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LOANS AND ALLOWANCE FOR CREDIT LOSSES
9 Months Ended
Sep. 30, 2022
LOANS AND ALLOWANCE [Abstract]  
LOANS AND ALLOWANCE

4.     LOANS AND ALLOWANCE FOR CREDIT LOSSES

The following table summarizes the composition of our loan portfolio as of September 30, 2022 and December 31, 2021 (in thousands):

    

September 30, 2022

    

December 31, 2021

Loans held for sale

$

13,388

$

Loans held for investment

Loans secured by real estate:

 

  

Commercial real estate - owner occupied

$

436,354

$

387,703

Commercial real estate - non-owner occupied

 

572,279

 

588,000

Secured by farmland

 

7,514

 

8,612

Construction and land development

 

138,297

 

121,444

Residential 1-4 family

 

615,529

 

547,560

Multi-family residential

 

137,253

 

164,071

Home equity lines of credit

 

65,852

 

73,846

Total real estate loans

 

1,973,078

 

1,891,236

Commercial loans

 

469,618

 

301,980

Paycheck Protection Program loans

8,014

77,319

Consumer loans

 

279,678

 

60,996

Total Non-PCD loans

 

2,730,388

 

2,331,531

PCD loans

6,698

8,455

Total loans

$

2,737,086

$

2,339,986

The accounting policy related to the allowance for credit losses is considered a critical policy given the level of estimation, judgment, and uncertainty in the levels of the allowance required to account for the expected losses in the loan portfolio and the material effect such estimation, judgment, and uncertainty can have on the consolidated financial results.

Accrued Interest Receivable

Accrued interest receivable on loans totaled $9.1 million and $10.8 million at September 30, 2022 and December 31, 2021, respectively, and is included in other assets in the consolidated balance sheets.

Nonaccrual and Past Due 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 nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether or not a borrower may be unable to meet payment obligations for each class of loans, we consider the borrower’s debt service capacity through the analysis of current financial information, if available, and/or current information with regards to our collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual 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 nonaccrual 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 nonaccrual 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 nine months) of repayment performance by the borrower.

The following tables present the aging of the recorded investment in past due loans by class of loans held for investment as of September 30, 2022 and December 31, 2021 (in thousands):

    

30 - 59

    

60 - 89

    

90 

    

    

    

Days

Days

Days 

Total

Loans Not

Total

September 30, 2022

Past Due

Past Due

or More

Past Due

Past Due

Loans

Commercial real estate - owner occupied

$

116

$

$

$

116

$

436,238

$

436,354

Commercial real estate - non-owner occupied

 

24

 

3,255

 

21,413

 

24,692

 

547,587

 

572,279

Secured by farmland

625

625

6,889

7,514

Construction and land development

 

30

30

138,267

 

138,297

Residential 1-4 family

 

770

386

120

1,276

614,253

 

615,529

Multi- family residential

137,253

137,253

Home equity lines of credit

 

360

98

 

195

653

65,199

 

65,852

Commercial loans

5

2,956

2,961

466,657

469,618

Paycheck Protection Program loans

2,289

1,263

1,855

5,407

2,607

8,014

Consumer loans

 

1,073

616

 

272

 

1,961

 

277,717

 

279,678

Total Non-PCD loans

4,662

5,623

27,436

37,721

2,692,667

2,730,388

PCD loans

1,328

1,328

5,370

6,698

Total

$

4,662

$

5,623

$

28,764

$

39,049

$

2,698,037

$

2,737,086

    

30 - 59

    

60 - 89

    

90 

    

    

    

    

Days

Days

Days 

Total

Loans Not

Total

December 31, 2021

Past Due

Past Due

or More

Past Due

Past Due

Loans

Commercial real estate - owner occupied

$

194

$

346

$

$

540

$

387,163

$

387,703

Commercial real estate - non-owner occupied

 

 

 

 

 

588,000

 

588,000

Secured by farmland

791

791

7,821

8,612

Construction and land development

 

204

131

 

4,575

 

4,910

 

116,534

 

121,444

Residential 1-4 family

 

9,384

254

 

137

 

9,775

 

537,785

 

547,560

Multi- family residential

164,071

164,071

Home equity lines of credit

 

331

 

171

 

502

 

73,344

 

73,846

Commercial loans

387

1,246

1,633

300,347

301,980

Paycheck Protection Program loans

4,954

8,559

283

13,796

63,523

77,319

Consumer loans

 

193

130

 

2

 

325

 

60,671

 

60,996

Total Non-PCD loans

16,438

9,420

6,414

32,272

2,299,259

2,331,531

PCD loans

1,717

1,717

6,738

8,455

Total

$

18,155

$

9,420

$

6,414

$

33,989

$

2,305,997

$

2,339,986

The amortized cost, by class, of loans and leases on nonaccrual status at September 30, 2022 and December 31, 2021, were as follows (in thousands):

    

90 

    

Less Than

    

Total

    

Nonaccrual With

Days 

90 Days

Nonaccrual

No Credit

September 30, 2022

or More

Past Due

Loans (1)

Loss Allowance (2)

Commercial real estate - owner occupied

$

$

458

$

458

$

455

Commercial real estate - non-owner occupied

 

21,413

 

 

21,413

 

21,501

Secured by farmland

625

204

829

798

Construction and land development

 

 

30

 

30

 

30

Residential 1-4 family

 

120

 

8,786

 

8,906

 

8,792

Home equity lines of credit

195

308

503

519

Commercial loans

 

2,956

 

155

 

3,111

 

150

Consumer loans

 

272

 

1

 

273

 

270

Total Non-PCD loans

25,581

9,942

35,523

32,515

PCD loans

1,328

1,328

1,297

Total

$

26,909

$

9,942

$

36,851

$

33,812

    

90 

    

Less Than

    

Total

    

Nonaccrual With

Days 

90 Days

Nonaccrual

No Credit

December 31, 2021

or More

Past Due

Loans (1)

Loss Allowance (2)

Commercial real estate - owner occupied

$

$

842

$

842

$

842

Secured by farmland

836

836

836

Construction and land development

 

4,575

 

34

 

4,609

 

4,609

Residential 1-4 family

 

137

 

411

 

548

 

548

Multi- family residential

4,301

4,301

4,301

Home equity lines of credit

171

253

424

424

Commercial loans

 

1,246

 

476

 

1,722

 

745

Consumer loans

 

2

 

16

 

18

 

10

Total Non-PCD loans

6,131

7,169

13,300

12,315

PCD loans

1,729

1,729

Total

$

6,131

$

8,898

$

15,029

$

12,315

(1)Nonaccrual loans include SBA guaranteed amounts totaling $0.7 million and $1.1 million at September 30, 2022 and December 31, 2021, respectively.
(2)Nonaccrual loans with no credit loss allowance include SBA guaranteed amounts totaling $0.7 million and $1.1 million at September 30, 2022 and December 31, 2021, respectively.

There were $1.9 million and $0.3 million of Paycheck Protection Program (“PPP”) loans greater than 90 days past due and still accruing at September 30, 2022 and December 31, 2021, respectively.

The following table presents nonaccrual loans as of September 30, 2022 by class and year of origination (in thousands):

Revolving

Loans

Revolving

Converted

2022

2021

2020

2019

 

2018

Prior

Loans

To Term

 

Total

Commercial real estate - owner occupied

$

$

$

$

$

$

458

$

$

$

458

Commercial real estate - non-owner occupied

 

 

 

 

 

14,113

 

7,300

 

 

 

21,413

Secured by farmland

16

813

829

Construction and land development

 

 

 

 

 

 

30

 

 

 

30

Residential 1-4 family

 

8,234

416

256

8,906

Multi- family residential

Home equity lines of credit

481

22

503

Commercial loans

 

 

 

6

 

 

 

1,515

 

1,590

 

 

3,111

Paycheck Protection Program loans

 

 

 

 

 

 

 

 

 

Consumer loans

 

272

1

273

Total non-PCD nonaccruals

272

6

8,250

14,113

10,533

2,071

278

35,523

PCD loans

1,328

1,328

Total nonaccrual loans

$

$

272

$

6

$

8,250

$

14,113

$

11,861

$

2,071

$

278

$

36,851

Interest received on nonaccrual loans was $0.6 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively, and $0.9 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively.

Troubled Debt Restructurings

A modification is classified as a TDR if both of the following exist: (1) the borrower is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. The Bank determines that a borrower may be experiencing financial difficulty if the borrower is currently delinquent on any of its debt, or if the Bank is concerned that the borrower may not be able to perform in accordance with the current terms of the loan agreement in the foreseeable future. Many aspects of the borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty, particularly as it relates to commercial borrowers due to the complex nature of the loan structure, business/industry risk and borrower/guarantor structures. Concessions may include the reduction of an interest rate at a rate lower than current market rates for a new loan with similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. When evaluating whether a concession has been granted, the Bank also considers whether the borrower has provided additional collateral or guarantors and whether such additions adequately compensate the Bank for the restructured terms, or if the revised terms are consistent with those currently being offered to new loan customers. The assessments of whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been granted is subjective in nature and management’s judgment is required when determining whether a modification is a TDR.

Although each occurrence is unique to the borrower and is evaluated separately, for all portfolio segments, TDRs are typically modified through reduction in interest rates, reductions in payments, changing the payment terms from principal and interest to interest only, and/or extensions in term maturity.

As of September 30, 2022, there were 14 TDR loans outstanding in the amount of $3.2 million primarily due to the economic impact of COVID-19 on certain of the Bank’s borrowers. There have been no defaults of TDRs modified during the past twelve months.

Credit Quality Indicators

Through its system of internal controls, Primis evaluates and segments loan portfolio credit quality using regulatory definitions for Special Mention, Substandard and Doubtful. Special Mention loans are considered to be criticized. Substandard and Doubtful loans are considered to be classified.

Special Mention loans are loans that have a potential weakness that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position.

Substandard loans may be inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged if any. Loans so classified 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.

Doubtful loans have all the weaknesses inherent in those classified as substandard, with 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. Primis had no loans classified Doubtful at September 30, 2022 or December 31, 2021.

In monitoring credit quality trends in the context of assessing the appropriate level of the allowance for credit losses on loans, we monitor portfolio credit quality by the weighted-average risk grade of each class of loan.

The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of September 30, 2022 (in thousands):

Revolving

Loans

Revolving

Converted

2022

2021

2020

2019

 

2018

Prior

Loans

To Term

 

Total

Commercial real estate - owner occupied

Pass

$

68,378

$

61,605

$

19,526

$

22,472

$

27,680

$

215,097

$

10,893

$

6,789

$

432,440

Special Mention

1,007

1,007

Substandard

2,907

2,907

Doubtful

$

68,378

$

61,605

$

19,526

$

22,472

$

27,680

$

219,011

$

10,893

$

6,789

$

436,354

Weighted average risk grade

3.15

3.48

3.38

3.26

3.43

3.52

3.18

3.96

3.43

Commercial real estate - nonowner occupied

 

Pass

$

23,807

$

122,557

$

37,279

$

41,826

$

56,016

$

227,360

$

4,452

$

3,083

$

516,380

Special Mention

926

29,706

601

31,233

Substandard

14,113

10,553

24,666

Doubtful

$

23,807

$

122,557

$

37,279

$

41,826

$

71,055

$

267,619

$

4,452

$

3,684

$

572,279

Weighted average risk grade

3.25

3.17

3.69

3.95

4.04

3.87

2.92

3.33

3.70

Secured by farmland

 

Pass

$

451

$

21

$

53

$

$

$

3,553

$

1,578

$

90

$

5,746

Special Mention

820

119

939

Substandard

16

813

829

Doubtful

$

451

$

21

$

53

$

16

$

$

5,186

$

1,578

$

209

$

7,514

Weighted average risk grade

4.00

4.00

4.00

6.00

N/A

4.19

3.98

3.71

4.12

Construction and land development

 

Pass

$

32,207

$

67,234

$

9,172

$

2,317

$

6,960

$

19,521

$

835

$

21

$

138,267

Special Mention

Substandard

30

30

Doubtful

$

32,207

$

67,234

$

9,172

$

2,317

$

6,960

$

19,551

$

835

$

21

$

138,297

Weighted average risk grade

3.28

3.09

3.96

3.47

3.17

3.68

3.36

4.00

3.29

Residential 1-4 family

 

Pass

$

144,981

$

156,300

$

43,922

$

64,739

$

41,806

$

148,151

$

2,023

$

3,438

$

605,360

Special Mention

425

425

Substandard

8,235

1,058

451

9,744

Doubtful

$

144,981

$

156,300

$

44,347

$

72,974

$

41,806

$

149,209

$

2,023

$

3,889

$

615,529

Weighted average risk grade

3.08

3.04

3.09

3.40

3.12

3.23

3.90

3.37

3.15

Multi- family residential

 

Pass

$

5,045

$

22,059

$

18,473

$

7,101

$

1,819

$

76,047

$

5,001

$

690

$

136,235

Special Mention

Substandard

721

297

1,018

Doubtful

$

5,045

$

22,059

$

18,473

$

7,101

$

1,819

$

76,768

$

5,001

$

987

$

137,253

Weighted average risk grade

3.43

3.00

3.90

3.00

3.21

3.31

4.00

4.60

3.36

Home equity lines of credit

 

Pass

$

249

$

506

$

54

$

68

$

230

$

4,353

$

58,741

$

822

$

65,023

Special Mention

Substandard

807

22

829

Doubtful

$

249

$

506

$

54

$

68

$

230

$

4,353

$

59,548

$

844

$

65,852

Weighted average risk grade

3.00

3.00

3.00

3.00

3.00

3.86

3.07

4.05

3.13

Commercial loans

 

 

 

 

 

 

 

 

 

Pass

$

231,370

$

66,762

$

8,911

$

7,714

$

9,611

$

22,648

$

95,503

$

21,386

$

463,905

Special Mention

402

402

Substandard

6

1,997

1,718

1,590

5,311

Doubtful

$

231,370

$

66,762

$

8,917

$

9,711

$

9,611

$

24,366

$

97,093

$

21,788

$

469,618

Weighted average risk grade

3.09

3.40

3.38

4.23

3.42

3.71

3.51

3.45

3.31

Paycheck Protection Program loans

Pass

$

$

5,312

$

2,702

$

$

$

$

$

$

8,014

Special Mention

Substandard

Doubtful

$

$

5,312

$

2,702

$

$

$

$

$

$

8,014

Weighted average risk grade

N/A

2.00

2.00

N/A

N/A

N/A

N/A

N/A

2.00

Revolving

Loans

Revolving

Converted

2022

2021

2020

2019

 

2018

Prior

Loans

To Term

 

Total

Consumer loans

 

Pass

$

238,776

$

29,571

$

1,638

$

432

$

604

$

4,635

$

3,613

$

$

279,269

Special Mention

66

66

Substandard

25

317

1

343

Doubtful

$

238,801

$

29,888

$

1,638

$

432

$

604

$

4,702

$

3,613

$

$

279,678

Weighted average risk grade

3.32

3.80

3.99

3.98

4.00

4.01

3.95

N/A

3.40

PCD

 

 

 

Pass

$

$

$

$

$

$

3,741

$

$

$

3,741

Special Mention

1,338

1,338

Substandard

1,619

1,619

Doubtful

$

$

$

$

$

$

6,698

$

$

$

6,698

Weighted average risk grade

N/A

N/A

N/A

N/A

N/A

4.53

N/A

N/A

4.53

Total

$

745,289

$

532,244

$

142,161

$

156,917

$

159,765

$

777,463

$

185,036

$

38,211

$

2,737,086

Weighted average risk grade

3.18

3.20

3.46

3.56

3.61

3.59

3.36

3.56

3.38

The following table presents weighted-average risk grades for all loans, by class and year of origination/renewal as of December 31, 2021 (in thousands):

Revolving

Loans

Revolving

Converted

2021

2020

2019

2018

 

2017

Prior

Loans

To Term

 

Total

Commercial real estate - owner occupied

Pass

$

58,596

$

18,411

$

35,498

$

28,163

$

45,013

$

187,461

$

3,010

$

6,937

$

383,089

Special Mention

140

1,184

1,324

Substandard

475

2,815

3,290

Doubtful

$

58,596

$

18,411

$

35,973

$

28,163

$

45,153

$

191,460

$

3,010

$

6,937

$

387,703

Weighted average risk grade

3.43

3.42

3.47

3.43

3.55

3.53

3.29

3.96

3.51

Commercial real estate - nonowner occupied

 

Pass

$

107,572

$

55,956

19,816

$

76,076

$

58,883

$

235,676

$

3,668

$

$

557,647

Special Mention

12,097

12,097

Substandard

17,655

601

18,256

Doubtful

$

107,572

$

55,956

$

19,816

$

76,076

$

58,883

$

265,428

$

3,668

$

601

$

588,000

Weighted average risk grade

3.05

3.47

3.83

3.45

3.81

3.81

2.94

6.00

3.59

Secured by farmland

 

Pass

$

320

$

66

$

$

$

445

$

3,734

$

1,955

$

$

6,520

Special Mention

852

404

1,256

Substandard

24

681

131

836

Doubtful

$

320

$

66

$

24

$

$

1,978

$

4,138

$

2,086

$

$

8,612

Weighted average risk grade

3.17

4.00

6.00

N/A

5.04

3.61

4.09

N/A

4.05

Construction and land development

 

Pass

$

57,320

$

14,003

$

13,360

$

7,061

$

8,414

$

15,664

$

982

$

31

$

116,835

Special Mention

Substandard

4,575

34

4,609

Doubtful

$

57,320

$

14,003

$

17,935

$

7,061

$

8,414

$

15,698

$

982

$

31

$

121,444

Weighted average risk grade

3.15

3.56

4.48

3.26

3.91

3.54

3.31

4.00

3.50

Residential 1-4 family

 

Pass

$

165,106

$

54,037

$

81,905

$

49,694

$

43,173

$

138,711

$

1,845

$

3,484

$

537,955

Special Mention

8,514

8,514

Substandard

795

296

1,091

Doubtful

$

165,106

$

54,037

$

90,419

$

49,694

$

43,173

$

139,506

$

1,845

$

3,780

$

547,560

Weighted average risk grade

3.04

3.06

3.24

3.13

3.07

3.26

3.98

3.30

3.15

Multi- family residential

 

Pass

$

37,030

$

18,866

$

7,228

$

6,328

$

36,574

$

42,310

$

5,031

$

$

153,367

Special Mention

5,326

5,326

Substandard

5,076

302

5,378

Doubtful

$

37,030

$

18,866

$

7,228

$

6,328

$

36,574

$

52,712

$

5,031

$

302

$

164,071

Weighted average risk grade

3.40

3.90

3.00

3.59

3.00

3.92

4.00

6.00

3.55

Home equity lines of credit

 

Pass

$

715

$

59

$

75

$

235

$

425

$

4,337

$

67,157

$

143

$

73,146

Special Mention

276

276

Substandard

398

26

424

Doubtful

$

715

$

59

$

75

$

235

$

425

$

4,337

$

67,831

$

169

$

73,846

Weighted average risk grade

3.00

3.00

3.00

3.00

3.77

3.79

3.09

4.31

3.14

Commercial loans

 

 

 

 

 

 

 

 

 

Pass

$

95,085

$

10,415

$

11,923

$

10,648

$

10,522

$

18,284

$

134,302

$

5,338

$

296,517

Special Mention

845

845

Substandard

9

1,508

1,938

1,163

4,618

Doubtful

$

95,085

$

10,424

$

11,923

$

12,156

$

10,522

$

20,222

$

136,310

$

5,338

$

301,980

Weighted average risk grade

3.43

3.36

3.79

3.77

2.95

3.96

3.43

3.95

3.48

Paycheck Protection Program loans

Pass

$

56,087

$

21,232

$

$

$

$

$

$

$

77,319

Special Mention

Substandard

Doubtful

$

56,087

$

21,232

$

$

$

$

$

$

$

77,319

Weighted average risk grade

2.00

2.00

N/A

N/A

N/A

N/A

N/A

N/A

2.00

Revolving

Loans

Revolving

Converted

2021

2020

2019

2018

 

2017

Prior

Loans

To Term

 

Total

Consumer loans

 

Pass

$

48,107

$

2,351

$

1,002

$

914

$

237

$

5,766

$

2,519

$

$

60,896

Special Mention

82

82

Substandard

7

9

2

18

Doubtful

$

48,107

$

2,351

$

1,002

$

921

$

246

$

5,850

$

2,519

$

$

60,996

Weighted average risk grade

3.55

3.99

3.99

4.02

4.07

4.01

4.00

N/A

3.65

PCD

 

 

 

Pass

$

$

$

$

$

$

5,145

$

30

$

$

5,175

Special Mention

1,391

1,391

Substandard

1,717

172

1,889

Doubtful

$

$

$

$

$

1,717

$

6,708

$

30

$

$

8,455

Weighted average risk grade

N/A

N/A

N/A

N/A

6.00

4.08

3.00

N/A

4.47

Total

$

625,938

$

195,405

$

184,395

$

180,634

$

207,085

$

706,059

$

223,312

$

17,158

$

2,339,986

Weighted average risk grade

3.12

3.24

3.50

3.38

3.45

3.64

3.35

3.92

3.39

Revolving loans that converted to term during 2022 were as follows (in thousands):

For the three months ended September 30, 2022

For the nine months ended September 30, 2022

Commercial real estate - owner occupied

$

$

3,083

Commercial real estate - non-owner occupied

209

Construction and land development

 

677

 

1,086

Residential 1-4 family

690

Multi- family residential

692

Commercial loans

 

496

 

16,879

Total loans

$

1,173

$

22,639

The amount of foreclosed residential real estate property held at September 30, 2022 and December 31, 2021 was $0.8 million and $0.9 million, respectively. There were no recorded investments in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure at September 30, 2022 and December 31, 2021.

Allowance For Credit Losses – Loans

The allowance for credit losses on loans is a contra-asset valuation account, calculated in accordance with ASC 326 that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. The amount of the allowance represents management's best estimate of current expected credit losses on loans considering available information, from internal and external sources, relevant to assessing collectability over the loans' contractual terms, adjusted for expected prepayments when appropriate.

In calculating the allowance for credit losses, most loans are segmented into pools based upon similar characteristics and risk profiles. For allowance modeling purposes, our loan pools include (i) commercial real estate - owner occupied, (ii) commercial real estate - non-owner occupied, (iii) construction and land development, (iv) commercial, (v) agricultural loans, (vi) residential 1-4 family and (vii) consumer loans. We periodically reassess each pool to ensure the loans within the pool continue to share similar characteristics and risk profiles and to determine whether further segmentation is necessary. For each loan pool, we measure expected credit losses over the life of each loan utilizing a combination of inputs: (i) probability of default, (ii) probability of attrition, (iii) loss given default and (iv) exposure at default. Internal data is supplemented by, but not replaced by, peer data when required, primarily to determine the probability of default input. The various pool-specific inputs may be adjusted for current macroeconomic assumptions. Significant macroeconomic variables utilized in our allowance models include, among other things, (i) VA Gross Domestic Product, (ii) VA House Price Index, and (iii) VA unemployment rates.

Management qualitatively adjusts allowance model results for risk factors that are not considered within our quantitative modeling processes but are nonetheless relevant in assessing the expected credit losses within our loan pools. Qualitative factor (“Q-Factor”) adjustments are driven by key risk indicators that management tracks on a pool-by-pool basis. 

In some cases, management may determine that an individual loan exhibits unique risk characteristics which differentiate the loan from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.

The following tables present details of the allowance for credit losses on loans segregated by loan portfolio segment as of September 30, 2022 and December 31, 2021, calculated in accordance with the current expected credit losses (“CECL”) methodology described above (in thousands). 

    

Commercial

    

Commercial

    

    

    

    

    

Home

    

    

    

    

Real Estate

Real Estate

Construction

Equity

 

Owner

Non-owner

Secured by

and Land

1-4 Family

Multi-Family

Lines Of

Commercial

Consumer

PCD

 

September 30, 2022

Occupied

Occupied

Farmland

Development

Residential 

Residential 

Credit

Loans

Loans

Loans

Total

Modeled expected credit losses

$

4,564

 

$

6,099

 

$

7

 

$

800

 

$

3,353

 

$

1,701

 

$

286

 

$

4,422

 

$

3,269

 

$

$

24,501

Q-factor and other qualitative adjustments

269

531

19

340

647

240

19

802

2

2,869

Specific allocations

 

2,453

44

2,089

 

4,586

Total

$

4,833

$

6,630

$

26

$

1,140

$

4,000

$

1,941

$

305

$

7,677

$

3,315

$

2,089

$

31,956

    

Commercial

    

Commercial

    

    

    

    

    

Home

    

    

    

    

Real Estate

Real Estate

Construction

Equity

 

Owner

Non-owner

Secured by

and Land

1-4 Family

Multi-Family

Lines Of

Commercial

Consumer

PCD

 

December 31, 2021

Occupied

Occupied

Farmland

Development

Residential 

Residential 

Credit

Loans

Loans

Loans

Total

Modeled expected credit losses

$

4,281

$

8,020

$

9

$

540

$

3,012

$

1,885

$

273

$

2,154

$

786

$

$

20,960

Q-factor and other qualitative adjustments

281

1,008

47

458

576

1,395

164

1,276

5,205

Specific allocations

 

 

 

 

 

 

 

 

658

 

1

 

2,281

 

2,940

Total

$

4,562

$

9,028

$

56

$

998

$

3,588

$

3,280

$

437

$

4,088

$

787

$

2,281

$

29,105

No allowance for credit losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.

Activity in the allowance for credit losses by class of loan for the three months ended September 30, 2022 and 2021 is summarized below (in thousands):

Commercial

Commercial

    

    

    

    

    

    

    

    

 

Real Estate

Real Estate

Construction

Home Equity

 

Owner

Non-owner

Secured by

and Land

1-4 Family

Multi-Family

Lines Of

Commercial

Consumer

PCD

Three Months Ended September 30, 2022

Occupied

Occupied 

Farmland

Development

Residential

Residential 

Credit

Loans

Loans

Loans

Total

Allowance for credit losses:

  

  

  

  

  

  

  

  

  

  

  

Beginning balance

$

4,301

$

7,917

$

49

$

1,024

$

4,272

$

2,160

$

363

$

6,428

$

1,569

$

2,126

$

30,209

Provision (recovery)

532

 

(1,287)

 

(23)

 

116

 

(273)

 

(219)

 

(59)

 

2,256

 

1,884

 

(37)

2,890

Charge offs

 

 

 

 

 

 

 

 

(1,007)

 

(146)

 

 

(1,153)

Recoveries

 

 

 

 

 

1

 

 

1

 

 

8

 

 

10

Ending balance

$

4,833

$

6,630

$

26

$

1,140

$

4,000

$

1,941

$

305

$

7,677

$

3,315

$

2,089

$

31,956

Three Months Ended September 30, 2021

Allowance for credit losses:

Beginning balance

$

4,769

$

11,235

$

80

$

2,691

$

4,451

$

1,090

$

601

$

3,582

$

428

$

2,338

$

31,265

Provision (recovery)

 

354

(863)

(22)

(1,295)

(44)

2,266

(100)

537

279

(27)

 

1,085

Charge offs

 

(7)

(383)

(1)

(1,528)

(53)

(1,972)

Recoveries

 

1

1

1

5

8

Ending balance

$

5,116

$

10,372

$

58

$

1,396

$

4,025

$

3,355

$

502

$

2,592

$

659

$

2,311

$

30,386

Activity in the allowance for credit losses by class of loan for the nine months ended September 30, 2022 and 2021 is summarized below (in thousands):

Commercial

Commercial

    

    

    

    

    

    

    

    

 

Real Estate

Real Estate

Construction

Home Equity

 

Owner

Non-owner

Secured by

and Land

1-4 Family

Multi-Family

Lines Of

Commercial

Consumer

PCD

Nine Months Ended September 30, 2022

Occupied

Occupied 

Farmland

Development

Residential

Residential 

Credit

Loans

Loans

Loans

Total

Allowance for credit losses:

  

  

  

  

  

  

  

  

  

  

  

Beginning balance

$

4,562

$

9,028

$

56

$

998

$

3,588

$

3,280

$

437

$

4,088

$

787

$

2,281

$

29,105

Provision (recovery)

285

(2,900)

(30)

142

354

(1,339)

(120)

4,426

2,785

(192)

3,411

Charge offs

 

(14)

 

 

 

 

 

 

(14)

 

(1,007)

 

(277)

 

 

(1,312)

Recoveries

 

 

502

 

 

 

58

 

 

2

 

170

 

20

 

 

752

Ending balance

$

4,833

$

6,630

$

26

$

1,140

$

4,000

$

1,941

$

305

$

7,677

$

3,315

$

2,089

$

31,956

Nine Months Ended September 30, 2021

Allowance for credit losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Beginning balance

$

6,699

$

11,426

$

104

$

1,815

$

9,579

$

1,412

$

901

$

1,498

$

517

$

2,394

$

36,345

Provision (recovery)

(1,407)

(1,054)

(46)

(419)

(5,182)

1,943

(400)

1,930

216

(83)

(4,502)

Charge offs

 

(176)

 

 

 

 

(383)

 

 

 

(1,602)

 

(107)

 

 

(2,268)

Recoveries

 

 

 

 

 

11

 

 

1

 

766

 

33

 

 

811

Ending balance

$

5,116

$

10,372

$

58

$

1,396

$

4,025

$

3,355

$

502

$

2,592

$

659

$

2,311

$

30,386

Generally, a commercial loan, or a portion thereof, is charged-off when it is determined, through the analysis of any available current financial information with regards to the borrower, that the borrower is incapable of servicing unsecured debt, there is little or no prospect for near term improvement and no realistic strengthening action of significance is pending or, in the case of secured debt, when it is determined, through analysis of current information with regards to our collateral position, that amounts due from the borrower are in excess of the calculated current fair value of the collateral. Losses on installment loans are recognized in accordance with regulatory guidelines.  All other consumer loan losses are recognized when delinquency exceeds 120 cumulative days.

The following table presents loans that were evaluated for expected credit losses on an individual basis and the related specific allocations, by loan portfolio segment as of September 30, 2022 and December 31, 2021 (in thousands):

September 30, 2022

    

December 31, 2021

Loan

Specific

Loan

Specific

Balance (1)

Allocations

Balance (1)

Allocations

Commercial real estate - owner occupied

$

2,800

$

$

3,291

$

Commercial real estate - non-owner occupied

 

24,669

 

 

18,256

 

Secured by farmland

625

681

Construction and land development

 

 

 

4,575

 

Residential 1-4 family

9,221

541

Multi- family residential

1,017

5,378

Home equity lines of credit

72

Commercial loans

 

4,982

 

2,453

 

3,688

 

658

Consumer loans

55

44

7

1

Total non-PCD loans

43,441

2,497

36,417

659

PCD loans

6,698

2,089

8,455

2,281

Total loans

$

50,139

$

4,586

$

44,872

$

2,940

(1)Includes SBA guarantees of $2.1 million and $0.7 million at September 30, 2022 and December 31, 2021, respectively.