The composition of the loan portfolio by major loan classifications at June 30, 2022 and December 31, 2021 appears below (dollars in thousands).


	June 30,			December 31,
	2022			2021
Commercial	$	77,599		$	96,696
Real estate construction and land		55,140			79,331
1-4 family residential mortgages		329,920			358,148
Commercial mortgages		446,282			473,632
Consumer		51,251			53,404
Total loans		960,192			1,061,211
Less: Allowance for loan losses		(5,503	)		(5,984	)
Net loans	$	954,689		$	1,055,227

Primarily within the second quarter of 2020 and the first quarter of 2021, the Company and Fauquier, prior to the Merger, assisted nonprofit organizations and local businesses by funding a combined total of $207.5 million of SBA PPP loans, which were designed to provide economic relief to small businesses adversely impacted by COVID-19. As of June 30, 2022, the Company had PPP loans of $1.9 million outstanding on its balance sheet, with the remainder having been forgiven by the SBA.

The balances in the table above include unamortized premiums and net deferred loan costs and fees. As of June 30, 2022 and December 31, 2021, unamortized premiums on loans purchased prior to the Merger were $811 thousand and $1.1 million, respectively. Net deferred loan fees totaled $504 thousand and $865 thousand as of June 30, 2022 and December 31, 2021, respectively. The deferred fees include $46 thousand in remaining fees collected from the SBA for the PPP loans that are being amortized over the contractual life of the underlying loans, most which are over a 60-month period. As loans are forgiven by the SBA, accounting principles allow for the accelerated recognition of unamortized fees at that time.

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 $12.3 million on the purchased impaired loans and $5.3 million on the purchased performing loans as of June 30, 2022 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 June 30, 2022 on these Acquired Loans were as follows (dollars in thousands):


	June 30, 2022						December 31, 2021
	Acquired Loans - Purchased Credit Impaired		Acquired Loans - Purchased Performing		Acquired Loans - Total		Acquired Loans - Purchased Credit Impaired		Acquired Loans - Purchased Performing		Acquired Loans - Total
Outstanding principal balance	$	56,178	$	315,349	$	371,527	$	76,608	$	372,172	$	448,780
Carrying amount:
Commercial	$	702	$	16,273	$	16,975	$	994	$	28,065	$	29,059
Real estate construction and land		6,539		9,133		15,672		18,576		14,297		32,873
1-4 family residential mortgages		11,900		173,134		185,034		16,020		194,708		210,728
Commercial mortgages		24,694		109,880		134,574		28,675		126,638		155,313
Consumer		91		1,678		1,769		118		2,224		2,342
Total acquired loans	$	43,926	$	310,098	$	354,024	$	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):


	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Accretable yield, beginning of period	$	12,428		$	—		$	13,742		$	—
Additions		—			15,499			—			15,499
Accretion		(761	)		(858	)		(1,500	)		(858	)
Reclassification from (to) nonaccretable difference		—			—			2,193			—
Other changes, net		—			—			(2,768	)		—
Accretable yield, end of period	$	11,667		$	14,641		$	11,667		$	14,641

Accounting guidance requires certain disclosures about investments in impaired loans, the allowance for loan losses and interest income recognized on impaired loans. A loan is considered impaired when it is probable that the Company will be unable to collect all principal and interest amounts when due according to the contractual terms of the loan agreement. Factors involved in determining impairment include, but are not limited to, expected future cash flows, financial condition of the borrower, and current economic conditions.

The following tables reflect the breakdown by class of the Company’s loans classified as impaired loans, excluding Acquired Loans, as of June 30, 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 either the six months ended June 30, 2022 or the twelve months ended December 31, 2021. Interest income recognized is for the six months ended June 30, 2022 or the twelve months ended December 31, 2021 (dollars in thousands).


June 30, 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	$	604	$	626	$	-	$	613	$	2
Total impaired loans without a valuation allowance		604		626		-		613		2

Impaired loans with a valuation allowance
Consumer		835		835		9		840		26
Total impaired loans with a valuation allowance		835		835		9		840		26
Total impaired loans	$	1,439	$	1,461	$	9	$	1,453	$	28


December 31, 2021	Recorded Investment		Unpaid Principal Balance		Associated Allowance		Average Recorded Investment		Interest Income Recognized
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

Included in the impaired loans are non-accrual loans. Generally, a loan is placed on non-accrual when it is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more. Any unpaid interest previously accrued on those loans is reversed from income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Interest payments received on such loans are applied as a reduction of the loan principal balance. Interest income on other non-accrual loans is recognized only to the extent of interest payments received. The recorded investment in non-accrual loans is shown below by class (dollars in thousands):

Additionally, TDRs are considered impaired loans. TDRs occur when the Company 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.

In accordance with regulatory guidance, the Company approved for certain customers who have been adversely affected by COVID-19 to defer principal-only, or principal and interest. Such short-term modifications, which were made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. COVID-19 related loan deferrals declined to zero as of June 30, 2022, from $1.2 million as of December 31, 2021 and $2.0 million as of June 30, 2021.

Based on regulatory guidance on student lending, the Company has classified 56 of its student loans purchased (“Purchased Student Loans”), as TDRs for a total of $835 thousand as of June 30, 2022. These borrowers that should have been in repayment have requested and been granted payment extensions or reductions 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 TDRs. 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. Management evaluates these loans individually for impairment and includes any expected loss in the ALLL; interest continues to accrue on these TDRs during any deferment and forbearance periods.

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


Troubled debt restructurings	June 30, 2022				December 31, 2021
	No. of		Recorded		No. of		Recorded
	Loans		Investment		Loans		Investment
Performing TDRs
1-4 family residential mortgages		1	$	93		1	$	99
Consumer		56		835		58		935
Total performing TDRs		57	$	928		59	$	1,034

Nonperforming TDRs
1-4 family residential mortgages		2		511		1		495
Total nonperforming TDRs		2	$	511		1	$	495
Total TDRs		59	$	1,439		60	$	1,529

No loans were modified under the terms of a TDR during the three months ended June 30, 2022 or 2021. A summary of loans shown above that were modified under the terms of a TDR during the six months ended June 30, 2022 and 2021 is shown below by class (dollars in thousands). The Post-Modification Recorded Balance reflects the period end balances, inclusive of any interest capitalized to principal, partial principal paydowns, and principal charge-offs since the modification date. Loans modified as TDRs that were fully paid down, charged-off, or foreclosed upon by period end are not reported.


	For the six months ended						For the six months ended
	June 30, 2022						June 30, 2021
	Number of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance		Number of Loans		Pre- Modification Recorded Balance		Post- Modification Recorded Balance

Consumer	--		$	—	$	—		6	$	63	$	63
1-4 family residential mortgages		1		54		54	--			—		—
Total loans modified during the period		1	$	54	$	54		6	$	63	$	63

During the three and six months ended June 30, 2022, there were no loans modified as a TDR that subsequently defaulted which had been modified as a TDR 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 which had been modified as a TDR during the twelve months prior to default. These student loans had balances totaling $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 June 30, 2022 or December 31, 2021.