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Note 4 - Loans

12 Months Ended

Dec. 31, 2021

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note 4. Loans

The Company groups loans into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Customer overdrafts reclassified as loans totaled $1.65 million as of December 31, 2021, and $1.13 million as of December 31, 2020. Deferred loan fees were $5.06 million as of December 31, 2021, and $5.58 million as of December 31, 2020. For information about off-balance sheet financing, see Note 19, “Litigation, Commitments, and Contingencies,” to the Consolidated Financial Statements of this report.

In accordance with the adoption of ASU 2016-13, the table below reflects the loan portfolio at the amortized cost basis for the current period December 31, 2021, to include net deferred loan fees of $5.06 million and unamortized discount total related to loans acquired of $5.41 million. Accrued interest receivable (AIR) of $7.54 million is accounted for separately and reported in Interest Receivable on the Consolidated Balance Sheet.

The comparative periods in the table below reflect the loan portfolio prior to the adoption of ASU 2016-13, Prior periods were reported as shown in the below tables, with the acquired loans being net of unearned and of related discounts, which includes the credit discount on the acquired credit impaired loans.

Included in total loans at December 31, 2020, were covered loans generally reimbursable by the FDIC of $9.68 million. The Company terminated its remaining loss share agreement with the FDIC effective, September 28, 2021, associated with Waccamaw Bank. The termination eliminates the FDIC guarantee on particular loan losses and removes future responsibility related to the agreement.

The following table presents loans, net of unearned income by loan class, as of the dates indicated:

	*December 31,*
	*2021*					*2020*
(Amounts in thousands)	*Amount*		*Percent*			*Amount*		*Percent*
Commercial loans
Construction, development, and other land	$	65,806		3.04	%	$	44,674		2.04	%
Commercial and industrial		133,630		6.17	%		173,024		7.91	%
Multi-family residential		100,402		4.64	%		115,161		5.27	%
Single family non-owner occupied		198,778		9.18	%		187,783		8.59	%
Non-farm, non-residential		707,506		32.67	%		734,793		33.60	%
Agricultural		9,341		0.43	%		9,749		0.45	%
Farmland		15,013		0.69	%		19,761		0.91	%
Total commercial loans		1,230,476		56.82	%		1,284,945		58.77	%
Consumer real estate loans
Home equity lines		79,857		3.69	%		96,526		4.41	%
Single family owner occupied		703,864		32.50	%		661,054		30.23	%
Owner occupied construction		16,910		0.78	%		17,720		0.81	%
Total consumer real estate loans		800,631		36.97	%		775,300		35.45	%
Consumer and other loans
Consumer loans		129,794		5.99	%		120,373		5.50	%
Other		4,668		0.22	%		6,014		0.28	%
Total consumer and other loans		134,462		6.21	%		126,387		5.78	%
Total loans held for investment, net of unearned income	$	2,165,569		100.00	%	$	2,186,632		100.00	%
					%					%

FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENT

The Company began participating as a Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) lender during the second quarter of 2020. At December 31, 2021, the PPP loans had a current balance of $20.64 million, compared to $57.06 million at December 31, 2020 and were included in commercial and industrial loan balances. Deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, totaled $4.33 million at December 31, 2021, and $2.30 million at December 31, 2020. During 2021, the Company recorded amortization of net deferred loan origination fees of $2.74 million on PPP loans, compared with $868 thousand for 2020. The remaining net deferred loan origination fees will be amortized over the expected life of the respective loans, or until forgiven by the SBA, and will be recognized in interest income. As of December 31, 2021, $56.86 million, or 93.20%, of the Company's first round Paycheck Protection Program loan balances had been forgiven by the SBA.

Prior to the adoption of ASU 2016-13, the Company identified certain purchased loans as impaired when fair values were established at acquisition and grouped those PCI loans into loan pools with common risk characteristics. The Company estimated cash flows to be collected on PCI loans and discounted those cash flows at a market rate of interest. Effective January 1, 2020, the Company consolidated the insignificant PCI loans and discounts for Peoples, Waccamaw, and other acquired loans into the core loan portfolio. The only remaining PCI pools were those loans acquired in the Highlands acquisition on December 31, 2019. As of December 31, 2020, the recorded investment and contractual unpaid principal balance of PCI loans, was $39.66 million and $47.51 million, respectively.

FIRST COMMUNITY BANKSHARES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Highlands acquisition added $8.15 million in accretable yield. The total fair value of the Highlands PCI loans was $53.12 million at the time of the acquisition. The gross contractual cash flows for the Highlands PCI loans was $76.45 million. The following table presents the changes in the accretable yield on PCI loans, by acquisition, during the periods indicated prior to the adoption of ASU 2016-13:

	*Peoples*			*Waccamaw*			*Highlands*			*Total*
(Amounts in thousands)
Balance January 1, 2019	$	2,590		$	14,639		$	—		$	17,229
Accretion		(950	)		(3,317	)		—			(4,267	)
Reclassifications from nonaccretable difference(1)		17			1,440			—			1,457
Other changes, net		233			(188	)		—			45
Balance December 31, 2019	$	1,890		$	12,574		$	—		$	14,464

Balance January 1, 2020	$	1,890		$	12,574		$	—		$	14,464
Additions		—			—			8,152			8,152
Accretion		—			—			(2,497	)		(2,497	)
Other changes, net		(1,890	)		(12,574	)		—			(14,464	)
Balance December 31, 2020	$	—		$	—		$	5,655		$	5,655

(1)	Represents changes attributable to expected loss assumptions