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Loans
12 Months Ended
Dec. 31, 2023
Loans and Leases Receivable Disclosure [Abstract]  
Loans

Note 4 – Loans

On January 1, 2023, the Company adopted ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable. For further information and discussion regarding the Company's adoption of ASC and CECL, see Note 2 - Adoption of New Accounting Standards. All loan information presented as of December 31, 2023 is in accordance with ASC 326. All loan information presented as of December 31, 2022 or a prior date is presented in accordance with previously applicable GAAP.

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. The Company has elected to exclude accrued interest receivable, totaling $4.3 million and $2.6 million as of December 31, 2023 and December 31, 2022, respectively, from the amortized cost basis of loans.

 

(Dollars in thousands)

 

December 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Commercial

 

$

152,517

 

 

$

71,139

 

Real estate construction and land

 

 

33,682

 

 

 

37,541

 

1-4 family residential mortgages

 

 

317,558

 

 

 

323,185

 

Commercial mortgages

 

 

550,867

 

 

 

459,125

 

Consumer

 

 

38,041

 

 

 

45,425

 

Total loans

 

$

1,092,665

 

 

$

936,415

 

Less: Allowance for credit losses

 

 

(8,395

)

 

 

(5,552

)

Net loans

 

$

1,084,270

 

 

$

930,863

 

 

 

 

 

 

 

 

 

The balances in the table above include unamortized premiums and net deferred loan costs and fees. Unamortized premiums on loans purchased (excluding loans acquired during the Merger) were $4.6 million and $1.4 million as of December 31, 2023 and December 31, 2022, respectively, increasing primarily due to the purchase of government-guaranteed loans in 2023. Net deferred loan fees totaled $2.5 million and $755 thousand as of December 31, 2023 and December 31, 2022, respectively.

Commercial loans reported above include (i) organic loans originated by the Bank’s commercial lenders, (ii) 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 (iii) PPP loans through the SBA. The government guaranteed loans 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 $7.8 million and $8.3 million as of December 31, 2023 and December 31, 2022, 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, 2023, the balance in these purchased student loan packages totaled approximately $20.1 million compared to $25.2 million at December 31, 2022. Deposit account overdrafts are included in the consumer loan balances and totaled $252 thousand and $180 thousand at December 31, 2023 and December 31, 2022, 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 $6.2 million and $11.2 million on the purchased impaired loans and $3.2 million and $4.7 million on the purchased performing loans as of December 31, 2023 and December 31, 2022, respectively, on the Acquired Loans.

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 2023 and 2022 is presented in the following table.

 

(Dollars in thousands)

 

2023

 

 

2022

 

Balance outstanding at beginning of year

 

$

15,533

 

 

$

16,592

 

Principal additions

 

 

132

 

 

 

613

 

Principal reductions

 

 

(2,650

)

 

 

(1,672

)

Balance outstanding at end of year

 

$

13,015

 

 

$

15,533

 

 

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.

The following table shows the aging of the Company's loan portfolio, by class, at December 31, 2023:

 

 

30-59
Days

 

 

60-89
Days

 

 

90 Days
or More
Past
Due and Still Accruing

 

 

Nonaccrual Loans

 

 

Current

 

 

Total
Loans

 

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

$

378

 

 

$

369

 

 

$

782

 

 

$

-

 

 

$

150,988

 

 

$

152,517

 

Real estate construction and land

 

 

70

 

 

 

37

 

 

 

-

 

 

 

-

 

 

 

33,575

 

 

 

33,682

 

1-4 family residential mortgages

 

 

1,834

 

 

 

860

 

 

 

-

 

 

 

1,438

 

 

 

313,426

 

 

 

317,558

 

Commercial mortgages

 

 

6,304

 

 

 

-

 

 

 

-

 

 

 

414

 

 

 

544,149

 

 

 

550,867

 

Consumer loans

 

 

225

 

 

 

141

 

 

 

97

 

 

 

-

 

 

 

37,578

 

 

 

38,041

 

Total Loans

 

$

8,811

 

 

$

1,407

 

 

$

879

 

 

$

1,852

 

 

$

1,079,716

 

 

$

1,092,665

 

 

 

The following table shows the Company's amortized cost basis of loans on nonaccrual status as of December 31, 2023 and December 31, 2022. All nonaccrual loans are evaluated for an ACL on an individual basis. Only one nonaccrual loan required an ACL, in the amount of $4 thousand, due to collateral value shortfall. The adoption of CECL altered the manner in which purchased loans that were in nonaccrual status are presented, and as a result, two such loans totaling $470 thousand are included in this figure in 2023 and not included in 2022.

 

 

 

CECL

 

 

Incurred Loss

 

 

 

December 31, 2023

 

 

December 31, 2022

 

(Dollars in thousands)

 

Nonaccrual Loans with No Allowance

 

 

Nonaccrual Loans with an Allowance

 

 

Total Nonaccrual Loans

 

 

Nonaccrual Loans

 

Commercial

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

Real estate construction and land

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

1-4 family residential mortgages

 

 

1,383

 

 

 

55

 

 

 

1,438

 

 

 

673

 

Commercial mortgages

 

 

414

 

 

 

-

 

 

 

414

 

 

 

-

 

Consumer

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total Loans

 

$

1,797

 

 

$

55

 

 

$

1,852

 

 

$

673

 

 

From time-to-time, the Company modifies loans to borrowers who are experiencing financial difficulties by providing term extensions, interest rate reductions or other-than-insignificant payment delays. As the effect of most modifications is already included in the ACL due to the measurement methodologies used in its estimate, the ACL is typically not adjusted upon modification. During the twelve months ended December 31, 2023, no loans were modified for borrowers experiencing financial difficulties.

The Company closely monitors the performance of all modified loans to understand the effectiveness of its modification efforts. Upon determination, if applicable, that all or a portion of a modified loan is uncollectible, that amount is charged against the ACL. There were no payment defaults during the twelve months ended December 31, 2023 of modified loans that were modified during the previous twelve months and all are current as of December 31, 2023.

There were no loans secured by 1-4 family residential property that were in the process of foreclosure at either December 31, 2023 or December 31, 2022.

The outstanding principal balance of loans acquired in business combinations as of December 31, 2023 are as follows:

(Dollars in thousands)

 

December 31, 2023

 

 

 

Acquired Loans -
Purchased
Credit Deteriorated

 

 

Acquired Loans - Purchased Performing

 

 

Acquired
Loans -
Total

 

Outstanding principal balance

 

$

29,206

 

 

$

267,717

 

 

$

296,923

 

Carrying amount:

 

 

 

 

 

 

 

 

 

Commercial

 

$

62

 

 

$

9,242

 

 

$

9,304

 

Real estate construction and land

 

 

662

 

 

 

1,727

 

 

 

2,389

 

1-4 family residential mortgages

 

 

10,046

 

 

 

143,323

 

 

 

153,369

 

Commercial mortgages

 

 

12,251

 

 

 

109,500

 

 

 

121,751

 

Consumer

 

 

33

 

 

 

678

 

 

 

711

 

Total acquired loans

 

$

23,054

 

 

$

264,470

 

 

$

287,524

 

 

Prior to the adoption of ASC 326

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 outstanding principal balance and the carrying amount at December 31, 2022 of loans acquired in business combinations 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

 

 

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

 

 

 

The following tables show the aging of past due loans as of December 31, 2022:

 

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

 

 

 

The following table provides a summary, by class, of TDRs as of December 31, 2022 that continued to accrue interest under the terms of the restructuring agreement, which were considered to be performing, and TDRs that were placed in nonaccrual status which were considered to be nonperforming:

 

Troubled debt restructurings

 

December 31, 2022

 

(Dollars in thousands)

 

No. of
Loans

 

 

Recorded
Investment

 

Performing TDRs

 

 

 

 

 

 

1-4 family residential mortgages

 

 

1

 

 

$

88

 

Consumer

 

 

46

 

 

 

700

 

Total performing TDRs

 

 

47

 

 

$

788

 

 

 

 

 

 

 

Nonperforming TDRs

 

 

 

 

 

 

1-4 family residential mortgages

 

 

1

 

 

$

495

 

Total nonperforming TDRs

 

 

1

 

 

$

495

 

    Total TDRs

 

 

48

 

 

$

1,283