table above includes a net fair value mark of $11.2 million and $12.2 million on the purchased impaired loans and $4.7 million and $6.2 million on the purchased performing loans as of December 31, 2022 and December 31, 2021, respectively, on the Acquired Loans. See Note 2 – Business Combinations for more information on fair value of loan balances acquired in the Merger.

 

 

The outstanding principal balance and the carrying amount at December 31, 2022 and 2021 on these Acquired Loans were as follows:

 

(Dollars in thousands)

 

December 31, 2022

 

 

 

Acquired Loans -
Purchased
Credit Impaired

 

 

Acquired Loans - Purchased Performing

 

 

Acquired
Loans -
Total

 

Outstanding principal balance

 

$

43,250

 

 

$

290,604

 

 

$

333,854

 

Carrying amount:

 

 

 

 

 

 

 

 

 

Commercial

 

$

630

 

 

$

12,606

 

 

$

13,236

 

Real estate construction and land

 

 

1,461

 

 

 

8,530

 

 

 

9,991

 

1-4 family residential mortgages

 

 

9,076

 

 

 

164,280

 

 

 

173,356

 

Commercial mortgages

 

 

20,828

 

 

 

99,206

 

 

 

120,034

 

Consumer

 

 

72

 

 

 

1,277

 

 

 

1,349

 

Total acquired loans

 

$

32,067

 

 

$

285,899

 

 

$

317,966

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Dollars in thousands)

 

December 31, 2021

 

 

 

Acquired Loans -
Purchased
Credit Impaired

 

 

Acquired Loans - Purchased Performing

 

 

Acquired
Loans -
Total

 

Outstanding principal balance

 

$

76,608

 

 

$

372,172

 

 

$

448,780

 

Carrying amount:

 

 

 

 

 

 

 

 

 

Commercial

 

$

994

 

 

$

28,065

 

 

$

29,059

 

Real estate construction and land

 

 

18,576

 

 

 

14,297

 

 

 

32,873

 

1-4 family residential mortgages

 

 

16,020

 

 

 

194,708

 

 

 

210,728

 

Commercial mortgages

 

 

28,675

 

 

 

126,638

 

 

 

155,313

 

Consumer

 

 

118

 

 

 

2,224

 

 

 

2,342

 

Total acquired loans

 

$

64,383

 

 

$

365,932

 

 

$

430,315

 

 

The following table presents a summary of the changes in the accretable yield of loans classified as purchased credit impaired:

 

(Dollars in thousands)

 

Twelve Months Ended

 

 

 

December 31,
2022

 

Accretable yield, beginning of period

 

$

13,742

 

Additions

 

 

 

Accretion

 

 

(3,393

)

Reclassification from nonaccretable difference

 

 

9,022

 

Other changes, net

 

 

(3,503

)

Accretable yield, end of period

 

$

15,868

 

 

Loan origination/risk management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and the Board of Directors approves lending policies on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies, and nonperforming and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Independent loan review on a portion of the loan portfolio is performed by an independent loan review firm that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management and the Audit and Compliance Committee of the Board. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Concentrations of credit. Most of the Company’s lending activity occurs within the Commonwealth of Virginia, predominantly in the Company’s primary markets and surrounding areas. The majority of the Company’s loan portfolio consists of commercial real estate loans. The Company manages this risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations to any one business or industry.

Related party loans. In the ordinary course of business, the Company has granted loans to certain directors, principal officers and their affiliates (collectively referred to as “related party loans”). Activity in related party loans during 2022 and 2021 is presented in the following table.

 

(Dollars in thousands)

 

2022

 

 

2021

 

Balance outstanding at beginning of year

 

$

16,592

 

 

$

19,070

 

Principal additions

 

 

613

 

 

 

4,527

 

Principal reductions

 

 

(1,672

)

 

 

(7,005

)

Balance outstanding at end of year

 

$

15,533

 

 

$

16,592

 

 

Past due, non-accrual and charged-off loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, the Company considers the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to the Company’s collateral position. Regulatory provisions generally require a loan to be placed on non-accrual status if (i) principal or interest has been in default for a period of 90 days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest is not expected. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on non-accrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan may be returned to accrual status when all the principal and interest amounts contractually due are brought current and future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at least six months) of repayment performance by the borrower.

Loans are charged off when 120 days past due. Smaller, unsecured consumer loans, including the student loan portfolio, are typically charged-off when management judges such loans to be uncollectible or the borrowers file for bankruptcy; these loans are generally not placed in non-accrual status prior to charge-off. The Company has contracted with a third party to proactively manage the collections of past due student loans; this third party has extensive experience and specializes in this type of asset management.

Non-accrual loans are shown below by class:

 

(Dollars in thousands)

 

December 31, 2022

 

 

December 31, 2021

 

1-4 family residential mortgages

 

$

673

 

 

$

495

 

Total nonaccrual loans

 

$

673

 

 

$

495

 

 

The following tables show the aging of past due loans as of December 31, 2022 and December 31, 2021.

 

Past Due Aging as of
December 31, 2022

 

30-59
Days
Past
Due

 

 

60-89
Days
Past
Due

 

 

90 Days
or More
Past
Due

 

 

Total
Past
Due

 

 

PCI

 

 

Current

 

 

Total
Loans

 

 

90 Days
Past
Due and
Accruing

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

-

 

 

$

24

 

 

$

-

 

 

$

24

 

 

$

630

 

 

$

70,485

 

 

$

71,139

 

 

$

-

 

Real estate construction and land

 

 

287

 

 

 

-

 

 

 

75

 

 

 

362

 

 

 

1,461

 

 

 

35,718

 

 

 

37,541

 

 

 

-

 

1-4 family residential mortgages

 

 

1,176

 

 

 

191

 

 

 

598

 

 

 

1,965

 

 

 

9,076

 

 

 

312,144

 

 

 

323,185

 

 

 

-

 

Commercial mortgages

 

 

330

 

 

 

-

 

 

 

646

 

 

 

976

 

 

 

20,828

 

 

 

437,321

 

 

 

459,125

 

 

 

646

 

Consumer loans

 

 

315

 

 

 

41

 

 

 

59

 

 

 

415

 

 

 

72

 

 

 

44,938

 

 

 

45,425

 

 

 

59

 

Total Loans

 

$

2,108

 

 

$

256

 

 

$

1,378

 

 

$

3,742

 

 

$

32,067

 

 

$

900,606

 

 

$

936,415

 

 

$

705

 

 

Past Due Aging as of
December 31, 2021

 

30-59
Days
Past
Due

 

 

60-89
Days
Past
Due

 

 

90 Days
or More
Past
Due

 

 

Total
Past
Due

 

 

PCI

 

 

Current

 

 

Total
Loans

 

 

90 Days
Past
Due and
Accruing

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

385

 

 

$

355

 

 

$

718

 

 

$

1,458

 

 

$

994

 

 

$

94,244

 

 

$

96,696

 

 

$

718

 

Real estate construction and land

 

 

873

 

 

 

1,283

 

 

 

-

 

 

 

2,156

 

 

 

18,576

 

 

 

58,599

 

 

 

79,331

 

 

 

-

 

1-4 family residential mortgages

 

 

1,508

 

 

 

100

 

 

 

495

 

 

 

2,103

 

 

 

16,020

 

 

 

340,025

 

 

 

358,148

 

 

 

-

 

Commercial mortgages

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

28,675

 

 

 

444,957

 

 

 

473,632

 

 

 

-

 

Consumer loans

 

 

345

 

 

 

196

 

 

 

83

 

 

 

624

 

 

 

118

 

 

 

52,662

 

 

 

53,404

 

 

 

83

 

Total Loans

 

$

3,111

 

 

$

1,934

 

 

$

1,296

 

 

$

6,341

 

 

$

64,383

 

 

$

990,487

 

 

$

1,061,211

 

 

$

801

 

 

Impaired loans. Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts when due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated on an individual loan basis. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net of the impairment, using either the present value of estimated future cash flows at the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.

Regulatory guidelines require the Company to re-evaluate the fair value of collateral supporting impaired collateral dependent loans on at least an annual basis.

The following tables provide a breakdown by class of the loans classified as impaired loans as of December 31, 2022 and December 31, 2021. These loans are reported at their recorded investment, which is the carrying amount of the loan as reflected on the Company’s balance sheet, net of charge-offs and other amounts applied to reduce the net book balance. Average recorded investment in impaired loans is computed using an average of month-end balances for these loans for the twelve months ended December 31, 2022 and December 31, 2021. Interest income recognized is for the years ended December 31, 2022 and December 31, 2021.

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

Recorded
Investment

 

 

Unpaid
Principal
Balance

 

 

Associated
Allowance

 

 

Average
Recorded
Investment

 

 

Interest
Income
Recognized

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

$

583

 

 

$

615

 

 

$

-

 

 

$

625

 

 

$

32

 

Total impaired loans without a valuation allowance

 

 

583

 

 

 

615

 

 

 

-

 

 

 

625

 

 

 

32

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

700

 

 

 

700

 

 

 

23

 

 

 

784

 

 

 

49

 

Total impaired loans with a valuation allowance

 

 

700

 

 

 

700

 

 

 

23

 

 

 

784

 

 

 

49

 

Total impaired loans

 

$

1,283

 

 

$

1,315

 

 

$

23

 

 

$

1,409

 

 

$

81

 

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans without a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate construction and land

 

$

-

 

 

$

37

 

 

$

-

 

 

$

2

 

 

$

-

 

1-4 family residential mortgages

 

 

594

 

 

 

600

 

 

 

-

 

 

 

269

 

 

 

24

 

Total impaired loans without a valuation allowance

 

 

594

 

 

 

637

 

 

 

-

 

 

 

271

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impaired loans with a valuation allowance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer

 

 

935

 

 

 

935

 

 

 

6

 

 

 

974

 

 

 

54

 

Total impaired loans with a valuation allowance

 

 

935

 

 

 

935

 

 

 

6

 

 

 

974

 

 

 

54

 

Total impaired loans

 

$

1,529

 

 

$

1,572

 

 

$

6

 

 

$

1,245

 

 

$

78

 

 

Troubled debt restructurings are also considered impaired loans. TDRs occur when the Bank agrees to modify the original terms of a loan by granting a concession that it would not otherwise consider due to the deterioration in the financial condition of the borrower. These concessions are done in an attempt to improve the paying capacity of the borrower, and in some cases to avoid foreclosure, and are made with the intent to restore the loan to a performing status once sufficient payment history can be demonstrated. These concessions could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions.

Based on regulatory guidance on Student Lending, the Company classified 46 of its student loans purchased as TDRs for a total of $700 thousand as of December 31, 2022. The Company classified 58 of its student loans purchased as TDRs for a total of $935 thousand as of December 31, 2021. These borrowers, who should have been in repayment, requested and were granted payment extensions exceeding the maximum lifetime allowable payment forbearance of twelve months (36 months lifetime allowance for military service), as permitted under the regulatory guidance, and are therefore considered restructurings. Student loan borrowers are allowed in-school deferments, plus an automatic six month grace period post in-school status, before repayment is scheduled to begin, and these deferments do not count toward the maximum allowable forbearance. Initially, all student loans were fully insured by a surety bond, and the Company did not expect to experience a loss on these loans. Based on the termination of the surety bond on July 27, 2018 due to the insolvency of the insurer, management has evaluated these loans individually for impairment and included any potential loss in the allowance for loan losses; interest continues to accrue on these TDRs during any deferment and forbearance periods.

The following provides a summary, by class, of modified loans that continue to accrue interest under the terms of the restructuring agreement, which are considered to be performing, and modified loans that have been placed in non-accrual status, which are considered to be nonperforming.

 

Troubled debt restructurings

 

December 31, 2022

 

 

December 31, 2021

 

(Dollars in thousands)

 

No. of
Loans

 

 

Recorded
Investment

 

 

No. of
Loans

 

 

Recorded
Investment

 

Performing TDRs

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

1

 

 

$

88

 

 

 

1

 

 

$

99

 

Consumer

 

 

46

 

 

 

700

 

 

 

58

 

 

 

935

 

Total performing TDRs

 

 

47

 

 

$

788

 

 

 

59

 

 

$

1,034

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming TDRs

 

 

 

 

 

 

 

 

 

 

 

 

1-4 family residential mortgages

 

 

1

 

 

$

495

 

 

 

1

 

 

$

495

 

Total nonperforming TDRs

 

 

1

 

 

$

495

 

 

 

1

 

 

$

495

 

    Total TDRs

 

 

48

 

 

$

1,283

 

 

 

60

 

 

$

1,529

 

 

A summary of loans shown above that were modified as TDRs during the years ended December 31, 2022 and December 31, 2021 is shown below by class. Loans modified as TDRs that were fully paid down, charged-off, or foreclosed upon by period end are not reported. The Post-Modification Recorded Balance reflects any interest or fees from the original loan which may have been added to the principal balance on the new note as a condition of the TDR. Additionally, the Post-Modification Recorded Balance is reported below at the period end balances, inclusive of all partial principal pay downs and principal charge-offs since the modification date.

 

 

 

During year ended

 

 

During year ended

 

(Dollars in thousands)

 

December 31, 2022

 

 

December 31, 2021

 

 

 

Number
of Loans

 

 

Pre-
Modification
Recorded
Balance

 

 

Post-
Modification
Recorded
Balance

 

 

Number
of Loans

 

 

Pre-
Modification
Recorded
Balance

 

 

Post-
Modification
Recorded
Balance

 

Consumer loans

 

 

-

 

 

$

 

 

$

 

 

 

12

 

 

$

145

 

 

$

145

 

Total loans modified during the period

 

 

-

 

 

$

 

 

$

 

 

 

12

 

 

$

145

 

 

$

145

 

 

 

During the year ended December 31, 2022, there no loans modified as TDRs that subsequently defaulted which had been modified as TDRs during the twelve months prior to default. There were five loans modified as a TDR that subsequently defaulted during the year ended December 31, 2021 and were modified as a TDR during the twelve months prior to default. These student loans had balances of $56 thousand prior to being charged off.

There were no loans secured by 1-4 family residential property that were in the process of foreclosure at either December 31, 2022 or December 31, 2021.