UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~ June 30, ~~2017~~2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-19297

FIRST COMMUNITY ~~BANCSHARES,~~BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

~~Nevada~~Virginia

55-0694814

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

P.O. Box 989

Bluefield, Virginia

24605-0989

(Address of principal executive offices)

(Zip Code)

(276) 326-9000

(~~Registrant~~’sRegistrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock ($1.00 par value)	FCBC	NASDAQ Global Select

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any, ever~~yevery Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

☑ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☑

Non-accelerated filer ☐ ~~(Do not check if a smaller reporting company)~~

Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes ☑ No

As of ~~October 27, 2017,~~July 31, 2019, there were ~~16,987,339~~15,637,230 shares outstanding of the registrant’s Common Stock, $1.00 par value.

Table of Contents

															Accumulated
						Additional									Other
	Preferred		Common			Paid-in			Retained			Treasury			Comprehensive
(Amounts in thousands,	Stock		Stock			Capital			Earnings			Stock			Income (Loss)			Total
except share and per share data)
Balance April 1, 2018	$	-	$	21,382		$	228,774		$	178,227		$	(83,865	)	$	(2,481	)	$	342,037
Net income		-		-			-			9,066			-			-			9,066
Other comprehensive (loss)		-		-			-			-			-			(104	)		(104	)
Common dividends declared -- $0.18 per share		-		-			-			(3,014	)		-			-			(3,014	)
Equity-based compensation expense		-		-			168			-			47			-			215
Common stock options exercised -- 8,653 shares		-		-			(30	)		-			164			-			134
Issuance of treasury stock to 401(k) plan -- 2,709 shares		-		-			37			-			52			-			89
Purchase of treasury shares -- 286,930 shares at $32.42 per share		-		-			-			-			(9,302	)		-			(9,302	)
Balance June 30, 2018	$	-	$	21,382		$	228,949		$	184,279		$	(92,904	)	$	(2,585	)	$	339,121

Balance April 1, 2019	$	-	$	15,818		$	115,914		$	202,103		$	-		$	(733	)	$	333,102
Net income		-		-			-			10,451			-			-			10,451
Other comprehensive income		-		-			-			-			-			352			352
Common dividends declared -- $0.25 per share		-		-			-			(3,936	)		-			-			(3,936	)
Equity-based compensation expense		-		4			145			-			-			-			149
Common stock options exercised -- 2,927 shares		-		2			56			-			-			-			58
Issuance of common stock to 401(k) plan -- 2,555 shares		-		3			84			-			-			-			87
Repurchase of common shares -- 194,000 shares at $33.90 per share		-		(194	)		(6,383	)		-			-			-			(6,577	)
Balance June 30, 2019	$	-	$	15,633		$	109,816		$	208,618		$	-		$	(381	)	$	333,686

															Accumulated
						Additional									Other
	Preferred		Common			Paid-in			Retained			Treasury			Comprehensive
(Amounts in thousands,	Stock		Stock			Capital			Earnings			Stock			Income (Loss)			Total
except share and per share data)
Balance January 1, 2018	$	-	$	21,382		$	228,750		$	180,543		$	(79,121	)	$	(840	)	$	350,714
Net income		-		-			-			17,934			-			-			17,934
Other comprehensive (loss)		-		-			-			-			-			(1,745	)		(1,745	)
Common dividends declared -- $0.84 per share		-		-			-			(14,198	)		-			-			(14,198	)
Equity-based compensation expense		-		-			151			-			594			-			745
Common stock options exercised -- 10,350 shares		-		-			(38	)		-			195			-			157
Issuance of treasury stock to 401(k) plan -- 7,652 shares		-		-			86			-			143			-			229
Purchase of treasury shares -- 474,240 shares at $31.03 per share		-		-			-			-			(14,715	)		-			(14,715	)
Balance June 30, 2018	$	-	$	21,382		$	228,949		$	184,279		$	(92,904	)	$	(2,585	)	$	339,121

Balance January 1, 2019	$	-	$	16,007		$	122,486		$	195,793		$	-		$	(1,429	)	$	332,857
Net income		-		-			-			20,082			-			-			20,082
Other comprehensive income		-		-			-			-			-			1,048			1,048
Common dividends declared -- $0.46 per share		-		-			-			(7,257	)		-			-			(7,257	)
Equity-based compensation expense		-		42			964			-			-			-			1,006
Common stock options exercised -- 4,345 shares		-		4			78			-			-			-			82
Issuance of common stock to 401(k) plan -- 6,653 shares		-		7			220			-			-			-			227
Repurchase of common shares -- 426,900 shares at $33.63 per share		-		(427	)		(13,932	)		-			-			-			(14,359	)
Balance June 30, 2019	$	-	$	15,633		$	109,816		$	208,618		$	-		$	(381	)	$	333,686

Note 1. Basis of Presentation

General

First Community ~~Bancshares,~~Bankshares, Inc. (the “Company”), a financial holding company, was founded in 1989 and incorporated under the laws of ~~Nevada~~the Commonwealth of Virginia in ~~1997.~~2018. The Company’s is the successor to First Community Bancshares, Inc., a Nevada corporation, pursuant to an Agreement and Plan of Reincorporation and Merger, the sole purpose of which was to change the Company’s state of incorporation from Nevada to Virginia. The Company’s principal executive office is located at One Community Place, Bluefield, Virginia. The Company provides banking products and services to individual and commercial customers through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia-chartered banking institution founded in 1874. The Bank operates as First Community Bank in Virginia, West Virginia, and North Carolina and People’s Community Bank, a Division of First Community Bank, in Tennessee. The Bank ~~provides insurance services through its wholly owned subsidiary First Community Insurance Services (“FCIS”) and~~ offers wealth management and investment advice through its Trust Division and wholly owned subsidiary First Community Wealth Management (“FCWM”). Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community ~~Bancshares,~~Bankshares, Inc. and its subsidiaries as a consolidated entity.

Principles of Consolidation

The ~~Company~~’sCompany’s accounting and reporting policies conform with U.S. generally accepted accounting principles (“GAAP”) and prevailing practices in the banking industry. The consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries and eliminate all intercompany balances and transactions. The Company operates in one business segment, Community Banking, which consists of all operations, including commercial and consumer banking, lending activities, wealth management, and insurance services. Operating results for interim periods are not necessarily indicative of results that may be expected for other interim periods or for the full year. In management’s opinion, the accompanying unaudited interim condensed consolidated financial statements contain all necessary adjustments, including normal recurring accruals, and disclosures for a fair presentation.

~~The condensed consolidated balance sheet as of~~ ~~December 31, 2016, has been derived from the audited consolidated financial statements.~~ These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 (the ~~“2016~~“2018 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March ~~3, 2017.~~1, 2019. The condensed consolidated balance sheet as of December 31, 2018, has been derived from the audited consolidated financial statements.

Reclassifications

Certain amounts reported in prior years have been reclassified to conform to the current ~~year~~’syear’s presentation. These reclassifications had no effect on the Company’s results of operations, financial position, or net cash flow.

Use of Estimates

Preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that require the most subjective or complex judgments relate to fair value measurements, investment securities, the allowance for loan losses, ~~the Federal Deposit Insurance Corporation (“FDIC”) indemnification asset,~~ goodwill and other intangible assets, and income taxes. A discussion of the Company’s application of critical accounting estimates is included in “Critical Accounting Estimates” in Item 2 of this report.

Significant Accounting Policies

~~A complete and detailed description of the Company~~’sThe Company’s significant accounting policies isare included in Note 1, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s ~~2016~~2018 Form 10-K.

Recent Accounting Standards

Standards Adopted in 2019

In ~~January 2017,~~July 2018, the FASB issued ~~Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.~~ASU 2018-09, “Codification Improvements.” This ASU ~~removes~~makes changes to a variety of topics to clarify, correct errors in, or make minor improvements to the ~~requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be~~Accounting Standards Codification. The majority of the ~~amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed~~amendments in ASU 2018-09 became effective for the ~~carrying amount of goodwill. ASU 2017-04 is effective~~Company for fiscal years beginning after December 15, ~~2019, with early adoption permitted. The update should be applied prospectively.~~2018. The Company ~~early~~ adopted ASU ~~2017-04~~2018-09 in the first quarter of ~~2017.~~2019. The adoption of the standard ~~did not have an~~had no material effect on ~~the Company’s~~its financial statements.

910

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In ~~January 2017, the FASB issued ASU 2017-03, “Accounting Changes and Error Corrections (Topic 250) and Investments~~ – Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.” This ASU requires registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. In cases where a registrant cannot reasonably estimate the impact of the adoption, additional qualitative disclosures should be considered to assist the reader in assessing the significance of the standard's impact on its financial statements. The Company adopted ASU 2017-03 in the first quarter of 2017. The adoption of the standard resulted in enhanced disclosures regarding the impact that recently issued accounting standards adopted in a future period will have on the Company’s financial statements and disclosures. See “Standards Not Yet Adopted” below.

In March 2016, the FASB issued ASU 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” This ASU simplifies several aspects of the accounting for share-based payment award transactions including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance eliminates additional paid-in capital pools for equity-based awards and requires that the related income tax effects of awards be recognized in the income statement. The guidance also allows an employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The Company adopted ASU 2016-09 in the first quarter of 2017 on a prospective basis and elected to account for forfeitures of share-based awards as they occur. Excess tax benefits on share-based awards in the statements of cash flows in prior periods have not been adjusted. The adoption of the standard did not have a material effect on the Company’s financial statements.

~~Standards Not Yet Adopted~~

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” ~~This~~The ASU intends to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplify the application of hedge accounting guidance. ASU 2017-12 ~~will be~~became effective for the Company for fiscal years beginning after December 15, 2018. The Company ~~expects to adopt~~adopted ASU 2017-12 in the first quarter of 2019. The ~~Company is evaluating the impact~~adoption of the standard ~~and does not expect the guidance to have a material effect on its financial statements.~~

In May 2017, the FASB issued ASU 2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” This ASU clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. ASU 2017-09 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects to adopt ASU 2017-09 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have ahad no material effect on its financial statements.

In March 2017, the FASB issued ASU 2017-08, “Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Securities.” This ASU amends the amortization period for certain purchased callable debt securities held at a premium. ASU 2017-08 will be effective for the Company for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2017-08 in the first quarter of 2019. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.

In March 2017, the FASB issued ASU 2017-07, “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” This ASU intends to improve the presentation of net periodic pension cost and net periodic postretirement benefit costs in the income statement and to narrow the amounts eligible for capitalization in assets. ASU 2017-07 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects to adopt ASU 2017-07 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.

~~In November~~February 2016, the FASB issued ASU ~~2016-18, “Statement of Cash Flows~~2016-02, “Leases (Topic ~~230): Restricted Cash.~~842).” This ASU ~~requires that a statement of cash flows explains the change during the period in the total of cash, cash equivalents,~~increases transparency and ~~amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash~~comparability among organizations by recognizing lease assets and ~~restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown~~lease liabilities on the ~~statement of cash flows. ASU 2016-18 will be effective for the Company for fiscal years beginning after December 15, 2017. The Company expects~~balance sheet and requiring more disclosures related to ~~adopt ASU 2016-18 in the first quarter of 2018. The Company is evaluating the impact of the standard and does not expect the guidance to have a material effect on its financial statements.~~

~~Table of Contents~~

leasing transactions. In ~~August 2016,~~January 2018, the FASB issued ASU ~~2016-15, “Statement~~2018-01, which allows entities the option to apply the provisions of ~~Cash Flows (Topic 230): Classification~~the new guidance at the effective date without adjusting the comparative periods presented. In July 2018, the FASB issued ASU 2018-10, “Codification Improvements to Topic 842, Leases,” which updates narrow aspects of ~~Certain Cash Receipts~~the guidance issued in ASU 2016-02, as well as issuing ASU 2018-11, which allows entities to choose an additional transition method in which an entity is allowed to apply the standard at adoption date and ~~Cash Payments.” This ASU makes eight targeted changes~~recognize a cumulative-effect adjustment to ~~how cash receipts and cash payments are presented and classified~~the opening balance of retained earnings in the ~~statement~~period of ~~cash flows.~~adoption. Under this method, the entity shall recognize and measure the leases that exist at the adoption date and the prior comparative periods are not adjusted. The Company adopted ASU ~~2016-15 will be effective for~~2016-02 January 1, 2019, electing to recognize and measure existing leases at the adoption date with no adjustments to prior periods. In addition, the Company ~~for fiscal years beginning after December 15, 2017, with early~~elected the practical expedients of not re-assessing the classifications of existing leases, not re-assessing if existing leases have initial direct costs, or examining expired or existing contracts to determine if a lease exists. All of the current leases are classified as operating leases. The adoption ~~permitted. The update should be applied on a retrospective basis, if practicable. The Company expects to adopt ASU 2016-15 in the first quarter of 2018. The Company is evaluating the impact~~ of the standard resulted in a right-of-use asset of $915 thousand and ~~does~~a lease liability of $915 thousand which are included in other assets and other liabilities, respectively, in the condensed consolidated balance sheets. The adoption did not ~~expect the guidance to~~ have a material ~~effect~~impact on ~~its~~the financial ~~statements.~~position or results of operations of the Company.

Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU intends to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an ~~organization~~’sorganization’s portfolio. In addition, the update amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company for fiscal years beginning after December 15, 2019, with early adoption permitted for fiscal years beginning after December 15, 2018. The Company expects to adopt ASU 2016-13 in the first quarter of 2020 and recognize a cumulative adjustment to retained earnings as of the beginning of the year of adoption. The Company ~~is evaluating~~has established a working group to prepare for, and implement changes related to, the ~~impact~~standard and has engaged a third-party vendor solution to assist in the application of the standard.

~~In February 2016,~~ The Company has established a cross-functional implementation team with assigned roles and responsibilities, key tasks to complete, and a general timeline to be followed. The team meets regularly to discuss the ~~FASB issued ASU 2016-02, “Leases (Topic 842).” This ASU increases transparency~~latest developments and ~~comparability among organizations by recognizing lease assets and lease liabilities~~ensure progress is being made on the ~~balance sheet~~adoption plan. The Company has contracted with a third-party provider for enhanced modeling techniques that incorporate the loss measurement requirements in these amendments and ~~requiring more disclosures related to leasing transactions. ASU 2016-02~~is in the process of finalizing and documenting the methodologies that will be ~~effective~~utilized, including challenging estimated credit loss model assumptions and outputs and refining the qualitative framework. The team is also currently developing controls, processes, policies and disclosures in preparation for ~~the Company for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company expects to adopt ASU 2016-02~~performing parallel runs in the ~~first quarter~~third and fourth quarters of 2019. The Company ~~leases certain banking offices under lease agreements it classifies as operating leases.~~expects validation of the new model(s) to be completed during the last half of 2019. The Company ~~is evaluating~~continues to evaluate the impact adoption of ASU 2016-13 will have on its consolidated financial statements and disclosures, and while currently unable to reasonably estimate the impact of ~~the standard and expects an increase in assets and liabilities; however,~~adopting this ASU, the Company ~~does not expect the guidance to have a material effect on its financial statements.~~

~~In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10):~~ Recognition and Measurement of Financial Assets and Financial Liabilities.” This ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The new guidance also amends certain disclosure requirements associated with the fair value of financial instruments. ASU 2016-01 will be effective for the Company for fiscal years beginning after December 15, 2017, with early adoption permitted for the instrument-specific credit risk provision. The Company expects ~~to adopt ASU 2016-01 in the first quarter of 2018. The Company is evaluating~~that the impact of ~~the standard and does not expect to recognize a significant cumulative effect adjustment to retained earnings at the beginning of the year of~~ adoption ~~or expect the guidance to have a material effect on its financial statements. The cumulative-effect adjustment will~~could be ~~dependent on~~significantly influenced by the composition, characteristics and ~~fair value~~quality of its loan portfolio as well as the ~~Company’s equity securities portfolio at the adoption date.~~

~~In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” This ASU~~’s core principle is that an entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgmentprevailing economic conditions and make more estimates than under existing guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers” deferring the effective date of ASU 2014-09 for the Company until fiscal years beginning after December 15, 2017, with early adoption permitted for fiscal years beginning after December 15, 2016. Additional revenue related standards to be adopted concurrently with ASU 2014-09 include ASU 2017-10, ASU 2017-05, ASU 2016-20, ASU 2016-12, ASU 2016-10, and ASU 2016-08. The Company expects to adopt ASU 2014-09, and related updates, in the first quarter of 2018 and recognize a cumulative adjustment to retained earningsforecasts as of the ~~beginning of the year of~~ adoption if necessary. The Company’s primary source of revenue is interest income, which is excluded from the scope of this guidance; however, the Company is evaluating the impact of the standard on other income, which includes fees for services, commissions on sales, and various deposit service charges. The Company does not expect the guidance to have a material effect on its financial statements.date.

The Company does not expect other recent accounting standards issued by the FASB or other standards-setting bodies to have a material impact on the consolidated financial statements.

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Note 2. ~~Investment~~ Debt Securities

The following tables present the amortized cost and fair value of available-for-sale debt securities, including gross unrealized gains and losses, as of the dates indicated:

	September 30, 2017									June 30, 2019
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
(Amounts in thousands)
U.S. Agency securities										$	1,049	$	-	$	(1	)	$	1,048
U.S. Treasury securities	$	36,973	$	-	$	(9	)	$	36,964		-		-		-			-
U.S. Agency securities		1,254		21		-			1,275
Municipal securities		102,347		2,648		(88	)		104,907		82,776		1,164		(2	)		83,938
Single issue trust preferred securities		9,363		-		(401	)		8,962
Mortgage-backed Agency securities		22,518		72		(347	)		22,243		34,019		270		(199	)		34,090
Equity securities		55		18		-			73
Total securities available for sale	$	172,510	$	2,759	$	(845	)	$	174,424
Total										$	117,844	$	1,434	$	(202	)	$	119,076

	December 31, 2016									December 31, 2018
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
(Amounts in thousands)
U.S. Agency securities	$	1,342	$	3	$	-		$	1,345	$	1,108	$	5	$	-		$	1,113
U.S. Treasury securities											19,970		-		(10	)		19,960
Municipal securities		111,659		2,258		(586	)		113,331		96,886		912		(509	)		97,289
Single issue trust preferred securities		22,104		-		(2,165	)		19,939
Mortgage-backed Agency securities		31,290		66		(465	)		30,891		35,513		14		(773	)		34,754
Equity securities		55		18		-			73
Total securities available for sale	$	166,450	$	2,345	$	(3,216	)	$	165,579
Total										$	153,477	$	931	$	(1,292	)	$	153,116

The debt securities held in the held-to-maturity portfolio at December 31, 2018, matured during the first quarter of 2019. The funds were used to repay the Company’s remaining wholesale repurchase agreement of $25 million. The following ~~tables present~~table presents the amortized cost and fair value of held-to-maturity debt securities, including gross unrealized gains and losses, ~~as of the dates indicated:~~at year-end:

September 30, 2017

Amortized

Unrealized

Unrealized

Fair

Cost

Gains

Losses

Value

(Amounts in thousands)

U.S. Agency securities
$ 17,949 $ 31 $ - $ 17,980
Corporate securities
7,233 13 - 7,246
Total securities held to maturity
$ 25,182 $ 44 $ - $ 25,226

	December 31, 2016									December 31, 2018
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
(Amounts in thousands)
U.S. Agency securities	$	36,741	$	124	$	-		$	36,865	$	17,887	$	-	$	(20	)	$	17,867
Corporate securities		10,392		11		(2	)		10,401		7,126		-		(3	)		7,123
Total securities held to maturity	$	47,133	$	135	$	(2	)	$	47,266
Total										$	25,013	$	-	$	(23	)	$	24,990

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TheThe following table presents the amortized cost and aggregate fair value of available-for-sale ~~securities and held-to-maturity~~debt securities by contractual maturity, as of the date indicated. Actual maturities could differ from contractual maturities because issuers may have the right to call or prepay obligations with or without penalties.

	September 30, 2017				June 30, 2019
	Amortized				Amortized
(Amounts in thousands)	Cost		Fair Value		Cost		Fair Value
Available-for-sale securities
Available-for-sale debt securities
Due within one year	$	37,288	$	37,279	$	-	$	-
Due after one year but within five years		5,617		5,734		20,759		21,015
Due after five years but within ten years		96,693		98,602		63,066		63,971
Due after ten years		10,339		10,493		-		-
		149,937		152,108		83,825		84,986
Mortgage-backed securities		22,518		22,243		34,019		34,090
Equity securities		55		73
Total securities available for sale	$	172,510	$	174,424

Held-to-maturity securities
Due within one year	$	-	$	-
Due after one year but within five years		25,182		25,226
Due after five years but within ten years		-		-
Due after ten years		-		-
Total securities held to maturity	$	25,182	$	25,226
Total debt securities available for sale					$	117,844	$	119,076

The following tables present the fair values and unrealized losses for available-for-sale debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the dates indicated:

	September 30, 2017															June 30, 2019
	Less than 12 Months					12 Months or Longer					Total					Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
(Amounts in thousands)
U.S. Treasury securities	$	36,963	$	(9	)	$	-	$	-		$	36,963	$	(9	)
U.S. Agency securities																$	1,039	$	(1	)	$	-	$	-		$	1,039	$	(1	)
Municipal securities		9,421		(52	)		1,427		(36	)		10,848		(88	)		-		-			268		(2	)		268		(2	)
Single issue trust preferred securities		-		-			8,962		(401	)		8,962		(401	)
Mortgage-backed Agency securities		7,898		(59	)		8,281		(288	)		16,179		(347	)		13,188		(198	)		515		(1	)		13,703		(199	)
Total	$	54,282	$	(120	)	$	18,670	$	(725	)	$	72,952	$	(845	)	$	14,227	$	(199	)	$	783	$	(3	)	$	15,010	$	(202	)

	December 31, 2016															December 31, 2018
	Less than 12 Months					12 Months or Longer					Total					Less than 12 Months					12 Months or Longer					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
(Amounts in thousands)
U.S. Treasury securities																$	19,960	$	(10	)	$	-	$	-		$	19,960	$	(10	)
Municipal securities	$	24,252	$	(527	)	$	715	$	(59	)	$	24,967	$	(586	)		7,116		(62	)		18,081		(447	)		25,197		(509	)
Single issue trust preferred securities		-		-			19,939		(2,165	)		19,939		(2,165	)
Mortgage-backed Agency securities		12,834		(166	)		11,851		(299	)		24,685		(465	)		15,762		(99	)		15,344		(674	)		31,106		(773	)
Total	$	37,086	$	(693	)	$	32,505	$	(2,523	)	$	69,591	$	(3,216	)	$	42,838	$	(171	)	$	33,425	$	(1,121	)	$	76,263	$	(1,292	)

Table of Contents

~~There were no unrealized losses for held-to-maturity securities as of~~ ~~September 30, 2017.~~ The following table presents the fair values and unrealized losses for held-to-maturity debt securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer as of the ~~date~~dates indicated:

December 31, 2016

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses

(Amounts in thousands)

Corporate securities
$ 3,533 $ (2 ) $ - $ - $ 3,533 $ (2 )
Total
$ 3,533 $ (2 ) $ - $ - $ 3,533 $ (2 )

	December 31, 2018
	Less than 12 Months				12 Months or Longer					Total
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
	Value		Losses		Value		Losses			Value		Losses
(Amounts in thousands)
U.S. Agency securities	$	-	$	-	$	17,867	$	(20	)	$	17,867	$	(20	)
Corporate securities		-		-		7,123		(3	)		7,123		(3	)
Total	$	-	$	-	$	24,990	$	(23	)	$	24,990	$	(23	)

T~~here~~

There were 4519 individual debt securities in an unrealized loss position as of ~~September~~June 30, ~~2017,~~2019, and their combined depreciation in value represented ~~0.42%~~0.17% of the ~~investment~~debt securities portfolio. There were 8290 individual debt securities in an unrealized loss position as of December 31, ~~2016,~~2018, and their combined depreciation in value represented ~~1.51%~~0.74% of the ~~investment~~debt securities portfolio.

The Company reviews its investment portfolio quarterly for indications of other-than-temporary impairment (“OTTI”). The initial indicator of OTTI for ~~both~~ debt ~~and equity~~ securities is a decline in fair value below book value and the severity and duration of the decline. ~~For debt securities, the~~The credit-related OTTI is recognized as a charge to noninterest income and the noncredit-related OTTI is recognized in other comprehensive income (“OCI”). During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019 and 2018, the Company incurred no OTTI charges on debt securities. During the three and nine months ended September 30, 2016, the Company incurred OTTI charges on debt securities owned of $4.64 million related to the Company’s change in intent to hold certain securities to recovery. The intent was changed to sell specific trust preferred securities in the Company’s investment portfolio primarily to reduce credit concentrations with two issuers. Temporary impairment on debt securities is primarily related to changes in benchmark interest rates, changes in pricing in the credit markets, and other current economic factors. For equity securities, the OTTI is recognized as a charge to noninterest income. During the three and nine months ended September 30, 2017, the Company incurred no OTTI charges related to equity securities. During the three months ended September 30, 2016, the Company incurred no OTTI charges related to equity holdings. During the nine months ended September 30, 2016, the Company incurred OTTI charges related to certain equity holdings of $11 thousand.

The following table presents gross realized gains and losses from the sale of available-for-sale debt securities for the periods indicated:

	Three Months Ended					Nine Months Ended						Three Months Ended					Six Months Ended
	September 30,					September 30,						June 30,					June 30,
	2017		2016			2017			2016			2019			2018		2019			2018
(Amounts in thousands)
Gross realized gains	$	-	$	203		$	-		$	344		$	67		$	-	$	67		$	-
Gross realized losses		-		(178	)		(657	)		(397	)		(110	)		-		(110	)		-
Net gain (loss) on sale of securities	$	-	$	25		$	(657	)	$	(53	)
Net loss on sale of securities												$	(43	)	$	-	$	(43	)	$	-

The carrying amount of securities pledged for various purposes totaled ~~$99.69~~$25.96 million as of ~~September~~June 30, ~~2017,~~2019, and ~~$139.75~~$38.25 million as of December 31, ~~2016.~~2018.

Note 3. Loans

The Company groups loans held for investment into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Covered loans are those loans acquired in Federal Deposit Insurance Corporation (“FDIC”) assisted transactions that are covered by loss share agreements. Customer overdrafts reclassified as loans totaled ~~$1.45~~$1.68 million as of ~~September~~June 30, ~~2017,~~2019, and ~~$1.41~~$1.79 million as of December 31, ~~2016.~~2018. Deferred loan fees, net of loan costs, totaled ~~$4.48~~$4.30 million as of ~~September~~June 30, ~~2017,~~2019, and ~~$5.34~~$4.60 million as of December 31, ~~2016.~~2018. For information about off-balance sheet financing, see Note ~~14,~~15, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.

Table of Contents

The following table presents ~~loan~~s,loans, net of unearned income, with the non-covered portfolio by loan class, as of the dates indicated:

	September 30, 2017					December 31, 2016					June 30, 2019					December 31, 2018
(Amounts in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Non-covered loans held for investment
Commercial loans
Construction, development, and other land	$	72,952		3.97	%	$	56,948		3.07	%	$	62,155		3.61	%	$	63,508		3.58	%
Commercial and industrial		90,184		4.91	%		92,204		4.98	%		92,304		5.36	%		104,863		5.91	%
Multi-family residential		125,997		6.86	%		134,228		7.24	%		100,569		5.84	%		107,012		6.03	%
Single family non-owner occupied		143,213		7.79	%		142,965		7.72	%		139,180		8.11	%		140,097		7.89	%
Non-farm, non-residential		613,380		33.38	%		598,674		32.31	%		596,163		34.64	%		613,877		34.58	%
Agricultural		6,096		0.33	%		6,003		0.32	%		9,462		0.55	%		8,545		0.48	%
Farmland		27,897		1.52	%		31,729		1.71	%		17,322		1.01	%		18,905		1.07	%
Total commercial loans		1,079,719		58.76	%		1,062,751		57.35	%		1,017,155		59.12	%		1,056,807		59.54	%
Consumer real estate loans
Home equity lines		102,888		5.60	%		106,361		5.74	%		88,094		5.12	%		93,466		5.27	%
Single family owner occupied		501,242		27.27	%		500,891		27.03	%		493,555		28.67	%		510,963		28.78	%
Owner occupied construction		47,034		2.56	%		44,535		2.41	%		13,755		0.80	%		18,171		1.02	%
Total consumer real estate loans		651,164		35.43	%		651,787		35.18	%		595,404		34.59	%		622,600		35.07	%
Consumer and other loans
Consumer loans		70,695		3.85	%		77,445		4.18	%		88,352		5.13	%		71,552		4.03	%
Other		4,856		0.26	%		3,971		0.21	%		4,497		0.26	%		5,310		0.30	%
Total consumer and other loans		75,551		4.11	%		81,416		4.39	%		92,849		5.39	%		76,862		4.33	%
Total non-covered loans		1,806,434		98.30	%		1,795,954		96.92	%		1,705,408		99.10	%		1,756,269		98.94	%
Total covered loans		31,287		1.70	%		56,994		3.08	%		15,520		0.90	%		18,815		1.06	%
Total loans held for investment, net of unearned income	$	1,837,721		100.00	%	$	1,852,948		100.00	%	$	1,720,928		100.00	%	$	1,775,084		100.00	%

The following table presents the covered loan portfolio, by loan class, as of the dates indicated:

	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
(Amounts in thousands)
Covered loans
Commercial loans
Construction, development, and other land	$	40	$	4,570	$	31	$	35
Commercial and industrial		-		895
Multi-family residential		-		8
Single family non-owner occupied		292		962		224		238
Non-farm, non-residential		10		7,512		5		6
Agricultural		-		25
Farmland		-		397
Total commercial loans		342		14,369		260		279
Consumer real estate loans
Home equity lines		26,850		35,817		12,254		15,284
Single family owner occupied		4,095		6,729		3,006		3,252
Total consumer real estate loans		30,945		42,546		15,260		18,536
Consumer and other loans
Consumer loans		-		79
Total covered loans	$	31,287	$	56,994	$	15,520	$	18,815

Table of Contents

The Company identifies certain purchased loans as impaired when fair values are established at acquisition and groups those purchased credit impaired (“PCI”) loans into loan pools with common risk characteristics. The Company estimates cash flows to be collected on PCI loans and discounts those cash flows at a market rate of interest.

~~Table of Contents~~

The following table presents the recorded investment and contractual unpaid principal balance of PCI loans, by acquisition, as of the dates indicated:

	September 30, 2017				December 31, 2016				June 30, 2019				December 31, 2018
(Amounts in thousands)	Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance		Recorded Investment		Unpaid Principal Balance
PCI Loans, by acquisition
Peoples	$	5,179	$	8,328	$	5,576	$	9,397	$	5,200	$	6,811	$	5,330	$	7,272
Waccamaw		14,903		34,420		21,758		45,030		4,256		16,407		5,805		19,602
Other acquired		1,011		1,037		1,095		1,121		371		397		868		894
Total PCI Loans	$	21,093	$	43,785	$	28,429	$	55,548	$	9,827	$	23,615	$	12,003	$	27,768

The following table presents the changes in the accretable yield on PCI loans, by acquisition, during the periods indicated:

	Peoples			Waccamaw			Total			Peoples			Waccamaw			Total
(Amounts in thousands)
Balance January 1, 2016	$	3,589		$	26,109		$	29,698
Balance January 1, 2018										$	3,388		$	19,465		$	22,853
Accretion											(686	)		(3,167	)		(3,853	)
Reclassifications (to) from nonaccretable difference⁽¹⁾											(22	)		1,221			1,199
Other changes, net											212			(74	)		138
Balance June 30, 2018										$	2,892		$	17,445		$	20,337

Balance January 1, 2019										$	2,590		$	14,639		$	17,229
Accretion		(982	)		(4,408	)		(5,390	)		(503	)		(2,151	)		(2,654	)
Reclassifications from nonaccretable difference⁽¹⁾		231			848			1,079			11			851			862
Other changes, net		1,774			4			1,778			111			341			452
Balance September 30, 2016	$	4,612		$	22,553		$	27,165

Balance January 1, 2017	$	4,392		$	21,834		$	26,226
Accretion		(969	)		(4,690	)		(5,659	)
Reclassifications from nonaccretable difference⁽¹⁾		782			2,525			3,307
Other changes, net		(375	)		(311	)		(686	)
Balance September 30, 2017	$	3,830		$	19,358		$	23,188

(1) Represents changes attributable to expected loss assumptions
Balance June 30, 2019										$	2,209		$	13,680		$	15,889

(1) Represents changes attributable to expected loss assumptions

Note 4. Credit Quality

The Company uses a risk grading matrix to assign a risk grade to each loan in its portfolio. Loan risk ratings may be upgraded or downgraded to reflect current information identified during the loan review process. The general characteristics of each risk grade are as follows:

●

Pass -- This grade is assigned to loans with acceptable credit quality and risk. The Company further segments this grade based on borrower characteristics that include capital strength, earnings stability, liquidity, leverage, and industry conditions.

●

Special Mention -- This grade is assigned to loans that require an above average degree of supervision and attention. These loans have the characteristics of an asset with acceptable credit quality and risk; however, adverse economic or financial conditions exist that create potential weaknesses deserving of ~~management~~’smanagement’s close attention. If potential weaknesses are not corrected, the prospect of repayment may worsen.

●

Substandard -- This grade is assigned to loans that have well defined weaknesses that may make payment default, or principal exposure, possible. These loans will likely be dependent on collateral liquidation, secondary repayment sources, or events outside the normal course of business to meet repayment terms.

●

Doubtful -- This grade is assigned to loans that have the weaknesses inherent in substandard loans; however, the weaknesses are so severe that collection or liquidation in full is unlikely based on current facts, conditions, and values. Due to certain specific pending factors, the amount of loss cannot yet be determined.

●

Loss -- This grade is assigned to loans that will be charged off or charged down when payments, including the timing and value of payments, are uncertain. This risk grade does not imply that the asset has no recovery or salvage value, but simply means that it is not practical or desirable to defer writing off, either all or a portion of, the loan balance even though partial recovery may be realized in the future.

Table of Contents

The following tables present the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates indicated. Losses on covered loans are generally reimbursable by the FDIC at the applicable loss share percentage, 80%; therefore, covered loans are disclosed separately.

	September 30, 2017												June 30, 2019
			Special												Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total		Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	69,257	$	2,791	$	904	$	-	$	-	$	72,952	$	60,835	$	587	$	733	$	-	$	-	$	62,155
Commercial and industrial		85,368		1,844		2,972		-		-		90,184		89,541		1,722		1,041		-		-		92,304
Multi-family residential		119,399		5,882		716		-		-		125,997		98,396		832		1,341		-		-		100,569
Single family non-owner occupied		132,000		6,839		4,374		-		-		143,213		129,951		3,750		5,479		-		-		139,180
Non-farm, non-residential		593,809		11,126		8,243		202		-		613,380		579,747		5,307		11,019		90		-		596,163
Agricultural		5,743		235		118		-		-		6,096		8,948		100		414		-		-		9,462
Farmland		25,097		153		2,647		-		-		27,897		15,272		519		1,531		-		-		17,322
Consumer real estate loans
Home equity lines		100,375		850		1,663		-		-		102,888		85,707		636		1,751		-		-		88,094
Single family owner occupied		471,378		5,705		24,159		-		-		501,242		465,864		3,814		23,877		-		-		493,555
Owner occupied construction		46,802		-		232		-		-		47,034		13,134		-		621		-		-		13,755
Consumer and other loans
Consumer loans		70,459		27		209		-		-		70,695		87,917		10		425		-		-		88,352
Other		4,856		-		-		-		-		4,856		4,497		-		-		-		-		4,497
Total non-covered loans		1,724,543		35,452		46,237		202		-		1,806,434		1,639,809		17,277		48,232		90		-		1,705,408
Covered loans
Commercial loans
Construction, development, and other land		-		39		1		-		-		40		-		31		-		-		-		31
Single family non-owner occupied		271		-		21		-		-		292		212		-		12		-		-		224
Non-farm, non-residential		-		-		10		-		-		10		5		-		-		-		-		5
Consumer real estate loans
Home equity lines		12,242		13,840		768		-		-		26,850		8,126		3,803		325		-		-		12,254
Single family owner occupied		3,136		425		534		-		-		4,095		2,289		334		383		-		-		3,006
Total covered loans		15,649		14,304		1,334		-		-		31,287		10,632		4,168		720		-		-		15,520
Total loans	$	1,740,192	$	49,756	$	47,571	$	202	$	-	$	1,837,721	$	1,650,441	$	21,445	$	48,952	$	90	$	-	$	1,720,928

Table of Contents

	December 31, 2016												December 31, 2018
			Special												Special
(Amounts in thousands)	Pass		Mention		Substandard		Doubtful		Loss		Total		Pass		Mention		Substandard		Doubtful		Loss		Total
Non-covered loans
Commercial loans
Construction, development, and other land	$	55,188	$	980	$	780	$	-	$	-	$	56,948	$	61,877	$	661	$	970	$	-	$	-	$	63,508
Commercial and industrial		87,581		3,483		1,137		-		3		92,204		102,044		2,166		653		-		-		104,863
Multi-family residential		126,468		6,992		768		-		-		134,228		104,183		1,087		1,742		-		-		107,012
Single family non-owner occupied		131,934		5,466		5,565		-		-		142,965		131,443		4,395		4,259		-		-		140,097
Non-farm, non-residential		579,134		10,236		9,102		202		-		598,674		595,659		8,166		9,906		146		-		613,877
Agricultural		5,839		164		-		-		-		6,003		8,328		131		86		-		-		8,545
Farmland		28,887		1,223		1,619		-		-		31,729		16,898		538		1,469		-		-		18,905
Consumer real estate loans
Home equity lines		104,033		871		1,457		-		-		106,361		91,194		649		1,623		-		-		93,466
Single family owner occupied		475,402		4,636		20,381		472		-		500,891		482,794		4,355		23,814		-		-		510,963
Owner occupied construction		43,833		-		702		-		-		44,535		17,872		-		299		-		-		18,171
Consumer and other loans
Consumer loans		77,218		11		216		-		-		77,445		71,240		4		308		-		-		71,552
Other		3,971		-		-		-		-		3,971		5,310		-		-		-		-		5,310
Total non-covered loans		1,719,488		34,062		41,727		674		3		1,795,954		1,688,842		22,152		45,129		146		-		1,756,269
Covered loans
Commercial loans
Construction, development, and other land		2,768		803		999		-		-		4,570		-		35		-		-		-		35
Commercial and industrial		882		-		13		-		-		895
Multi-family residential		-		-		8		-		-		8
Single family non-owner occupied		796		63		103		-		-		962		223		-		15		-		-		238
Non-farm, non-residential		6,423		537		552		-		-		7,512		-		-		6		-		-		6
Agricultural		25		-		-		-		-		25
Farmland		132		-		265		-		-		397
Consumer real estate loans
Home equity lines		14,283		20,763		771		-		-		35,817		9,511		5,244		529		-		-		15,284
Single family owner occupied		4,601		928		1,200		-		-		6,729		2,507		355		390		-		-		3,252
Consumer and other loans
Consumer loans		79		-		-		-		-		79
Total covered loans		29,989		23,094		3,911		-		-		56,994		12,241		5,634		940		-		-		18,815
Total loans	$	1,749,477	$	57,156	$	45,638	$	674	$	3	$	1,852,948	$	1,701,083	$	27,786	$	46,069	$	146	$	-	$	1,775,084

The Company identifies loans for potential impairment through a variety of means, including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If the Company determines that it is probable all principal and interest amounts contractually due will not be collected, the loan is generally deemed impaired.

Table of Contents

The following table presents the recorded investment, unpaid principal balance, and related allowance for loan losses for impaired loans, excluding PCI loans, as of the dates indicated:

	September 30, 2017						December 31, 2016						June 30, 2019						December 31, 2018
			Unpaid						Unpaid						Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related		Recorded		Principal		Related
(Amounts in thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance		Investment		Balance		Allowance
Impaired loans with no related allowance
Commercial loans
Construction, development, and other land	$	662	$	999	$	-	$	33	$	35	$	-	$	600	$	815	$	-	$	824	$	840	$	-
Commercial and industrial		146		1,093		-		346		383		-		139		160		-		386		416		-
Multi-family residential		381		836		-		294		369		-		1,265		1,666		-		1,127		1,274		-
Single family non-owner occupied		2,485		3,891		-		3,084		3,334		-		2,980		3,495		-		2,761		3,095		-
Non-farm, non-residential		3,905		6,239		-		3,829		4,534		-		4,968		5,685		-		4,154		4,494		-
Agricultural		118		122		-		-		-		-		47		49		-		86		96		-
Farmland		990		1,037		-		1,161		1,188		-		1,257		1,529		-		1,464		1,547		-
Consumer real estate loans
Home equity lines		1,624		1,766		-		913		968		-		1,467		1,575		-		1,315		1,451		-
Single family owner occupied		16,768		18,932		-		11,779		12,630		-		15,650		17,730		-		15,451		18,390		-
Owner occupied construction		233		233		-		573		589		-		223		223		-		225		225		-
Consumer and other loans
Consumer loans		61		63		-		62		103		-		137		141		-		145		156		-
Total impaired loans with no allowance		27,373		35,211		-		22,074		24,133		-		28,733		33,068		-		27,938		31,984		-

Impaired loans with a related allowance
Commercial loans
Construction, development, and other land		-		-		-		-		-		-
Commercial and industrial		2,400		2,400		262		-		-		-		-		-		-		-		-		-
Multi-family residential														-		-		-		534		536		230
Single family non-owner occupied		771		772		69		351		351		31		-		-		-		-		-		-
Non-farm, non-residential		865		874		325		-		-		-		670		670		175		840		842		235
Farmland		410		418		50		430		430		18		-		-		-		-		-		-
Consumer real estate loans
Home equity lines		-		-		-		-		-		-		-		-		-		65		68		65
Single family owner occupied		3,771		3,779		754		4,118		4,174		770		2,981		2,981		764		3,631		3,683		922
Total impaired loans with an allowance		8,217		8,243		1,460		4,899		4,955		819		3,651		3,651		939		5,070		5,129		1,452
Total impaired loans⁽¹⁾	$	35,590	$	43,454	$	1,460	$	26,973	$	29,088	$	819	$	32,384	$	36,719	$	939	$	33,008	$	37,113	$	1,452

(1)

~~Includes~~Total impaired loans include loans totaling ~~$20.07~~$21.52 million as of ~~September~~June 30, ~~2017,~~2019, and ~~$16.89~~$25.27 million as of December 31, ~~2016,~~2018, that do not meet the Company's evaluation threshold for individual impairment and are therefore collectively evaluated for ~~impairment~~impairment.

Table of Contents

The following table presents the average recorded investment and interest income recognized on impaired loans, excluding PCI loans, for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

(Amounts in thousands)

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Interest Income Recognized

Average Recorded Investment

Impaired loans with no related allowance:

Commercial loans

Construction, development, and other land
$ 32 $ 907 $ 22 $ 600 $ 32 $ 309 $ 22 $ 447
Commercial and industrial
5 754 6 1,029 8 468 10 738
Multi-family residential
- 509 15 562 3 474 15 309
Single family non-owner occupied
11 3,304 91 3,498 88 3,313 107 3,035
Non-farm, non-residential
68 5,244 65 8,930 93 3,766 307 10,186
Agricultural
4 127 - - 4 127 - -
Farmland
17 1,003 5 204 17 1,004 9 186
Consumer real estate loans

Home equity lines
15 1,683 6 1,157 35 1,259 21 1,318
Single family owner occupied
137 17,478 91 13,175 317 15,209 254 12,436
Owner occupied construction
1 235 2 585 6 234 7 470
Consumer and other loans

Consumer loans
1 62 2 63 3 52 2 45
Total impaired loans with no related allowance
291 31,306 305 29,803 606 26,215 754 29,170

Impaired loans with a related allowance:

Commercial loans

Construction, development, and other land
- - - - - 143 - -
Commercial and industrial
50 2,516 - - 103 1,727 - -
Single family non-owner occupied
8 778 5 682 21 488 18 572
Non-farm, non-residential
- 872 45 4,658 15 964 215 5,108
Farmland
- 413 - - - 275 - -
Consumer real estate loans

Home equity lines
- - - - - 139 - -
Single family owner occupied
24 3,814 24 4,130 92 4,527 91 4,547
Owner occupied construction
- - - - - 1 - 115
Total impaired loans with a related allowance
82 8,393 74 9,470 231 8,264 324 10,342
Total impaired loans
$ 373 $ 39,699 $ 379 $ 39,273 $ 837 $ 34,479 $ 1,078 $ 39,512

~~The following tables provide information on impaired PCI loan pools as of and for the dates indicated:~~

September 30, 2017

December 31, 2016

(Amounts in thousands, except impaired loan pools)

Unpaid principal balance
$ - $ 1,086
Recorded investment
- 1,085
Allowance for loan losses related to PCI loan pools
- 12

Impaired PCI loan pools
- 1

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

(Amounts in thousands)

Interest income recognized
$ - $ 12 $ 20 $ 130
Average recorded investment
- 1,139 705 2,195

	Three Months Ended June 30,								Six Months Ended June 30,
	2019				2018				2019				2018
(Amounts in thousands)	Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment
Impaired loans with no related allowance:
Commercial loans
Construction, development, and other land	$	5	$	790	$	1	$	823	$	12	$	795	$	14	$	969
Commercial and industrial		2		149		2		237		5		383		3		411
Multi-family residential		7		1,269		-		296		16		1,444		10		547
Single family non-owner occupied		28		3,237		25		2,307		56		3,116		48		2,634
Non-farm, non-residential		47		5,230		-		4,048		64		4,953		39		5,579
Agricultural		-		48		-		175		2		51		-		229
Farmland		10		1,438		6		1,336		26		1,444		15		887
Consumer real estate loans
Home equity lines		7		1,484		10		1,837		14		1,446		17		1,822
Single family owner occupied		154		15,838		86		14,247		278		15,889		193		14,917
Owner occupied construction		2		223		3		292		4		222		6		259
Consumer and other loans
Consumer loans		3		137		5		207		4		121		6		141
Total impaired loans with no related allowance		265		29,843		138		25,805		481		29,864		351		28,395

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		-		-		-		-		-		-		-		-
Commercial and industrial		-		-		-		-		-		-		-		-
Single family non-owner occupied		-		-		-		-		-		-		7		439
Non-farm, non-residential		8		553		-		1,374		8		277		-		770
Farmland		-		-		-		409		-		-		-		407
Consumer real estate loans
Home equity lines		-		-		2		68		-		-		2		70
Single family owner occupied		36		2,987		59		7,040		65		2,639		91		6,257
Owner occupied construction		-		-		-		-		-		-		-		-
Total impaired loans with a related allowance		44		3,540		61		8,891		73		2,916		100		7,943
Total impaired loans	$	309	$	33,383	$	199	$	34,696	$	554	$	32,780	$	451	$	36,338

Table of Contents

The Company generally places a loan on nonaccrual status when it is 90 days or more past due. PCI loans are generally not classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. The following table presents nonaccrual loans, by loan class, as of the dates indicated:

	September 30, 2017						December 31, 2016						June 30, 2019						December 31, 2018
(Amounts in thousands)	Non-covered		Covered		Total		Non-covered		Covered		Total		Non-covered		Covered		Total		Non-covered		Covered		Total
Commercial loans
Construction, development, and other land	$	126	$	-	$	126	$	72	$	32	$	104	$	244	$	-	$	244	$	413	$	-	$	413
Commercial and industrial		118		-		118		332		13		345		87		-		87		428		-		428
Multi-family residential		330		-		330		294		-		294		1,150		-		1,150		1,395		-		1,395
Single family non-owner occupied		1,626		20		1,646		1,242		24		1,266		1,392		13		1,405		1,696		15		1,711
Non-farm, non-residential		3,352		-		3,352		3,295		30		3,325		3,302		-		3,302		4,020		-		4,020
Agricultural		118		-		118		-		-		-		47		-		47		86		-		86
Farmland		870		-		870		1,591		-		1,591		519		-		519		711		-		711
Consumer real estate loans
Home equity lines		828		350		1,178		705		400		1,105		719		185		904		614		271		885
Single family owner occupied		11,517		50		11,567		7,924		109		8,033		8,824		5		8,829		10,141		36		10,177
Owner occupied construction		-		-		-		336		-		336
Consumer and other loans
Consumer loans		57		-		57		63		-		63		84		-		84		79		-		79
Total nonaccrual loans	$	18,942	$	420	$	19,362	$	15,854	$	608	$	16,462	$	16,368	$	203	$	16,571	$	19,583	$	322	$	19,905

Table of Contents

The following tables present the aging of past due loans, by loan class, as of the dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. ~~There were no non-covered~~Non-covered accruing loans contractually past due 90 days or more totaled $37 thousand as of ~~September~~June 30, ~~2017, or~~2019, compared to $58 thousand as of December 31, ~~2016.~~2018.

	September 30, 2017												June 30, 2019
	30 - 59 Days		60 - 89 Days		90+ Days		Total		Current		Total		30 - 59 Days		60 - 89 Days		90+ Days		Total		Current		Total
(Amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Past Due		Past Due		Past Due		Past Due		Loans		Loans
Non-covered loans
Commercial loans
Construction, development, and other land	$	25	$	-	$	-	$	25	$	72,927	$	72,952	$	31	$	3	$	241	$	275	$	61,880	$	62,155
Commercial and industrial		226		36		47		309		89,875		90,184		150		241		63		454		91,850		92,304
Multi-family residential		341		185		-		526		125,471		125,997		-		314		946		1,260		99,309		100,569
Single family non-owner occupied		405		186		861		1,452		141,761		143,213		763		426		962		2,151		137,029		139,180
Non-farm, non-residential		523		17		2,623		3,163		610,217		613,380		1,507		331		2,906		4,744		591,419		596,163
Agricultural		6		-		-		6		6,090		6,096		138		217		-		355		9,107		9,462
Farmland		849		410		343		1,602		26,295		27,897		297		-		469		766		16,556		17,322
Consumer real estate loans
Home equity lines		242		105		298		645		102,243		102,888		623		63		513		1,199		86,895		88,094
Single family owner occupied		3,133		1,414		6,199		10,746		490,496		501,242		3,419		1,804		4,098		9,321		484,234		493,555
Owner occupied construction		330		-		-		330		46,704		47,034		-		-		-		-		13,755		13,755
Consumer and other loans
Consumer loans		360		62		38		460		70,235		70,695		735		143		73		951		87,401		88,352
Other		-		-		-		-		4,856		4,856		-		-		-		-		4,497		4,497
Total non-covered loans		6,440		2,415		10,409		19,264		1,787,170		1,806,434		7,663		3,542		10,271		21,476		1,683,932		1,705,408
Covered loans
Commercial loans
Construction, development, and other land		-		-		-		-		40		40		-		-		-		-		31		31
Single family non-owner occupied		72		-		-		72		220		292		13		-		-		13		211		224
Non-farm, non-residential		-		-		-		-		10		10		-		-		-		-		5		5
Consumer real estate loans
Home equity lines		291		-		118		409		26,441		26,850		652		79		2		733		11,521		12,254
Single family owner occupied		-		-		28		28		4,067		4,095		-		-		-		-		3,006		3,006
Total covered loans		363		-		146		509		30,778		31,287		665		79		2		746		14,774		15,520
Total loans	$	6,803	$	2,415	$	10,555	$	19,773	$	1,817,948	$	1,837,721	$	8,328	$	3,621	$	10,273	$	22,222	$	1,698,706	$	1,720,928

Table of Contents

	December 31, 2016												December 31, 2018
	30 - 59 Days		60 - 89 Days		90+ Days		Total		Current		Total		30 - 59 Days		60 - 89 Days		90+ Days		Total		Current		Total
(Amounts in thousands)	Past Due		Past Due		Past Due		Past Due		Loans		Loans		Past Due		Past Due		Past Due		Past Due		Loans		Loans
Non-covered loans
Commercial loans
Construction, development, and other land	$	33	$	5	$	17	$	55	$	56,893	$	56,948	$	111	$	-	$	407	$	518	$	62,990	$	63,508
Commercial and industrial		174		30		149		353		91,851		92,204		306		-		262		568		104,295		104,863
Multi-family residential		163		-		281		444		133,784		134,228		113		-		1,274		1,387		105,625		107,012
Single family non-owner occupied		1,302		159		835		2,296		140,669		142,965		514		1,115		992		2,621		137,476		140,097
Non-farm, non-residential		1,235		332		2,169		3,736		594,938		598,674		1,332		540		2,398		4,270		609,607		613,877
Agricultural		-		5		-		5		5,998		6,003		109		-		-		109		8,436		8,545
Farmland		224		343		565		1,132		30,597		31,729		640		-		392		1,032		17,873		18,905
Consumer real estate loans
Home equity lines		78		136		658		872		105,489		106,361		408		209		334		951		92,515		93,466
Single family owner occupied		4,777		2,408		3,311		10,496		490,395		500,891		5,006		3,495		4,445		12,946		498,017		510,963
Owner occupied construction		342		336		-		678		43,857		44,535		-		-		-		-		18,171		18,171
Consumer and other loans
Consumer loans		371		90		15		476		76,969		77,445		507		200		59		766		70,786		71,552
Other		-		-		-		-		3,971		3,971		-		-		-		-		5,310		5,310
Total non-covered loans		8,699		3,844		8,000		20,543		1,775,411		1,795,954		9,046		5,559		10,563		25,168		1,731,101		1,756,269
Covered loans
Commercial loans
Construction, development, and other land		434		-		32		466		4,104		4,570		-		-		-		-		35		35
Commercial and industrial		-		-		-		-		895		895
Multi-family residential		-		-		-		-		8		8
Single family non-owner occupied		24		-		-		24		938		962		15		-		-		15		223		238
Non-farm, non-residential		32		-		-		32		7,480		7,512		-		-		-		-		6		6
Agricultural		-		-		-		-		25		25
Farmland		-		-		-		-		397		397
Consumer real estate loans
Home equity lines		108		146		62		316		35,501		35,817		176		38		91		305		14,979		15,284
Single family owner occupied		58		-		39		97		6,632		6,729		166		-		-		166		3,086		3,252
Owner occupied construction		-		-		-		-		-		-
Consumer and other loans
Consumer loans		-		-		-		-		79		79
Total covered loans		656		146		133		935		56,059		56,994		357		38		91		486		18,329		18,815
Total loans	$	9,355	$	3,990	$	8,133	$	21,478	$	1,831,470	$	1,852,948	$	9,403	$	5,597	$	10,654	$	25,654	$	1,749,430	$	1,775,084

The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Restructured loans in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain ~~troubled debt restructurings (“TDRs”)~~TDRs are classified as nonperforming at the time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. PCI loans are generally not considered TDRs as long as the loans remain in the assigned loan pool. No covered loans were recorded as TDRs as of ~~September~~June 30, ~~2017,~~2019, or December 31, ~~2016.~~2018.

~~Table of Contents~~

The following table presents loans modified as TDRs, by loan class and accrual status, as of the dates indicated:

		September 30, 2017						December 31, 2016						June 30, 2019						December 31, 2018
(Amounts in thousands)	(Amounts in thousands)	Nonaccrual⁽¹⁾		Accruing		Total		Nonaccrual⁽¹⁾		Accruing		Total		Nonaccrual⁽¹⁾		Accruing		Total		Nonaccrual⁽¹⁾		Accruing		Total
Commercial loans	Commercial loans
Construction, development, and other land														$	-	$	-	$	-	$	-	$	-	$	-
Single family non-owner occupied	Single family non-owner occupied	$	33	$	875	$	908	$	38	$	892	$	930		561		604		1,165		640		309		949
Non-farm, non-residential	Non-farm, non-residential		-		295		295		-		4,160		4,160		-		312		312		-		314		314
Consumer real estate loans	Consumer real estate loans
Home equity lines	Home equity lines		-		148		148		-		158		158		3		119		122		-		127		127
Single family owner occupied	Single family owner occupied		1,484		6,690		8,174		905		7,503		8,408		2,163		5,205		7,368		1,941		5,417		7,358
Owner occupied construction	Owner occupied construction		-		234		234		341		239		580		-		223		223		-		225		225
Consumer and other loans
Consumer loans															-		34		34		-		35		35
Total TDRs	Total TDRs	$	1,517	$	8,242	$	9,759	$	1,284	$	12,952	$	14,236	$	2,727	$	6,497	$	9,224	$	2,581	$	6,427	$	9,008

Allowance for loan losses related to TDRs	Allowance for loan losses related to TDRs					$	707					$	670					$	475					$	568

(1)

Nonaccrual TDRs are included in total nonaccrual loans disclosed in the nonaccrual table above.

Table of Contents

The following table presents interest income recognized on TDRs for the periods indicated:

		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended
		2017		2016		2017		2016		2019		2018		2019		2018
(Amounts in thousands)	(Amounts in thousands)
Interest income recognized	Interest income recognized	$	74	$	143	$	159	$	296	$	84	$	64	$	147	$	134

The following tables present loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods ~~indicated. The post-modification recorded investment represents~~indicated:

	Three Months Ended June 30,
	2019						2018
(Amounts in thousands)	Total Contracts		Pre-modification Recorded Investment		Post-modification Recorded Investment⁽¹⁾		Total Contracts		Pre-modification Recorded Investment		Post-modification Recorded Investment⁽¹⁾
Below market interest rate and extended payment term
Single family owner occupied		1	$	80	$	81		-	$	-	$	-
Single family non-owner occupied		1		185		184		-		-		-
Total below market interest rate and extended payment term		2		265		265		-		-		-
Total		2	$	265	$	265		-	$	-	$	-

(1) Represents the loan balance immediately following ~~modification.~~modification

	Three Months Ended September 30,												Six Months Ended June 30,
	2017						2016						2019							2018
(Amounts in thousands)	Total Contracts		Pre-modification Recorded Investment		Post-modification Recorded Investment		Total Contracts		Pre-modification Recorded Investment		Post-modification Recorded Investment		Total Contracts			Pre-modification Recorded Investment		Post-modification Recorded Investment⁽¹⁾		Total Contracts		Pre-modification Recorded Investment		Post-modification Recorded Investment⁽¹⁾
Below market interest rate and extended payment term
Single family owner occupied		1	$	42	$	42		-	$	-	$	-		3		$	454	$	432		-	$	-	$	-
Single family non-owner occupied														2			489		484		-		-		-
Total below market interest rate and extended payment term														5			943		916		-		-		-
Payment deferral
Single family owner occupied														1			66		45		-		-		-
Home equity lines														1			4		3		-		-		-
Total principal deferral														2	��		70		48		-		-		-
Total		1	$	42	$	42		-	$	-	$	-		7		$	1,013	$	964		-	$	-	$	-

Nine Months Ended September 30,

2017

2016

(Amounts in thousands)

Total Contracts

Pre-modification
Recorded Investment

Post-modification
Recorded Investment

Total Contracts

Pre-modification
Recorded Investment

Post-modification
Recorded Investment

Below market interest rate and extended payment term

Single family owner occupied
3 $ 141 $ 141 1 $ 115 $ 115
Total
3 $ 141 $ 141 1 $ 115 $ 115

(1) Represents the loan balance immediately following modification

There were no payment defaults on loans modified as TDRs that were restructured within the previous 12 months as of ~~September~~June 30, ~~2017~~2019 or ~~2016.~~2018.

~~Table of Contents~~

The following table provides information about other real estate owned (“OREO”), which consists of properties acquired through foreclosure, as of the dates indicated:

September 30, 2017

December 31, 2016

(Amounts in thousands)

Non-covered OREO
$ 3,543 $ 5,109
Covered OREO
54 276
Total OREO
$ 3,597 $ 5,385

Non-covered OREO secured by residential real estate
$ 971 $ 1,746
Residential real estate loans in the foreclosure process⁽¹⁾
10,025 2,539


~~(1)~~		~~The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction~~

	June 30, 2019		December 31, 2018
(Amounts in thousands)
Non-covered OREO	$	3,810	$	3,806
Covered OREO		152		32
Total OREO	$	3,962	$	3,838
Non-covered OREO secured by residential real estate	$	2,638	$	2,303
Residential real estate loans in the foreclosure process⁽¹⁾		3,564		6,349

(1) The recorded investment in consumer mortgage loans collateralized by residential real estate that are in the process of foreclosure according to local requirements of the applicable jurisdiction

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Note 5. Allowance for Loan Losses

The following tables present the changes in the allowance for loan losses, by loan segment, during the periods ~~indicated:~~indicated. There was no allowance related to PCI loans as of June 30, 2019.

Three Months Ended September 30, 2017

(Amounts in thousands)

Commercial

Consumer Real
Estate

Consumer and
Other

Total
Allowance

Allowance, excluding PCI

Beginning balance
$ 12,283 $ 5,802 $ 793 $ 18,878
Provision for loan losses charged to operations
358 75 305 738
Charge-offs
(207 ) (137 ) (373 ) (717 )
Recoveries
170 67 70 307
Net charge-offs
(37 ) (70 ) (303 ) (410 )
Ending balance
$ 12,604 $ 5,807 $ 795 $ 19,206

PCI allowance

Beginning balance
$ - $ 8 $ - $ 8
Recovery of loan losses
- (8 ) - (8 )
Benefit attributable to the FDIC indemnification asset
- - - -
Recovery of loan losses charged to operations
- (8 ) - (8 )
Recovery of loan losses recorded through the FDIC indemnification asset
- - - -
Ending balance
$ - $ - $ - $ -

Total allowance

Beginning balance
$ 12,283 $ 5,810 $ 793 $ 18,886
Provision for loan losses
358 67 305 730
Benefit attributable to the FDIC indemnification asset
- - - -
Provision for loan losses charged to operations
358 67 305 730
Recovery of loan losses recorded through the FDIC indemnification asset
- - - -
Charge-offs
(207 ) (137 ) (373 ) (717 )
Recoveries
170 67 70 307
Net charge-offs
(37 ) (70 ) (303 ) (410 )
Ending balance
$ 12,604 $ 5,807 $ 795 $ 19,206

	Three Months Ended June 30, 2019
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Total allowance
Beginning balance	$	10,065		$	6,856		$	1,322		$	18,243
Provision for (Recovery of) loan losses charged to operations		1,263			(68	)		390			1,585
Charge-offs		(1,514	)		(191	)		(409	)		(2,114	)
Recoveries		402			284			140			826
Net (charge-offs) recoveries		(1,112	)		93			(269	)		(1,288	)
Ending balance	$	10,216		$	6,881		$	1,443		$	18,540

	Six Months Ended June 30, 2019
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Total allowance
Beginning balance	$	10,499		$	6,732		$	1,036		$	18,267
Provision for loan losses charged to operations		1,157			749			899			2,805
Charge-offs		(2,006	)		(950	)		(780	)		(3,736	)
Recoveries		566			350			288			1,204
Net (charge-offs)		(1,440	)		(600	)		(492	)		(2,532	)
Ending balance	$	10,216		$	6,881		$	1,443		$	18,540

Table of Contents

	Three Months Ended September 30, 2016												Three Months Ended June 30, 2018
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance			Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Allowance, excluding PCI
Total allowance
Beginning balance	$	13,689		$	6,625		$	773		$	21,087		$	11,778		$	6,963		$	759		$	19,500
(Recovery of) provision for loan losses charged to operations		(726	)		(575	)		147			(1,154	)		(684	)		906			273			495
Charge-offs		(272	)		(207	)		(293	)		(772	)		(328	)		(124	)		(298	)		(750	)
Recoveries		295			89			76			460			136			122			80			338
Net recoveries (charge-offs)		23			(118	)		(217	)		(312	)
Net (charge-offs)														(192	)		(2	)		(218	)		(412	)
Ending balance	$	12,986		$	5,932		$	703		$	19,621		$	10,902		$	7,867		$	814		$	19,583

PCI allowance
Beginning balance	$	-		$	12		$	-		$	12
Recovery of loan losses		-			-			-			-
Benefit attributable to the FDIC indemnification asset		-			-			-			-
Recovery of loan losses charged to operations		-			-			-			-
Recovery of loan losses recorded through the FDIC indemnification asset		-			-			-			-
Ending balance	$	-		$	12		$	-		$	12

Total allowance
Beginning balance	$	13,689		$	6,637		$	773		$	21,099
(Recovery of) provision for loan losses		(726	)		(575	)		147			(1,154	)
Benefit attributable to the FDIC indemnification asset		-			-			-			-
(Recovery of) provision for loan losses charged to operations		(726	)		(575	)		147			(1,154	)
Recovery of loan losses recorded through the FDIC indemnification asset		-			-			-			-
Charge-offs		(272	)		(207	)		(293	)		(772	)
Recoveries		295			89			76			460
Net recoveries (charge-offs)		23			(118	)		(217	)		(312	)
Ending balance	$	12,986		$	5,944		$	703		$	19,633

~~Table of Contents~~

Nine Months Ended September 30, 2017

(Amounts in thousands)

Commercial

Consumer Real Estate

Consumer and Other

Total Allowance

Allowance, excluding PCI

Beginning balance
$ 11,690 $ 5,487 $ 759 $ 17,936
Provision for loan losses charged to operations
822 561 785 2,168
Charge-offs
(493 ) (535 ) (948 ) (1,976 )
Recoveries
585 294 199 1,078
Net recoveries (charge-offs)
92 (241 ) (749 ) (898 )
Ending balance
$ 12,604 $ 5,807 $ 795 $ 19,206

PCI allowance

Beginning balance
$ - $ 12 $ - $ 12
Recovery of loan losses
- (12 ) - (12 )
Benefit attributable to the FDIC indemnification asset
- - - -
Recovery of loan losses charged to operations
- (12 ) - (12 )
Recovery of loan losses recorded through the FDIC indemnification asset
- - - -
Ending balance
$ - $ - $ - $ -

Total allowance

Beginning balance
$ 11,690 $ 5,499 $ 759 $ 17,948
Provision for loan losses
822 549 785 2,156
Benefit attributable to the FDIC indemnification asset
- - - -
Provision for loan losses charged to operations
822 549 785 2,156
Recovery of loan losses recorded through the FDIC indemnification asset
- - - -
Charge-offs
(493 ) (535 ) (948 ) (1,976 )
Recoveries
585 294 199 1,078
Net recoveries (charge-offs)
92 (241 ) (749 ) (898 )
Ending balance
$ 12,604 $ 5,807 $ 795 $ 19,206

~~Table of Contents~~

Nine Months Ended September 30, 2016

(Amounts in thousands)

Commercial

Consumer Real Estate

Consumer and Other

Total Allowance

Allowance, excluding PCI

Beginning balance
$ 13,133 $ 6,356 $ 690 $ 20,179
(Recovery of) provision for loan losses charged to operations
(200 ) 436 560 796
Charge-offs
(747 ) (1,135 ) (809 ) (2,691 )
Recoveries
800 275 262 1,337
Net recoveries (charge-offs)
53 (860 ) (547 ) (1,354 )
Ending balance
$ 12,986 $ 5,932 $ 703 $ 19,621

PCI allowance

Beginning balance
$ - $ 54 $ - $ 54
Recovery of loan losses
- (42 ) - (42 )
Benefit attributable to the FDIC indemnification asset
- 1 - 1
Recovery of loan losses charged to operations
- (41 ) - (41 )
Recovery of loan losses recorded through the FDIC indemnification asset
- (1 ) - (1 )
Ending balance
$ - $ 12 $ - $ 12

Total allowance

Beginning balance
$ 13,133 $ 6,410 $ 690 $ 20,233
(Recovery of) provision for loan losses
(200 ) 394 560 754
Benefit attributable to the FDIC indemnification asset
- 1 - 1
(Recovery of) provision for loan losses charged to operations
(200 ) 395 560 755
Recovery of loan losses recorded through the FDIC indemnification asset
- (1 ) - (1 )
Charge-offs
(747 ) (1,135 ) (809 ) (2,691 )
Recoveries
800 275 262 1,337
Net recoveries (charge-offs)
53 (860 ) (547 ) (1,354 )
Ending balance
$ 12,986 $ 5,944 $ 703 $ 19,633

~~Table of Contents~~

	Six Months Ended June 30, 2018
(Amounts in thousands)	Commercial			Consumer Real Estate			Consumer and Other			Total Allowance
Total allowance
Beginning balance	$	11,672		$	6,810		$	794		$	19,276
(Recovery of) provision for loan losses charged to operations		(725	)		1,143			572			990
Charge-offs		(469	)		(255	)		(724	)		(1,448	)
Recoveries		424			169			172			765
Net (charge-offs)		(45	)		(86	)		(552	)		(683	)
Ending balance	$	10,902		$	7,867		$	814		$	19,583

The following tables present the allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the dates indicated:

September 30, 2017

(Amounts in thousands)

Loans Individually
Evaluated for
Impairment

Allowance for Loans Individually
Evaluated

Loans Collectively
Evaluated for
Impairment

Allowance for Loans Collectively
Evaluated

Commercial loans

Construction, development, and other land
$ - $ - $ 72,293 $ 1,099
Commercial and industrial
2,400 262 87,782 478
Multi-family residential
254 - 125,743 1,133
Single family non-owner occupied
1,103 69 140,150 2,308
Non-farm, non-residential
2,561 325 606,773 6,706
Agricultural
- - 6,096 44
Farmland
940 50 26,957 130
Total commercial loans
7,258 706 1,065,794 11,898
Consumer real estate loans

Home equity lines
- - 116,468 825
Single family owner occupied
8,259 754 496,264 3,852
Owner occupied construction
- - 47,034 376
Total consumer real estate loans
8,259 754 659,766 5,053
Consumer and other loans

Consumer loans
- - 70,695 795
Other
- - 4,856 -
Total consumer and other loans
- - 75,551 795
Total loans, excluding PCI loans
$ 15,517 $ 1,460 $ 1,801,111 $ 17,746

	December 31, 2016								June 30, 2019
(Amounts in thousands)	Loans Individually Evaluated for Impairment		Allowance for Loans Individually Evaluated		Loans Collectively Evaluated for Impairment		Allowance for Loans Collectively Evaluated		Loans Individually Evaluated for Impairment		Allowance for Loans Individually Evaluated		Loans Collectively Evaluated for Impairment		Allowance for Loans Collectively Evaluated
Commercial loans
Construction, development, and other land	$	-	$	-	$	60,281	$	889	$	-	$	-	$	61,683	$	417
Commercial and industrial		-		-		93,099		495		536		-		91,768		585
Multi-family residential		281		-		133,947		1,157		536		-		100,033		970
Single family non-owner occupied		1,910		31		139,711		2,721		-		-		138,006		1,448
Non-farm, non-residential		1,454		-		600,915		6,185		3,673		175		588,715		6,087
Agricultural		-		-		6,028		43		-		-		9,462		130
Farmland		981		18		31,145		151		537		-		16,785		187
Total commercial loans		4,626		49		1,065,126		11,641		5,282		175		1,006,452		9,824
Consumer real estate loans
Home equity lines		-		-		122,000		895		-		-		96,779		667
Single family owner occupied		5,120		770		501,617		3,594		5,587		764		490,397		5,214
Owner occupied construction		336		-		44,199		228		-		-		13,755		104
Total consumer real estate loans		5,456		770		667,816		4,717		5,587		764		600,931		5,985
Consumer and other loans
Consumer loans		-		-		77,524		759		-		-		88,352		1,412
Other		-		-		3,971		-		-		-		4,497		-
Total consumer and other loans		-		-		81,495		759		-		-		92,849		1,412
Total loans, excluding PCI loans	$	10,082	$	819	$	1,814,437	$	17,117	$	10,869	$	939	$	1,700,232	$	17,221

2926

Table of Contents

	December 31, 2018
(Amounts in thousands)	Loans Individually Evaluated for Impairment		Allowance for Loans Individually Evaluated		Loans Collectively Evaluated for Impairment		Allowance for Loans Collectively Evaluated
Commercial loans
Construction, development, and other land	$	-	$	-	$	63,039	$	417
Commercial and industrial		-		-		104,863		663
Multi-family residential		534		230		106,478		962
Single family non-owner occupied		-		-		138,451		1,442
Non-farm, non-residential		1,403		235		608,537		6,295
Agricultural		-		-		8,545		85
Farmland		513		-		18,392		170
Total commercial loans		2,450		465		1,048,305		10,034
Consumer real estate loans
Home equity lines		65		65		103,668		683
Single family owner occupied		3,631		922		509,929		4,931
Owner occupied construction		1,596		-		16,575		131
Total consumer real estate loans		5,292		987		630,172		5,745
Consumer and other loans
Consumer loans		-		-		71,552		1,036
Other		-		-		5,310		-
Total consumer and other loans		-		-		76,862		1,036
Total loans, excluding PCI loans	$	7,742	$	1,452	$	1,755,339	$	16,815

December 31, 2018, includes a reclassification of $2.67 million of loans individually evaluated for impairment that were inadvertently reported in loans collectively evaluated for impairment. Segments affected were as follows: $563 thousand dollars in Non-farm, non-residential, $513 thousand in Farmland, and $1.60 million in Owner occupied construction.

The following table presents the recorded investment in PCI loans and the allowance for loan losses on ~~PCI loans and recorded investment in~~ PCI loans, by loan pool, as of the dates indicated:

		September 30, 2017				December 31, 2016				June 30, 2019				December 31, 2018
(Amounts in thousands)	(Amounts in thousands)	Recorded Investment		Allowance for Loan Pools With Impairment		Recorded Investment		Allowance for Loan Pools With Impairment		Recorded Investment		Allowance for Loan Pools With Impairment		Recorded Investment		Allowance for Loan Pools With Impairment
Commercial loans	Commercial loans
Waccamaw commercial	Waccamaw commercial	$	452	$	-	$	260	$	-	$	-	$	-	$	-	$	-
Peoples commercial	Peoples commercial		4,159		-		4,491		-		4,314		-		4,405		-
Other	Other		1,011		-		1,095		-		371		-		868		-
Total commercial loans	Total commercial loans		5,622		-		5,846		-		4,685		-		5,273		-
Consumer real estate loans	Consumer real estate loans
Waccamaw serviced home equity lines	Waccamaw serviced home equity lines		13,270		-		20,178		-		3,569		-		5,017		-
Waccamaw residential	Waccamaw residential		1,181		-		1,320		-		687		-		788		-
Peoples residential	Peoples residential		1,020		-		1,085		12		886		-		925		-
Total consumer real estate loans	Total consumer real estate loans		15,471		-		22,583		12		5,142		-		6,730		-
Total PCI loans	Total PCI loans	$	21,093	$	-	$	28,429	$	12	$	9,827	$	-	$	12,003	$	-

Management believed the allowance was adequate to absorb probable loan losses inherent in the loan portfolio as of ~~September~~June 30, ~~2017.~~2019.

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Note 6. FDIC Indemnification Asset

In connection with the ~~FDIC-assisted~~FDIC-assisted acquisition of Waccamaw Bank (“Waccamaw”) in 2012, the Company entered into loss share agreements with the FDIC that covered $31.29 million of loans and $54 thousand of OREO as of September 30, 2017, compared to $56.99 million of loans and $276 thousand of OREO as of December 31, 2016. Under the loss share agreements,in which the FDIC agrees to cover 80% of most loan and foreclosed real estate losses and reimburse certain expenses incurred in relation to ~~these~~those covered assets. Loss share coverage on commercial loans expired June 30, 2017, ~~for commercial loans,~~ with recoveries continuing until June 30, 2019. Loss share coverage on single family loans will expire June 30, ~~2022, for single family loans.~~2022. The Company’s ~~condensed~~ consolidated statements of income include the expense on covered assets net of estimated reimbursements. The following table presents the changes in the FDIC indemnification asset ~~during~~and total covered loans and OREO for the periods indicated:

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

(Amounts in thousands)

Beginning balance
$ 8,159 $ 16,431 $ 12,173 $ 20,844
Decrease in estimated losses on covered loans
- - - (1 )
Increase in estimated losses on covered OREO
4 277 71 851
Reimbursable expenses from the FDIC
47 60 108 134
Net amortization
(268 ) (1,369 ) (3,186 ) (3,856 )
Reimbursements from the FDIC
(477 ) (1,067 ) (1,701 ) (3,640 )
Ending balance
$ 7,465 $ 14,332 $ 7,465 $ 14,332

~~Table of Contents~~

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
(Amounts in thousands)
Beginning balance	$	4,578		$	6,884		$	5,108		$	7,161
Reimbursable expenses from the FDIC		-			(15	)		-			(21	)
Net amortization		(516	)		(575	)		(1,068	)		(957	)
(Payments to), Reimbursements from the FDIC		(42	)		96			(20	)		207
Ending balance	$	4,020		$	6,390		$	4,020		$	6,390

Note 7. Deposits

The following table presents the components of deposits as of the dates indicated:

	September 30, 2017		December 31, 2016		June 30, 2019		December 31, 2018
(Amounts in thousands)
Noninterest-bearing demand deposits	$	452,940	$	427,705	$	480,573	$	459,550
Interest-bearing deposits:
Interest-bearing demand deposits		393,244		378,339		446,533		451,721
Money market accounts		172,266		196,997		150,506		153,483
Savings deposits		337,934		326,263		349,069		345,335
Certificates of deposit		381,625		382,503		310,820		330,757
Individual retirement accounts		125,811		129,531		110,537		114,904
Total interest-bearing deposits		1,410,880		1,413,633		1,367,465		1,396,200
Total deposits	$	1,863,820	$	1,841,338	$	1,848,038	$	1,855,750

Note 8. Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases (Topic 842)”; the standard was adopted prospectively. The Company currently has two operating leases that are recorded as a right of use (“ROU”) asset and operating lease liability. The right of use asset is recorded in other assets on the consolidated balance sheet, while the lease liability is recorded in other liabilities. The ROU asset represents the right to use an underlying asset during the lease term and the lease liability represents the obligation to make lease payments arising from the lease. The current ROU asset and lease liability were recognized at the adoption date of January 1, 2019, based on the present value of the remaining lease payments using a discount rate that represented our incremental borrowing rate at the time of adoption. The lease expense which is comprised of the amortization of the ROU asset and the implicit interest accreted on the lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the consolidated statements of income.

The Company’s current operating leases relate primarily to bank branches with remaining terms of 1 to 10 years. As of June 30, 2019, the ROU asset and lease liability were $875 thousand and $882 thousand, respectively. The weighted average discount rate was 3.34% as of June 30, 2019.

Table of Contents

Future minimum lease payments as of June 30, 2019 are as follows:

Year	Amount
(Amounts in thousands)
2020	$	110
2021		101
2022		101
2023		101
2024 and thereafter		614
Total lease payments		1,027
Less: Interest		(145	)
Present value of lease liabilities	$	882

Note 89. Borrowings

The following table presents the components of borrowings as of the dates indicated:

	September 30, 2017					December 31, 2016					June 30, 2019					December 31, 2018
(Amounts in thousands)	Balance		Weighted Average Rate			Balance		Weighted Average Rate			Balance		Weighted Average Rate			Balance		Weighted Average Rate
Short-term borrowings
Retail repurchase agreements	$	58,783		0.07	%	$	73,005		0.07	%	$	3,083		0.13	%	$	4,370		0.12	%
Long-term borrowings
Wholesale repurchase agreements		25,000		3.18	%		25,000		3.18	%
Long-term FHLB advances		50,000		4.00	%		65,000		4.04	%
Other borrowings
Subordinated debt		-		-			15,464		3.65	%
Other debt		-					244
Wholesale repurchase agreement												-					25,000		3.18	%
Total borrowings	$	133,783				$	178,713				$	3,083				$	29,370

Repurchase agreements are secured by certain securities that remain under the Company’s control during the terms of the agreements. The ~~following schedule presents~~Company’s remaining wholesale repurchase agreement of $25 million matured during the ~~contractual and weighted average maturities~~first quarter of ~~long-term borrowings, by year, as of~~ ~~September 30, 2017:~~2019. The Company repaid the borrowing with current liquidity.

Wholesale Repurchase
Agreements

FHLB Borrowings

Total

(Amounts in thousands)

2017
$ - $ - $ -
2018
- - -
2019
25,000 - 25,000
2020
- - -
2021
- 50,000 50,000
2022 and thereafter
- - -
Total long-term borrowings
$ 25,000 $ 50,000 $ 75,000

Weighted average maturity (in years)
1.41 3.27 2.65

As of June 30, 2019, the Company had no long-term borrowings.

~~The FHLB may redeem callable advances at quarterly intervals, which could substantially shorten the advances~~’ lives. If called, the advance may be paid in full or converted into another FHLB credit product. Prepayment of an advance may result in substantial penalties based on the differential between the contractual note and current advance rate for similar maturities. The Company pledged certain loans to secure FHLB advances and letters of credit totaling $934.90 million as of September 30, 2017. Unused borrowing capacity with the FHLB totaled ~~$446.30~~$379.09 million, net of FHLB letters of credit of ~~$113.71~~$145.43 million, as of ~~September~~June 30, ~~2017. The~~2019. As of June 30, 2019, the Company pledged $824.04 million in qualifying loans to secure the FHLB letters of credit, which provide an attractive alternative to pledging securities for public unit deposits.

~~Table of Contents~~

~~Investment securities pledged to secure repurchase agreements remain under the Company~~’s control during the agreements’ terms. The counterparties may redeem callable repurchase agreements, which could substantially shorten the borrowings’ lives. The prepayment or early termination of a repurchase agreement may result in substantial penalties based on market conditions. The following schedule presents the contractual maturities of repurchase agreements, by type of collateral pledged, as of September 30, 2017:

U.S. Treasury
Securities

U.S. Agency
Securities

Municipal Securities

Mortgage-backed
Agency Securities

Total

(Amounts in thousands)

Overnight and continuous
$ 5,240 $ 12,874 $ 37,953 $ 2,639 $ 58,706
Up to 30 days
- - - - -
30 - 90 days
- - - - -
Greater than 90 days
9,000 3,400 - 12,677 25,077
$ 14,240 $ 16,274 $ 37,953 $ 15,316 $ 83,783

The Company issued $15.46 million of junior subordinated debentures (“Debentures”) to FCBI Capital Trust (the “Trust”), an unconsolidated subsidiary, in October 2003 with an interest rate of three-month London InterBank Offered Rate (“LIBOR”) plus 2.95% and a 30-year term ending in October 2033. The Trust purchased the Debentures through the issuance of trust preferred securities, which had substantially identical terms as the Debentures. Net proceeds from the offering were contributed as capital to the Bank to support further growth. During the first quarter of 2017, the Company redeemed all $15.46 million of its trust preferred securities issued through the Trust.

~~In addition, the~~The Company maintains a $15.00 million unsecured, committed line of credit with an unrelated financial institution with an interest rate of one-month LIBOR plus 2.00% that matures in April ~~2018.~~2020. There was no outstanding balance on the line as of ~~September~~June 30, ~~2017,~~2019, or December 31, ~~2016.~~2018.

Note 910. Derivative Instruments and Hedging Activities

~~As of~~ ~~September 30, 2017, the Company’s derivative instruments consisted of interest rate swaps.~~ Generally, derivative instruments help the Company manage exposure to market risk and meet customer financing needs. Market risk represents the possibility that fluctuations in external factors such as interest rates, market-driven loan rates, prices, or other economic factors will adversely affect economic value or net interest income.

Table of Contents

As of June 30, 2019, the Company’s derivative instruments consisted of three interest rate swap agreements. The Company uses interest rate swap contracts to modify its exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. These instruments are used to convert these fixed rate loans to an effective floating rate. If the LIBOR rate falls below the ~~loan~~’sloan’s stated fixed rate for a given period, the Company will owe the floating rate payer the notional amount times the difference between LIBOR and the stated fixed rate. If LIBOR is above the stated rate for a given period, the Company will receive payments based on the notional amount times the difference between LIBOR and the stated fixed rate. The Company’s interest rate swaps qualify as fair value hedging instruments; therefore, fair value changes in the derivative and hedged item attributable to the hedged risk are recognized in earnings in the same period.

~~The Company~~’s interest rate swap agreements include a ten-year, $1.28 million notional swap entered into in August 2017; a fourteen-year, $1.20 million notional swap entered into in March 2015; and a fifteen-year, $4.37 million notional swap entered into in February 2014. The swap agreements, which are accounted for as fair value hedges, and the loans hedged by the agreements are recorded at fair value. The fair value hedges were effective as of ~~September~~June 30, ~~2017.~~2019. The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated:

September 30, 2017

December 31, 2016

Notional or

Fair Value

Notional or

Fair Value

(Amounts in thousands)

Contractual
Amount

Derivative
Assets

Derivative
Liabilities

Contractual
Amount

Derivative
Assets

Derivative
Liabilities

Derivatives designated as hedges

Interest rate swaps
$ 5,892 $ - $ 151 $ 4,835 $ - $ 167
Total derivatives
$ 5,892 $ - $ 151 $ 4,835 $ - $ 167

~~Table of Contents~~

	June 30, 2019						December 31, 2018
	Notional or		Fair Value				Notional or		Fair Value
(Amounts in thousands)	Contractual Amount		Derivative Assets		Derivative Liabilities		Contractual Amount		Derivative Assets		Derivative Liabilities
Derivatives designated as hedges
Interest rate swaps	$	5,307	$	-	$	218	$	5,483	$	12	$	-
Total derivatives	$	5,307	$	-	$	218	$	5,483	$	12	$	-

The following table presents the effect of derivative and hedging activity, if applicable, on the consolidated statements of income for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,				Income Statement
(Amounts in thousands)	2017		2016		2017		2016		Income Statement Location	2019		2018		2019		2018		Location
Derivatives designated as hedges
Interest rate swaps	$	23	$	31	$	64	$	86	Interest and fees on loans	$	-	$	8	$	-	$	21	Interest and fees on loans
Total derivative expense	$	23	$	31	$	64	$	86		$	-	$	8	$	-	$	21

Note 101. Employee Benefit Plans

The Company maintains two nonqualified domestic, noncontributory defined benefit plans (the “Benefit Plans”) for key members of senior management and non-management directors. The ~~Company~~’sCompany’s unfunded Benefit Plans include the Supplemental Executive Retention Plan and the Directors’ Supplemental Retirement Plan. The following table presents the components of net periodic pension cost and the effect on the consolidated statements of income for the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016		2019		2018		2019		2018		Income Statement Location
(Amounts in thousands)
Service cost	$	57	$	46	$	173	$	138	$	80	$	55	$	160	$	123	Salaries and employee benefits
Interest cost		93		95		279		286		101		90		202		179	Other expense
Amortization of prior service cost		57		57		171		170		64		55		128		114	Other expense
Amortization of losses		8		12		23		35		6		16		11		28	Other expense
Net periodic cost	$	215	$	210	$	646	$	629	$	251	$	216	$	501	$	444

Table of Contents

Note 12. Earnings per Share

The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
(Amounts in thousands, except share and per share data)
Net income	$	10,451	$	9,066	$	20,082	$	17,934

Weighted average common shares outstanding, basic		15,712,204		16,689,398		15,775,462		16,821,842
Dilutive effect of potential common shares
Stock options		56,818		69,914		57,795		62,384
Restricted stock		6,298		29,303		14,241		28,646
Total dilutive effect of potential common shares		63,116		99,217		72,036		91,030
Weighted average common shares outstanding, diluted		15,775,320		16,788,615		15,847,498		16,912,872

Basic earnings per common share	$	0.67	$	0.54	$	1.27	$	1.06
Diluted earnings per common share		0.66		0.54		1.27		1.06

Antidilutive potential common shares
Restricted stock		-		1,793		-		867
Total potential antidilutive shares		-		1,793		-		867

Note 13. Accumulated Other Comprehensive Income (Loss)

The following ~~table~~stables present the ~~activity~~changes in accumulated other comprehensive income (“AOCI”), net of tax and by component, during the periods indicated:

	Three Months Ended September 30, 2017									Three Months Ended June 30, 2019
	Unrealized Gains (Losses) on Available-for-Sale Securities			Employee Benefit Plans			Total			Unrealized Gains (Losses) on Available-for-Sale Securities		Employee Benefit Plans			Total
(Amounts in thousands)
Beginning balance	$	1,302		$	(1,303	)	$	(1	)	$	677	$	(1,410	)	$	(733	)
Other comprehensive loss before reclassifications		(106	)		(1	)		(107	)		262		-			262
Reclassified from AOCI		-			41			41			34		56			90
Other comprehensive (loss) income, net		(106	)		40			(66	)
Other comprehensive income, net											296		56			352
Ending balance	$	1,196		$	(1,263	)	$	(67	)	$	973	$	(1,354	)	$	(381	)

	Three Months Ended September 30, 2016									Three Months Ended June 30, 2018
	Unrealized Gains (Losses) on Available-for-Sale Securities			Employee Benefit Plans			Total			Unrealized Gains (Losses) on Available-for-Sale Securities			Employee Benefit Plans			Total
(Amounts in thousands)
Beginning balance	$	(1,706	)	$	(1,311	)	$	(3,017	)	$	(722	)	$	(1,759	)	$	(2,481	)
Other comprehensive income (loss) before reclassifications		465			(2	)		463
Other comprehensive (loss) income before reclassifications											(233	)		73			(160	)
Reclassified from AOCI		2,881			43			2,924			-			56			56
Other comprehensive income, net		3,346			41			3,387
Other comprehensive (loss) income, net											(233	)		129			(104	)
Ending balance	$	1,640		$	(1,270	)	$	370		$	(955	)	$	(1,630	)	$	(2,585	)

3331

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	Six Months Ended June 30, 2019
	Unrealized Gains (Losses) on Available-for-Sale Securities			Employee Benefit Plans			Total
(Amounts in thousands)
Beginning balance	$	(285	)	$	(1,144	)	$	(1,429	)
Other comprehensive income (loss) before reclassifications		1,224			(320	)		904
Reclassified from AOCI		34			110			144
Other comprehensive income (loss), net		1,258			(210	)		1,048
Ending balance	$	973		$	(1,354	)	$	(381	)

	Nine Months Ended September 30, 2017									Six Months Ended June 30, 2018
	Unrealized Gains (Losses) on Available-for-Sale Securities			Employee Benefit Plans			Total			Unrealized Gains (Losses) on Available-for-Sale Securities			Employee Benefit Plans			Total
(Amounts in thousands)
Beginning balance	$	(544	)	$	(1,467	)	$	(2,011	)	$	975		$	(1,815	)	$	(840	)
Other comprehensive income before reclassifications		1,329			83			1,412
Other comprehensive income (loss) before reclassifications											(1,930	)		73			(1,857	)
Reclassified from AOCI		411			121			532			-			112			112
Other comprehensive income, net		1,740			204			1,944
Other comprehensive (loss) income, net											(1,930	)		185			(1,745	)
Ending balance	$	1,196		$	(1,263	)	$	(67	)	$	(955	)	$	(1,630	)	$	(2,585	)

Nine Months Ended September 30, 2016

Unrealized Gains (Losses) on Available-for-Sale Securities

Employee Benefit
Plans

Total

(Amounts in thousands)

Beginning balance
$ (3,885 ) $ (1,362 ) $ (5,247 )
Other comprehensive income (loss) before reclassifications
2,588 (36 ) 2,552
Reclassified from AOCI
2,937 128 3,065
Other comprehensive income, net
5,525 92 5,617
Ending balance
$ 1,640 $ (1,270 ) $ 370

The following table presents reclassifications out of AOCI,, by component, during the periods indicated:

	Three Months Ended					Nine Months Ended					Three Months Ended				Six Months Ended
	September 30,					September 30,				Income Statement	June 30,				June 30,				Income Statement
(Amounts in thousands)	2017		2016			2017		2016		Line Item Affected	2019		2018		2019		2018		Line Item Affected
Available-for-sale securities
Loss (gain) recognized	$	-	$	(25	)	$	657	$	53	Net gain (loss) on sale of securities
Loss recognized											$	43	$	-	$	43	$	-	Net loss on sale of securities
Credit-related OTTI recognized		-		4,635			-		4,646	Net impairment losses recognized in earnings		-		-		-		-	Net impairment losses
Reclassified out of AOCI, before tax		-		4,610			657		4,699	Income before income taxes		43		-		43		-	Income before income taxes
Income tax expense		-		1,729			246		1,762	Income tax expense		9		-		9		-	Income tax expense
Reclassified out of AOCI, net of tax		-		2,881			411		2,937	Net income		34		-		34		-	Net income
Employee benefit plans
Amortization of prior service cost		57		57			171		170	(1)	$	64	$	55	$	128	$	114	(1)
Amortization of net actuarial benefit cost		8		12			23		35	(1)		6		16		11		28	(1)
Reclassified out of AOCI, before tax		65		69			194		205	Income before income taxes		70		71		139		142	Income before income taxes
Income tax expense		24		26			73		77	Income tax expense		15		15		29		30	Income tax expense
Reclassified out of AOCI, net of tax		41		43			121		128	Net income		55		56		110		112	Net income
Total reclassified out of AOCI, net of tax	$	41	$	2,924		$	532	$	3,065	Net income	$	89	$	56	$	144	$	112	Net income

(1)

Amortization is included in net periodic pension cost. See Note ~~10,~~11, "Employee Benefit Plans."

Note 124. Fair Value

Financial Instruments Measured at Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The fair value hierarchy ranks the inputs used in measuring fair value as follows:

●

Level 1 – Observable, unadjusted quoted prices in active markets

●

Level 2 – Inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability

●

Level 3 – Unobservable inputs with little or no market activity that require the Company to use reasonable inputs and assumptions

~~Table of Contents~~

The Company uses fair value measurements to record adjustments to certain financial assets and liabilities on a recurring basis. The Company may be required to record certain assets at fair value on a nonrecurring basis in specific circumstances, such as evidence of impairment. Methodologies used to determine fair value might be highly subjective and judgmental in nature; therefore, valuations may not be precise. If the Company determines that a valuation technique change is necessary, the change is assumed to have occurred at the end of the respective reporting period. The following discussion describes the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments under the valuation hierarchy.

Table of Contents

Assets and Liabilities Reported at Fair Value on a Recurring Basis

Available-for-Sale Debt Securities. ~~Securities~~Debt securities available for sale are reported at fair value on a recurring basis. The fair value of Level 1 securities is based on quoted market prices in active markets, if available. ~~The Company also uses Level 1 inputs to value equity securities that are traded in active markets.~~ If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are primarily derived from or corroborated by observable market data. Level 2 securities use fair value measurements from independent pricing services obtained by the Company. These fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and bond terms and conditions. The Company’s Level 2 securities include U.S. Agency and Treasury securities, ~~single issue trust preferred securities, corporate securities, mortgage-backed~~municipal securities, and ~~certain equity securities that are not actively traded.~~mortgage-backed securities. Securities are based on Level 3 inputs when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions are used when such information is available.

Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current, or pricing variations are significant. For Level 3 securities, the Company obtains the cash flow of specific securities from third parties that use modeling software to determine cash flows based on market participant data and knowledge of the structures of each individual security. The fair values of Level 3 securities are determined by applying proper market observable discount rates to the cash flow derived from third-party models. Discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity, which are based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Securities with increased uncertainty about the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of specific markets and the general economic indicators.

Equity Securities. Equity securities are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. The Company uses Level 1 inputs to value equity securities that are traded in active markets. Equity securities that are not actively traded are classified in Level 2.

Loans Held for Investment. Loans held for investment are reported at fair value using ~~discounted future cash flows that apply current interest rates for loans with similar terms and borrower credit quality.~~the exit price notion, which is derived from third-party models. Loans related to fair value hedges are recorded at fair value on a recurring basis.

Deferred Compensation Assets and Liabilities. Securities held for trading purposes are recorded at fair value on a recurring basis and included in other assets in the consolidated balance sheets. These securities include assets related to employee deferred compensation plans, which are generally invested in Level 1 equity securities. The liability associated with these deferred compensation plans is carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.

Derivative Assets and Liabilities. Derivatives are recorded at fair value on a recurring basis. The Company obtains dealer quotes, Level 2 inputs, based on observable data to value derivatives.

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The following tables summarize financial assets and liabilities recorded at fair value on a recurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:

	September 30, 2017								June 30, 2019
	Total		Fair Value Measurements Using						Total		Fair Value Measurements Using
(Amounts in thousands)	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Available-for-sale securities
Available-for-sale debt securities
U.S. Agency securities									$	1,048	$	-	$	1,048	$	-
U.S. Treasury securities	$	36,964	$	-	$	36,964	$	-		-		-		-		-
U.S. Agency securities		1,275		-		1,275		-
Municipal securities		104,907		-		104,907		-		83,938		-		83,938		-
Single issue trust preferred securities		8,962		-		8,962		-
Mortgage-backed Agency securities		22,243		-		22,243		-		34,090		-		34,090		-
Total available-for-sale debt securities										119,076		-		119,076		-
Equity securities		73		55		18		-		55		55		-		-
Total available-for-sale securities		174,424		55		174,369		-
Fair value loans		5,758		-		5,758		-		5,038		-		-		5,038
Deferred compensation assets		3,330		3,330		-		-		3,880		3,880		-		-
Deferred compensation liabilities		3,330		3,330		-		-		3,880		3,880		-		-
IRLCs		-		-		-		-
Derivative liabilities		151		-		151		-		218		-		218		-

	December 31, 2016								December 31, 2018
	Total		Fair Value Measurements Using						Total		Fair Value Measurements Using
(Amounts in thousands)	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Available-for-sale securities
Available-for-sale debt securities
U.S. Agency securities	$	1,345	$	-	$	1,345	$	-	$	1,113	$	-	$	1,113	$	-
U.S. Treasury securities										19,960		-		19,960		-
Municipal securities		113,331		-		113,331		-		97,289		-		97,289		-
Single issue trust preferred securities		19,939		-		19,939		-
Mortgage-backed Agency securities		30,891		-		30,891		-		34,754		-		34,754		-
Total available-for-sale debt securities										153,116		-		153,116		-
Equity securities		73		55		18		-		55		55		-		-
Total available-for-sale securities		165,579		55		165,524		-
Fair value loans		4,701		-		4,701		-		5,412		-		-		5,412
Deferred compensation assets		3,224		3,224		-		-		3,527		3,527		-		-
Derivative assets										12		-		12		-
Deferred compensation liabilities		3,224		3,224		-		-		3,527		3,527		-		-
Derivative liabilities		167		-		167		-

~~No changes in valuation techniques or transfers into or out of Level 3 of the fair value hierarchy occurred during the~~ ~~three and nine months ended September 30, 2017 or 2016.~~

Assets Measured at Fair Value on a Nonrecurring Basis

Impaired Loans. Impaired loans are recorded at fair value on a nonrecurring basis when repayment is expected solely from the sale of the loan’s collateral. Fair value is based on appraised value adjusted for customized discounting criteria, Level 3 inputs.

The Company maintains an active and robust problem credit identification system. The impairment review includes obtaining third-party collateral valuations to help management identify potential credit impairment and determine the amount of impairment to record. The ~~Company~~’sCompany’s Special Assets staff manages and monitors all impaired loans. Internal collateral valuations are generally performed within two to four weeks of identifying the initial potential impairment. The internal valuation compares the original appraisal to current local real estate market conditions and considers experience and expected liquidation costs. The Company typically receives a third-party valuation within thirty to forty-five days of completing the internal valuation. When a third-party valuation is received, it is reviewed for reasonableness. Once the valuation is reviewed and accepted, discounts are applied to fair market value, based on, but not limited to, our historical liquidation experience for like collateral, resulting in an estimated net realizable value. The estimated net realizable value is compared to the outstanding loan balance to determine the appropriate amount of specific impairment reserve.

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Specific reserves are generally recorded for impaired loans while third-party valuations are in process and for impaired loans that continue to make some form of payment. While waiting to receive the third-party appraisal, the Company regularly reviews the relationship to identify any potential adverse developments and begins the tasks necessary to gain control of the collateral and prepare it for liquidation, including, but not limited to, engagement of counsel, inspection of collateral, and continued communication with the borrower. Generally, the only difference between the current appraised value, less liquidation costs, and the carrying amount of the loan, less the specific reserve, is any downward adjustment to the appraised value that the Company deems appropriate, such as the costs to sell the property. Impaired loans that do not meet certain criteria and do not have a specific reserve have typically been written down through partial charge-offs to net realizable value. Based on prior experience, the Company rarely returns loans to performing status after they have been partially charged off. Credits identified as impaired move quickly through the process towards ultimate resolution, except in cases involving bankruptcy and various state judicial processes that may extend the time for ultimate resolution.

OREO. OREO is recorded at fair value on a nonrecurring basis using Level 3 inputs. The Company calculates the fair value of OREO from current or prior appraisals that have been adjusted for valuation declines, estimated selling costs, and other proprietary qualitative adjustments that are deemed necessary.

The following tables present assets measured at fair value on a nonrecurring basis, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:

	September 30, 2017								June 30, 2019
	Total		Fair Value Measurements Using						Total		Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
(Amounts in thousands)
Impaired loans, non-covered	$	6,757	$	-	$	-	$	6,757	$	2,712	$	-	$	-	$	2,712
OREO, non-covered		2,293		-		-		2,293		3,810		-		-		3,810
OREO, covered		54		-		-		54		152		-		-		152

	December 31, 2016								December 31, 2018
	Total		Fair Value Measurements Using						Total		Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
(Amounts in thousands)
Impaired loans, non-covered	$	4,078	$	-	$	-	$	4,078	$	3,618	$	-	$	-	$	3,618
OREO, non-covered		5,109		-		-		5,109		3,806		-		-		3,806
OREO, covered		265		-		-		265		32		-		-		32

Quantitative Information about Level 3 Fair Value Measurements

The following table provides quantitative information for assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs as of the dates indicated:

Valuation

Unobservable

Discount Range (Weighted Average)

Technique

Input

September 30, 2017

December 31, 2016

Impaired loans, non-covered
Discounted appraisals⁽¹⁾

Appraisal adjustments⁽²⁾
2% to 63% (18%) 3% to 39% (17%)
OREO, non-covered
Discounted appraisals⁽¹⁾

Appraisal adjustments⁽²⁾
10% to 62% (28%) 0% to 88% (30%)
OREO, covered
Discounted appraisals⁽¹⁾

Appraisal adjustments⁽²⁾
0% to 65% (56%) 0% to 44% (40%)

	Valuation	Unobservable	Discount Range (Weighted Average)
	Technique	Input	June 30, 2019				December 31, 2018

Impaired loans, non-covered	Discounted appraisals⁽¹⁾	Appraisal adjustments⁽²⁾	13%	to	37%	(26%)	15%	to	100%	(29%)
OREO, non-covered	Discounted appraisals⁽¹⁾	Appraisal adjustments⁽²⁾	10%	to	100%	(35%)	1%	to	81%	(31%)
OREO, covered	Discounted appraisals⁽¹⁾	Appraisal adjustments⁽²⁾	33%	to	42%	(41%)	49%	to	49%	(49%)

(1) Fair value is generally based on appraisals of the underlying collateral.

(2) Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

~~(1)~~

~~Fair value is generally based on appraisals of the underlying collateral.~~

~~(2)~~

~~Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.~~

Fair Value of Financial Instruments

The Company uses various methodologies and assumptions to estimate the fair value of certain financial instruments. A description of valuation methodologies used for instruments not previously discussed is as follows:

Cash and Cash Equivalents. Cash and cash equivalents are reported at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.

Held-to-Maturity Debt Securities. Securities held to maturity are reported at fair value using quoted market prices or dealer quotes.

Table of Contents

FDIC Indemnification Asset. The FDIC indemnification asset is reported at fair value using discounted future cash flows that apply current discount rates.

~~Table of Contents~~

Accrued Interest Receivable/Payable. Accrued interest receivable/payable is reported at ~~their~~its carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.

Deposits and Securities Sold Under Agreements to Repurchase. Deposits without a stated maturity, such as demand, interest-bearing demand, and savings, are reported at their carrying amount, the amount payable on demand as of the reporting date, which is considered a reasonable estimate of fair value. Deposits and repurchase agreements with fixed maturities and rates are reported at fair value using discounted future cash flows that apply interest rates available in the market for instruments with similar characteristics and maturities.

FHLB and Other Borrowings. FHLB and other borrowings are reported at fair value using discounted future cash flows that apply interest rates available to the Company for borrowings with similar characteristics and maturities. ~~Trust preferred obligations are reported at fair value using current credit spreads in the market for similar issues.~~

Off-Balance Sheet Instruments. The Company believes that fair values of unfunded commitments to extend credit, standby letters of credit, and financial guarantees are not meaningful; therefore, off-balance sheet instruments are not addressed in the fair value disclosures. The Company believes it is not feasible or practical to accurately disclose the fair values of off-balance sheet instruments due to the uncertainty and difficulty in assessing the likelihood and timing of advancing available proceeds, the lack of an established market for these instruments, and the diversity in fee structures. For additional information about the unfunded, contractual value of off-balance sheet financial instruments, see Note ~~14,~~15, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.

The following tables present the carrying amounts and fair values of financial instruments, by the level of valuation inputs in the fair value hierarchy, as of the dates indicated:

	September 30, 2017										June 30, 2019
	Carrying				Fair Value Measurements Using						Carrying				Fair Value Measurements Using
(Amounts in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3		Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	105,119	$	105,119	$	105,119	$	-	$	-	$	156,478	$	156,478	$	156,478	$	-	$	-
Securities available for sale		174,424		174,424		55		174,369		-
Securities held to maturity		25,182		25,226		-		25,226		-
Debt securities available for sale												119,076		119,076		-		119,076		-
Equity securities												55		55		55		-		-
Loans held for investment, net of allowance		1,818,515		1,792,719		-		5,758		1,786,961		1,702,388		1,664,621		-		-		1,664,621
FDIC indemnification asset		7,465		4,548		-		-		4,548		4,020		1,493		-		-		1,493
Interest receivable		5,156		5,156		-		5,156		-		5,317		5,317		-		5,317		-
Deferred compensation assets		3,330		3,330		3,330		-		-		3,880		3,880		3,880		-		-

Liabilities
Demand deposits		452,940		452,940		-		452,940		-
Interest-bearing demand deposits		393,244		393,244		-		393,244		-
Savings deposits		510,200		510,200		-		510,200		-
Time deposits		507,436		503,332		-		503,332		-		421,357		417,273		-		417,273		-
Securities sold under agreements to repurchase		83,783		84,315		-		84,315		-		3,083		3,083		-		3,083		-
Interest payable		1,085		1,085		-		1,085		-		538		538		-		538		-
FHLB and other borrowings		50,000		53,402		-		53,402		-
Derivative financial liabilities		151		151		-		151		-		218		218		-		218		-
Deferred compensation liabilities		3,330		3,330		3,330		-		-		3,880		3,880		3,880		-		-

3836

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	December 31, 2016										December 31, 2018
	Carrying				Fair Value Measurements Using						Carrying				Fair Value Measurements Using
(Amounts in thousands)	Amount		Fair Value		Level 1		Level 2		Level 3		Amount		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	76,307	$	76,307	$	76,307	$	-	$	-	$	76,873	$	76,873	$	76,873	$	-	$	-
Securities available for sale		165,579		165,579		55		165,524		-
Securities held to maturity		47,133		47,266		-		47,266		-
Debt securities available for sale												153,116		153,116		-		153,116		-
Debt securities held to maturity												25,013		24,990		-		24,990		-
Equity securities												55		55		55		-		-
Loans held for investment, net of allowance		1,835,000		1,805,999		-		4,701		1,801,298		1,756,817		1,720,114		-		-		1,720,114
FDIC indemnification asset		12,173		8,112		-		-		8,112		5,108		2,565		-		-		2,565
Interest receivable		5,553		5,553		-		5,553		-		5,481		5,481		-		5,481		-
Derivative financial assets												12		12		-		12		-
Deferred compensation assets		3,224		3,224		3,224		-		-		3,527		3,527		3,527		-		-

Liabilities
Demand deposits		427,705		427,705		-		427,705		-
Interest-bearing demand deposits		378,339		378,339		-		378,339		-
Savings deposits		523,260		523,260		-		523,260		-
Time deposits		512,034		507,917		-		507,917		-		445,661		436,018		-		436,018		-
Securities sold under agreements to repurchase		98,005		98,879		-		98,879		-		29,370		29,389		-		29,389		-
Interest payable		1,280		1,280		-		1,280		-		618		618		-		618		-
FHLB and other borrowings		80,708		83,551		-		83,551		-
Derivative financial liabilities		167		167		-		167		-
Deferred compensation liabilities		3,224		3,224		3,224		-		-		3,527		3,527		3,527		-		-

~~Note 13. Earnings per Share~~

~~The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

(Amounts in thousands, except share and per share data)

Net income
$ 7,652 $ 6,383 $ 20,272 $ 18,722
Dividends on preferred stock
- - - -
Net income available to common shareholders
$ 7,652 $ 6,383 $ 20,272 $ 18,722

Weighted average common shares outstanding, basic
17,005,654 17,031,074 17,005,350 17,433,406
Dilutive effect of potential common shares

Stock options
49,739 38,746 50,140 31,856
Restricted stock
27,336 13,706 21,468 9,949
Total dilutive effect of potential common shares
77,075 52,452 71,608 41,805
Weighted average common shares outstanding, diluted
17,082,729 17,083,526 17,076,958 17,475,211

Basic earnings per common share
$ 0.45 $ 0.37 $ 1.19 $ 1.07
Diluted earnings per common share
0.45 0.37 1.19 1.07

Antidilutive potential common shares

Stock options
71,592 127,789 75,868 127,789
Total potential antidilutive shares
71,592 127,789 75,868 127,789

Note 145. Litigation, Commitments, and Contingencies

Litigation

In the normal course of business, the Company is a defendant in various legal actions and asserted claims. While the Company and its legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, the Company believes the resolution of these actions, singly or in the aggregate, should not have a material adverse effect on its financial condition, results of operations, or cash flows.

~~Table of Contents~~

Commitments and Contingencies

The Company is a party to financial instruments with off~~-balance~~ balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized in the consolidated balance sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. If the other party to a financial instrument does not perform, the Company’s credit loss exposure is the same as the contractual amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for ~~on-balance~~on balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many commitments are expected to expire without being drawn on, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary, is based on management’s credit evaluation of each customer on a case-by-case basis. Collateral may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. The Company maintains a reserve for the risk inherent in unfunded lending commitments, which is included in other liabilities in the consolidated balance sheets.

Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending credit to customers. The amount of collateral obtained, if deemed necessary, to secure the ~~customer~~’scustomer’s performance under certain letters of credit is based on management’s credit evaluation of the customer.

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The following table presents the off-balance sheet financial instruments as of the dates indicated:

September 30, 2017

December 31, 2016

(Amounts in thousands)

Commitments to extend credit
$ 245,978 $ 261,801
Standby letters of credit and financial guarantees⁽¹⁾
118,318 83,900
Total off-balance sheet risk
364,296 345,701

Reserve for unfunded commitments
$ 66 $ 326


~~(1) Includes FHLB letters of credit~~

	June 30, 2019		December 31, 2018
(Amounts in thousands)
Commitments to extend credit	$	185,437	$	215,239
Standby letters of credit and financial guarantees⁽¹⁾		143,984		149,494
Total off-balance sheet risk		329,421		364,733

Reserve for unfunded commitments	$	66	$	66

~~Table~~

(1) Includes FHLB letters of ~~Contents~~credit

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our financial condition, changes in financial condition, and results of operations. MD&A contains forward-looking statements and should be read in conjunction with our consolidated financial statements, accompanying notes, and other financial information included in this report and our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 (the ~~“2016~~“2018 Form 10-K”). Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bankshares, Inc. and its subsidiaries as a consolidated entity.

Executive Overview

First Community ~~Bancshares,~~Bankshares, Inc. (the “Company”) is a financial holding company, headquartered in Bluefield, Virginia, that provides banking products and services through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia chartered bank institution. As of ~~September~~June 30, ~~2017,~~2019, the Bank operated 44 branches as First Community Bank in Virginia, West Virginia, and North Carolina and as People’s Community Bank, a Division of First Community Bank, in Tennessee. As of June 30, 2019, full-time equivalent employees, calculated using the number of hours worked, totaled 515. Our primary source of earnings is net interest income, the difference between interest earned on assets and interest paid on liabilities, which is supplemented by fees for services, commissions on sales, and various deposit service charges. We fund our lending and investing activities primarily through the retail deposit operations of our branch banking network and, to a lesser extent, retail and wholesale repurchase agreements and Federal Home Loan Bank (“FHLB”) borrowings. We invest our funds primarily in loans to retail and commercial customers and various investment securities. Our common stock is traded on the NASDAQ Global Select Market under the symbol, FCBC.

~~The Bank offers commercial and personal insurance services through its~~ wholly owned subsidiary First Community Insurance Services (“FCIS”). Revenues are primarily derived from commissions paid by issuing companies on the sale of policies. As of September 30, 2017, FCIS operated 6 in-branch locations in Virginia and West Virginia. The Bank offers trust management, estate administration, and investment advisory services through its Trust Division and wholly owned subsidiary First Community Wealth Management (“FCWM”). The Trust Division manages inter vivos trusts and trusts under will, develops and administers employee benefit and individual retirement plans, and manages and settles estates. Fiduciary fees for these services are charged on a schedule related to the size, nature, and complexity of the account. Revenues consist primarily of investment advisory fees and commissions on assets under management and ~~investment advisory fees.~~administration. As of ~~September~~June 30, ~~2017,~~2019, the Trust Division and FCWM managed ~~$936 million~~and administered $1.05 billion in combined assets under various fee-based arrangements as fiduciary or agent.

~~Our acquisition~~

Acquisitions and ~~divestiture activity~~Divestitures

On September 17, 2018, the Company announced its intention to sell its remaining insurance agency assets to Bankers Insurance, LLC (“BI”) of Glen Allen, Virginia in exchange for an equity interest in BI. The sale, which closed October 1, 2018, strategically allowed the Company to continue offering insurance products to its customers through a larger, more diversified insurance agency. In connection with the decision to divest the insurance agency assets, the Company recognized a one-time goodwill impairment charge of $1.49 million during the ~~nine~~ ~~months ended September 30, 2017,~~third quarter of 2018. The Company used the fair value of the equity interest in BI as the basis for determining the goodwill impairment.

On October 2, 2018, we completed our Plan of Reincorporation and ~~year ended December 31, 2016, included~~Merger changing our corporate domicile from Nevada to Virginia, along with a slight revision in the ~~sale~~spelling of ~~Greenpoint Insurance Agency Inc. on October 1, 2016, and the simultaneous sale of six branches to and purchase of seven branches~~our name from First ~~Bank on July 15, 2016.~~Community Bancshares, Inc. to First Community Bankshares, Inc.

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Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and conform to general practices within the banking industry. Our financial position and results of operations may require management to make significant estimates and assumptions that have a material impact on our financial condition or operating performance. Due to the level of subjectivity and the susceptibility of such matters to change, actual results could differ significantly from management’s assumptions and estimates. Estimates, assumptions, and judgments, which are periodically evaluated, are based on historical experience and other factors, including expectations of future events believed reasonable under the circumstances. These estimates are generally necessary when assets and liabilities are required to be recorded at estimated fair value, when a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve, or when an asset or liability needs recorded based on the probability of occurrence of a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices, when available, or third-party sources. When quoted prices or third-party information is not available, management estimates valuation adjustments primarily through the use of financial modeling techniques and appraisal estimates.

Our accounting policies are fundamental in understanding MD&A and the disclosures presented in Item 1, “Financial Statements,” of this report. Our accounting policies are described in detail in Note 1, “Basis of Presentation,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2019, and in Note 1, “Basis of Presentation and Significant Accounting Policies,” of the Notes to ~~the~~ Consolidated Financial Statements in Part II, Item 8 of our ~~2016~~2018 Form ~~10-K and our~~10-K. Our critical accounting estimates are detailed in the “Critical Accounting Estimates” section in Part II, Item 7 of our ~~2016~~2018 Form 10-K.

Performance Overview

Highlights of our results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, and financial condition as of ~~September~~June 30, ~~2017,~~2019, include the following:

●

Net income ~~available to common shareholders~~ increased ~~$1.27~~$1.39 million, or ~~19.88%~~15.28%, to ~~$7.65~~$10.45 million ~~and diluted earnings per share increased $0.08, or 21.62%, to $0.45 for the third quarter of 2017~~ compared to the same quarter of ~~2016.~~2018.

~~Table of Contents~~

●

Diluted earnings per share increased $0.12 to $0.66 compared to the same quarter of 2018, for an increase of 22.22%.
	●	Return on average assets for the quarter increased to 1.89%. Return on average equity for the quarter increased to 12.57%.
	●	Net interest margin increased 3047 basis points to ~~4.25%, and normalized net interest margin increased 23 basis points to 4.00% for the third quarter of 2017~~4.72% compared to the same quarter of ~~2016.~~2018.

●

The Company’s remaining wholesale repurchase agreement of $25 million matured during the first quarter of 2019. The Company~~’s book value per common share increased $0.81~~ repaid the borrowing with current liquidity, which should result in annualized net pre-tax savings of $378 thousand. This culminates the Company’s 5-year strategic shift back to ~~$20.76 compared to December 31, 2016.~~a more traditional community bank balance sheet, during which the Company paid off $200 million in wholesale debt.

	●	The Company received $2.03 million from litigation settlements during the quarter. Year-to-date, the Company has received $3.70 million.
	●	Book value per common share increased $0.55 to $21.34, and tangible book value per common share increased $0.43 to a record $15.12, compared to December 31, 2018.
	●	The Company repurchased 194,000 common shares for $6.58 million during the second quarter of 2019. Year to date, the Company has repurchased 426,900 common shares for $14.36 million compared to 474,240 shares for $14.72 million purchased during the same period in 2018.
	●	The Company and its subsidiary bank both significantly ~~exceeds~~exceed regulatory “well capitalized” targets as of ~~September~~June 30, ~~2017.~~2019.

Results of Operations

Net Income

The following table presents the changes in net income and related information for the periods indicated:

	Three Months Ended						Three Months Ended						Nine Months Ended						Nine Months Ended						Three Months Ended						Three Months Ended						Six Months Ended						Six Months Ended
	September 30,						Increase						September 30,						Increase						June 30,						Increase						June 30,						Increase
(Amounts in thousands, except	2017			2016			(Decrease)			% Change			2017			2016			(Decrease)			% Change
per share data)
(Amounts in thousands, except per share																									2019			2018			(Decrease)			% Change			2019			2018			(Decrease)			% Change
data)
Net income	$	7,652		$	6,383		$	1,269			19.88	%	$	20,272		$	18,722		$	1,550			8.28	%	$	10,451		$	9,066		$	1,385			15.28	%	$	20,082		$	17,934		$	2,148			11.98	%
Net income available to common shareholders		7,652			6,383			1,269			19.88	%		20,272			18,722			1,550			8.28	%

Basic earnings per common share		0.45			0.37			0.08			21.62	%		1.19			1.07			0.12			11.21	%		0.67			0.54			0.13			24.07	%		1.27			1.06			0.21			19.81	%
Diluted earnings per common share		0.45			0.37			0.08			21.62	%		1.19			1.07			0.12			11.21	%		0.66			0.54			0.12			22.22	%		1.27			1.06			0.21			19.81	%

Return on average assets		1.29	%		1.03	%		0.26	%		25.24	%		1.14	%		1.01	%		0.13	%		12.87	%		1.89	%		1.53	%		0.36	%		23.53	%		1.82	%		1.53	%		0.29	%		18.95	%
Return on average common equity		8.61	%		7.58	%		1.03	%		13.59	%		7.80	%		7.40	%		0.40	%		5.41	%		12.57	%		10.68	%		1.89	%		17.70	%		12.17	%		10.49	%		1.68	%		16.02	%

Table of Contents

Three-Month Comparison. Net income increased $1.39 million in the ~~third~~second quarter of ~~2017~~2019 due to ~~a decrease in noninterest expense and increases in noninterest and net interest income. These changes were~~litigation settlements received of $2.03 million offset by ~~increases~~an increase in ~~the~~ provision for loan losses ~~and income tax.~~of $1.09 million.

~~Nine-Month~~Six-Month Comparison. Net income increased $2.15 million in the first ~~nine~~six months of ~~2017~~2019 due to ~~a decrease in noninterest expense and~~litigation settlements received of $3.70 million offset by an increase in ~~net interest income. These changes were offset by a decrease in noninterest income and increases in the~~ provision for loan losses ~~and income tax.~~of $1.82 million.

Net Interest Income

Net interest income, our largest contributor to earnings, is analyzed on a fully taxable equivalent (“FTE”) basis, a non-GAAP financial measure. For additional information, see “Non-GAAP Financial Measures” below.

~~Table of Contents~~

The following ~~table~~stables present the consolidated average balance sheets and net interest analysis on a FTE basis for the dates indicated:

Three Months Ended September 30,

2017

2016

Average

Average Yield/

Average

Average Yield/

(Amounts in thousands)

Balance

Interest⁽¹⁾

Rate⁽¹⁾

Balance

Interest⁽¹⁾

Rate⁽¹⁾

Assets

Earning assets

Loans⁽²⁾
$ 1,843,612 $ 22,765 4.90 % $ 1,820,899 $ 21,974 4.80 %
Securities available for sale
157,038 1,373 3.47 % 266,162 1,941 2.90 %
Securities held to maturity
25,199 106 1.67 % 72,210 189 1.04 %
Interest-bearing deposits
73,802 275 1.48 % 19,025 26 0.54 %
Total earning assets
2,099,651 24,519 4.63 % 2,178,296 24,130 4.41 %
Other assets
258,763 282,310
Total assets
$ 2,358,414 $ 2,460,606

Liabilities and stockholders' equity

Interest-bearing deposits

Demand deposits
$ 384,594 $ 89 0.09 % $ 337,893 $ 60 0.07 %
Savings deposits
518,355 43 0.03 % 523,503 62 0.05 %
Time deposits
509,251 1,143 0.89 % 529,344 1,011 0.76 %
Total interest-bearing deposits
1,412,200 1,275 0.36 % 1,390,740 1,133 0.32 %
Borrowings

Federal funds purchased
- - - 3,696 6 0.65 %
Retail repurchase agreements
58,194 10 0.07 % 64,385 12 0.07 %
Wholesale repurchase agreements
25,000 203 3.22 % 50,000 473 3.76 %
FHLB advances and other borrowings
50,000 511 4.05 % 133,838 876 2.60 %
Total borrowings
133,194 724 2.16 % 251,919 1,367 2.16 %
Total interest-bearing liabilities
1,545,394 1,999 0.51 % 1,642,659 2,500 0.61 %
Noninterest-bearing demand deposits
440,227 462,588
Other liabilities
20,101 20,462
Total liabilities
2,005,722 2,125,709
Stockholders' equity
352,692 334,897
Total liabilities and stockholders' equity
$ 2,358,414 $ 2,460,606
Net interest income, FTE
$ 22,520 $ 21,630
Net interest rate spread
4.12 % 3.80 %
Net interest margin
4.25 % 3.95 %

	AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)
	Three Months Ended June 30,
	2019							2018
	Average				Average Yield/			Average				Average Yield/
(Amounts in thousands)	Balance		Interest⁽¹⁾		Rate⁽¹⁾			Balance		Interest⁽¹⁾		Rate⁽²⁾
Assets
Earning assets
Loans⁽²⁾⁽³⁾	$	1,721,392	$	22,772		5.31	%	$	1,795,094	$	22,458		5.02	%
Securities available for sale		126,153		1,068		3.40	%		190,605		1,447		3.04	%
Securities held to maturity		-		-					25,098		104		1.66	%
Interest-bearing deposits		125,759		766		2.44	%		109,349		514		1.89	%
Total earning assets		1,973,304		24,606		5.00	%		2,120,146		24,523		4.64	%
Other assets		248,270							252,843
Total assets	$	2,221,574						$	2,372,989

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	454,246	$	77		0.07	%	$	484,776	$	104		0.09	%
Savings deposits		504,854		192		0.15	%		518,055		83		0.06	%
Time deposits		429,469		1,123		1.05	%		477,691		1,140		0.96	%
Total interest-bearing deposits		1,388,569		1,392		0.40	%		1,480,522		1,327		0.36	%
Retail repurchase agreements		3,024		1		0.13	%		3,615		1		0.11	%
Wholesale repurchase agreements		-		-					25,000		201		3.22	%
FHLB advances and other borrowings		-		-					50,000		506		4.06	%
Total borrowings		3,024		1		0.13	%		78,615		708		3.61	%
Total interest-bearing liabilities		1,391,593		1,393		0.40	%		1,559,137		2,035		0.52	%
Noninterest-bearing demand deposits		459,766							447,048
Other liabilities		27,604							26,222
Total liabilities		1,878,963							2,032,407
Stockholders' equity		333,595							340,582
Total liabilities and stockholders' equity	$	2,212,558						$	2,372,989
Net interest income, FTE			$	23,213						$	22,488
Net interest rate spread						4.60	%						4.12	%
Net interest margin						4.72	%						4.25	%


(1)	~~Fully taxable equivalent ("FTE")~~Interest income and average yield/rate are presented on a FTE, non-GAAP, basis ~~based on~~using the federal statutory income tax rate of ~~35%~~21%.
(2)	Interest on loans included non-cash purchase accounting accretion of $1.39 million and $1.36 million for the three months ended June 30, 2019 and 2018, respectively.
(3)	Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.

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Nine Months Ended September 30,

2017

2016

Average

Average Yield/

Average

Average Yield/

(Amounts in thousands)

Balance

Interest⁽¹⁾

Rate⁽¹⁾

Balance

Interest⁽¹⁾

Rate⁽¹⁾

Assets

Earning assets

Loans⁽²⁾
$ 1,841,981 $ 67,645 4.91 % $ 1,775,744 $ 65,836 4.95 %
Securities available for sale
162,198 4,312 3.55 % 318,891 6,403 2.68 %
Securities held to maturity
35,578 382 1.44 % 72,350 575 1.06 %
Interest-bearing deposits
66,069 655 1.33 % 13,288 55 0.55 %
Total earning assets
2,105,826 72,994 4.63 % 2,180,273 72,869 4.47 %
Other assets
264,333 287,784
Total assets
$ 2,370,159 $ 2,468,057

Liabilities and stockholders' equity

Interest-bearing deposits

Demand deposits
$ 384,265 $ 301 0.10 % $ 339,920 $ 177 0.07 %
Savings deposits
523,219 114 0.03 % 533,799 191 0.05 %
Time deposits
513,072 3,259 0.85 % 527,056 2,966 0.75 %
Total interest-bearing deposits
1,420,556 3,674 0.35 % 1,400,775 3,334 0.32 %
Borrowings

Federal funds purchased
2 - 0.00 % 5,393 26 0.64 %
Retail repurchase agreements
61,951 31 0.07 % 69,347 37 0.07 %
Wholesale repurchase agreements
25,000 602 3.22 % 50,000 1,410 3.77 %
FHLB advances and other borrowings
57,357 1,754 4.09 % 124,803 2,578 2.76 %
Total borrowings
144,310 2,387 2.21 % 249,543 4,051 2.17 %
Total interest-bearing liabilities
1,564,866 6,061 0.52 % 1,650,318 7,385 0.60 %
Noninterest-bearing demand deposits
435,825 457,250
Other liabilities
21,905 22,581
Total liabilities
2,022,596 2,130,149
Stockholders' equity
347,563 337,908
Total liabilities and stockholders' equity
$ 2,370,159 $ 2,468,057
Net interest income, FTE
$ 66,933 $ 65,484
Net interest rate spread
4.11 % 3.87 %
Net interest margin
4.25 % 4.01 %

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Six Months Ended June 30,
	2019							2018
	Average				Average Yield/			Average				Average Yield/
(Amounts in thousands)	Balance		Interest⁽¹⁾		Rate⁽¹⁾			Balance		Interest⁽¹⁾		Rate⁽¹⁾
Assets
Earning assets
Loans⁽²⁾⁽³⁾	$	1,743,141	$	45,008		5.21	%	$	1,800,438	$	45,249		5.07	%
Securities available for sale		135,914		2,299		3.42	%		177,897		2,636		2.99	%
Securities held to maturity		6,140		45		1.48	%		25,115		209		1.68	%
Interest-bearing deposits		90,423		1,104		2.45	%		113,627		985		1.75	%
Total earning assets		1,975,618		48,456		4.95	%		2,117,077		49,079		4.67	%
Other assets		248,118							252,592
Total assets	$	2,223,736						$	2,369,669

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	450,655	$	114		0.05	%	$	473,819	$	167		0.07	%
Savings deposits		503,075		367		0.15	%		518,306		165		0.06	%
Time deposits		433,936		2,216		1.03	%		485,574		2,246		0.93	%
Total interest-bearing deposits		1,387,666		2,697		0.39	%		1,477,699		2,578		0.35	%
Borrowings
Retail repurchase agreements		3,141		2		0.14	%		4,031		2		0.10	%
Wholesale repurchase agreements		7,597		119		3.17	%		25,000		400		3.23	%
FHLB advances and other borrowings		-		-		-			50,000		1,006		4.06	%
Total borrowings		10,738		121		2.27	%		79,031		1,408		3.59	%
Total interest-bearing liabilities		1,398,404		2,818		0.41	%		1,556,730		3,986		0.52	%
Noninterest-bearing demand deposits		464,299							439,867
Other liabilities		28,245							28,168
Total liabilities		1,890,948							2,024,765
Stockholders' equity		332,788							344,904
Total liabilities and stockholders' equity	$	2,223,736						$	2,369,669
Net interest income, FTE⁽¹⁾			$	45,638						$	45,093
Net interest rate spread						4.54	%						4.16	%
Net interest margin, FTE⁽¹⁾						4.66	%						4.30	%

(1)	~~Fully taxable equivalent ("FTE")~~Interest income and average yield/rate are presented on a FTE, non-GAAP, basis ~~based on~~using the federal statutory income tax rate of ~~35%~~21%.
(2)	Nonaccrual loans are included in the average ~~balances;~~balance; however, no related interest income is recorded during the period of nonaccrual.
(3)	Interest on loans includes non-cash purchase accounting accretion of $2.15 million and $3.06 million for the six months ended June 30, 2019 and 2018, respectively.

4441

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The following table presents the impact to net interest income on a FTE basis due to changes in volume (average volume times the prior ~~year~~’syear’s average rate), rate (average rate times the prior year’s average volume), and rate/volume (average volume times the change in average rate), for the periods indicated:

	Three Months Ended												Nine Months Ended												Three Months Ended												Six Months Ended
	September 30, 2017 Compared to 2016												September 30, 2017 Compared to 2016												June 30, 2019 Compared to 2018												June 30, 2019 Compared to 2018
	Dollar Increase (Decrease) due to												Dollar Increase (Decrease) due to												Dollar Increase (Decrease) due to												Dollar Increase (Decrease) due to
							Rate/												Rate/												Rate/												Rate/
(Amounts in thousands)	Volume			Rate			Volume			Total			Volume			Rate			Volume			Total			Volume			Rate			Volume			Total			Volume			Rate			Volume			Total
Interest earned on⁽¹⁾
Loans⁽²⁾	$	816		$	1,336		$	(1,361	)	$	791		$	2,456		$	(563	)	$	(84	)	$	1,809		$	(922	)	$	1,289		$	(53	)	$	314		$	(1,440	)	$	623		$	576		$	(241	)
Securities available-for-sale		(2,368	)		1,130			670			(568	)		(3,146	)		2,081			(1,026	)		(2,091	)		(489	)		171			(61	)		(379	)		(622	)		188			97			(337	)
Securities held-to-maturity		(366	)		339			(56	)		(83	)		(292	)		202			(103	)		(193	)		(104	)		(104	)		104			(104	)		(158	)		(13	)		7			(164	)
Interest-bearing deposits with other banks		223			133			(107	)		249			218			77			305			600			77			152			23			252			(201	)		202			118			119
Total interest earning assets		(1,695	)		2,938			(854	)		389			(764	)		1,797			(908	)		125			(1,438	)		1,508			13			83			(2,421	)		1,000			798			(623	)

Interest paid on⁽¹⁾
Demand deposits		25			53			(49	)		29			23			89			12			124			(7	)		(22	)		2			(27	)		(8	)		(24	)		(21	)		(53	)
Savings deposits		(2	)		(56	)		39			(19	)		(4	)		(75	)		2			(77	)		(2	)		114			(3	)		109			(5	)		107			100			202
Time deposits		(114	)		517			(271	)		132			(79	)		385			(13	)		293			(115	)		109			(11	)		(17	)		(239	)		117			92			(30	)
Federal funds purchased		(18	)		(18	)		30			(6	)		(26	)		-			-			(26	)
Retail repurchase agreements		(3	)		(3	)		4			(2	)		(4	)		(2	)		-			(6	)		-			-			-			-			-			-			-			-
Wholesale repurchase agreements		(704	)		(203	)		637			(270	)		(705	)		(205	)		102			(808	)		(201	)		(201	)		201			(201	)		(278	)		(4	)		1			(281	)
FHLB advances and other borrowings		(1,633	)		1,452			(184	)		(365	)		(1,393	)		1,241			(672	)		(824	)		(506	)		-			-			(506	)		(1,006	)		(506	)		506			(1,006	)
Total interest-bearing liabilities		(2,449	)		1,742			206			(501	)		(2,188	)		1,433			(569	)		(1,324	)		(831	)		-			189			(642	)		(1,536	)		(310	)		678			(1,168	)

Change in net interest income⁽¹⁾	$	754		$	1,196		$	(1,060	)	$	890		$	1,424		$	364		$	(339	)	$	1,449		$	(607	)	$	1,508		$	(176	)	$	725		$	(885	)	$	1,310		$	120		$	545

(1)

FTE basis based on the federal statutory rate of ~~35%~~21%.

~~(2)~~

~~Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.~~

~~Table of Contents~~

~~The following tables present the net interest analysis on a FTE basis excluding the impact of non-cash purchase accounting accretion from acquired loan portfolios for the periods indicated:~~

Three Months Ended September 30,

2017

2016

(Amounts in thousands)

Interest⁽¹⁾

Average Yield/
Rate⁽¹⁾

Interest⁽¹⁾

Average Yield/
Rate⁽¹⁾

Earning assets

Loans⁽²⁾
$ 22,765 4.90 % $ 21,974 4.80 %
Accretion income
1,925 1,683
Less: cash accretion income
548 699
Non-cash accretion income
1,377 984
Loans, normalized⁽³⁾
21,388 4.60 % 20,990 4.59 %
Other earning assets
1,754 2.72 % 2,156 2.40 %
Total earning assets
23,142 4.37 % 23,146 4.23 %
Total interest-bearing liabilities
1,999 0.51 % 2,500 0.61 %
Net interest income, FTE⁽³⁾
$ 21,143 $ 20,646
Net interest rate spread, normalized⁽³⁾
3.86 % 3.62 %
Net interest margin, normalized⁽³⁾
4.00 % 3.77 %

~~(1)~~

~~FTE basis based on the federal statutory rate of 35%~~

~~(2)~~

~~Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.~~

~~(3)~~

~~Normalized totals are non-GAAP financial measures that exclude non-cash loan interest accretion related to PCI loans.~~

Nine Months Ended September 30,

2017

2016

(Amounts in thousands)

Interest⁽¹⁾

Average Yield/
Rate⁽¹⁾

Interest⁽¹⁾

Average Yield/
Rate⁽¹⁾

Earning assets

Loans⁽²⁾
$ 67,645 4.91 % $ 65,836 4.95 %
Accretion income
6,243 6,183
Less: cash accretion income
1,986 2,290
Non-cash accretion income
4,257 3,893
Loans, normalized⁽³⁾
63,388 4.60 % 61,943 4.66 %
Other earning assets
5,349 2.71 % 7,033 2.32 %
Total earning assets
68,737 4.36 % 68,976 4.23 %
Total interest-bearing liabilities
6,061 0.52 % 7,385 0.60 %
Net interest income, FTE⁽³⁾
$ 62,676 $ 61,591
Net interest rate spread, normalized⁽³⁾
3.84 % 3.63 %
Net interest margin, normalized⁽³⁾
3.98 % 3.77 %

~~(1)~~

~~FTE basis based on the federal statutory rate of 35%~~

~~(2)~~

~~Nonaccrual loans are included in average balances; however, no related interest income is recorded during the period of nonaccrual.~~

~~(3)~~

~~Normalized totals are non-GAAP financial measures that exclude non-cash loan interest accretion related to PCI loans.~~

Three-Month Comparison. Net interest income comprised ~~75.55%~~72.66% of total net interest and noninterest income in the ~~third~~second quarter of ~~2017~~2019 compared to ~~78.18%~~76.04% in the same quarter of ~~2016.~~2018. Net interest income on a GAAP basis increased ~~$929~~$727 thousand, or ~~4.40%~~3.27%, ~~and~~compared to an increase of $725 thousand, or 3.22%, on a FTE basis. The net interest ~~income~~margin on a FTE basis increased ~~$890 thousand, or 4.11%. Normalized~~47 basis points and the net interest ~~income~~spread on a FTE basis ~~is a non-GAAP measure that excludes non-cash loan accretion income related to PCI loans. For additional information, see “Non-GAAP Financial Measures” below. Normalized~~increased 48 basis points. The increase in the net interest margin ~~increased 23 basis points compared to an increase of 30 basis points on a FTE basis. Normalized~~and the net interest spread ~~increased 24 basis points compared~~are primarily attributable to ~~an increase~~the Company’s strategy to shift back to a more traditional community bank balance sheet through the payoffs of ~~32 basis points on a FTE basis.~~higher-rate wholesale debt.

Average earning assets decreased ~~$78.65~~$146.84 million, or ~~3.61%~~6.93%, primarily due to a decrease in average loans as well as a decrease in the investment ~~securities offset by loan growth and an increase in interest-bearing deposits.~~portfolio. The ~~normalized~~ yield on earning assets increased 1436 basis points ~~compared to an increase of 22 basis points on a GAAP basis.~~as the yields in the loan portfolio, interest-bearing deposits and the available-for-sale investment portfolio increased. Average loans ~~increased $22.71~~decreased $73.70 million, or ~~1.25%~~4.11%, and the average loan to deposit ratio ~~increased~~decreased to ~~99.52%~~92.68% from ~~98.25%. The normalized yield on loans increased 1 basis point compared to an increase~~93.13% in the same quarter of ~~10 basis points on a GAAP basis.~~2018. Non-cash accretion income increased ~~$393~~$30 thousand, or ~~39.94%.~~

~~Table~~2.21%, due to large payoffs of ~~Contents~~

acquired loans in the second quarter of 2019.

Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, decreased $~~97.27~~$167.54 million, or ~~5.92%~~10.75%, primarily due to a decline in average borrowings. The yield on interest-bearing liabilities decreased 1012 basis ~~points, largely driven by a decrease in the average balance of borrowings.~~points. Average borrowings decreased ~~$118.73~~$75.59 million, or ~~47.13%~~96.15%, largely due to ~~an $83.84~~the payoff of $50 million ~~or 62.64%, decrease~~ in ~~average~~ FHLB advances ~~and other borrowings,~~as well as a ~~$25.00~~$25 million ~~or 50.00%, decrease in average~~payoff of a wholesale repurchase ~~agreements, a $6.19 million, or 9.62%, decrease in average retail repurchase agreements, and a $3.70 million decrease in average federal funds purchased.~~agreement. Average interest-bearing deposits ~~increased $21.46~~decreased $91.95 million, or ~~1.54%~~6.21%, which was driven by a ~~$46.70~~$48.22 million, or ~~13.82%, increase in average interest-bearing demand deposits offset by a $20.09 million, or 3.80%~~10.09%, decrease in average time deposits and a ~~$5.15~~$30.53 million, or ~~0.98%,~~6.30% decrease in ~~average savings deposits, which include money market and savings accounts.~~interest-bearing demand deposits.

~~Nine-Month~~Six-Month Comparison. Net interest income comprised ~~78.16%~~72.98% of total net interest and noninterest income infor the first ~~nine~~six months of ~~2017~~2019 compared to ~~75.42%~~76.61% in the same period of ~~2016.~~2018. Net interest income on a GAAP basis increased ~~$1.56 million,~~$534 thousand, or ~~2.44%~~1.20%, ~~and~~compared to an increase of $545 thousand, or 1.21%, on a FTE basis. The net interest ~~income~~margin on a FTE basis increased ~~$1.45 million, or 2.21%. Normalized~~36 basis points and the net interest spread on a FTE basis increased 38 basis points. The increase in the net interest margin ~~increased 21 basis points compared to an increase of 24 basis points on a FTE basis. Normalized~~and the net interest spread ~~increased 21 basis points compared~~are primarily attributable to ~~an increase~~the Company’s strategy to shift back to a more traditional community bank balance sheet through the payoffs of ~~24 basis points on a FTE basis.~~higher-rate wholesale debt.

Table of Contents

Average earning assets decreased ~~$74.45~~$141.46 million, or ~~3.41%~~6.68%, primarily due to a decrease in loans and the investment ~~offset by loan growth and an increase in interest-bearing deposits.~~portfolio. The ~~normalized~~ yield on earning assets increased 1328 basis points ~~compared to an increase of 16 basis points on a GAAP basis.~~as the yields in interest-bearing deposits, the available-for-sale investment portfolio and the loan portfolio increased. Average loans ~~increased $66.24~~decreased $57.30 million, or ~~3.73%~~3.18%, and the average loan to deposit ratio increased to ~~99.22%~~94.12% from ~~95.57%. The normalized yield on loans decreased 6 basis points compared to a decrease~~93.89% in the same period of ~~4 basis points on a GAAP basis.~~2018. Non-cash accretion income ~~increased $364 thousand,~~decreased $1.05 million, or ~~9.35%~~32.80%, ~~as the effect of accretion income~~due to continued ~~to decline from~~ acquired portfolio attrition.

Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, decreased ~~$85.45~~$158.33 million, or ~~5.18%~~10.17%, primarily due to a decline in average borrowings. The yield on interest-bearing liabilities decreased 811 basis ~~points, largely driven by a decrease in the average balance of borrowings.~~points. Average borrowings decreased ~~$105.23~~$68.29 million, or ~~42.17%~~86.41%, largely due to a ~~$67.45~~$50 million ~~or 54.04%,~~ decrease in ~~average~~ FHLB advances ~~and other borrowings,~~as well as a ~~$25.00 million, or 50.00%,~~ decrease in average wholesale repurchase agreements ~~a $7.40~~of $17.40 million, or ~~10.67%, decrease in average retail repurchase agreements, and a $5.39 million, or 99.96%, decrease in average federal funds purchased.~~69.61%. Average interest-bearing deposits ~~increased $19.78~~decreased $90.03 million, or ~~1.41%~~6.09%, which was driven by a ~~$44.35~~$51.64 million, or ~~13.05%, increase in average interest-bearing demand deposits offset by a $13.98 million, or 2.65%~~10.63%, decrease in average time ~~deposits, and a $10.58 million, or 1.98%, decrease in average savings deposits, which include money market and savings accounts.~~deposits.

Provision for Loan Losses

Three-Month Comparison. The provision charged to operations increased ~~$1.88~~$1.09 million, or 220.20%, to ~~$730 thousand~~$1.59 million in the ~~third~~second quarter of ~~2017~~2019 compared to ~~a recovery of $1.15 million in~~ the same quarter of ~~2016, which was attributed to the reversal of $1.35 million in loan loss provisions related to loans divested in the First Bank transaction during the third quarter of 2016.~~2018. For additional information, see “Allowance for Loan Losses” in the “Financial Condition” section below.

~~Nine-Month~~Six-Month Comparison. The provision charged to operations increased ~~$1.40~~$1.82 million, or 183.33%, to ~~$2.16~~$2.81 million infor the first ~~nine~~six months of ~~2017~~2019 compared to the same period of ~~2016, which was attributed to the reversal of $1.35 million in loan loss provisions related to loans divested~~2018. For additional information, see “Allowance for Loan Losses” in the ~~First Bank transaction during the third quarter of 2016.~~“Financial Condition” section below.

~~Table of Contents~~

Noninterest Income

The following table presents the components of, and changes in, noninterest income for the periods indicated:

	Three Months Ended						Three Months Ended						Nine Months Ended						Nine Months Ended						Three Months Ended						Three Months Ended						Six Months Ended						Six Months Ended
	September 30,						Increase						September 30,						Increase						June 30,						Increase						June 30,						Increase
	2017			2016			(Decrease)			% Change			2017			2016			(Decrease)			% Change			2019			2018			(Decrease)			% Change			2019			2018			(Decrease)			% Change
(Amounts in thousands)
Wealth management	$	758		$	653		$	105			16.08	%	$	2,339		$	2,147		$	192			8.94	%	$	884		$	823		$	61			7.41	%	$	1,629		$	1,617		$	12			0.74	%
Service charges on deposits		3,605			3,494			111			3.18	%		10,078			10,146			(68	)		-0.67	%		3,699			3,612			87			2.41	%		7,107			7,080			27			0.38	%
Other service charges and fees		2,141			2,024			117			5.78	%		6,387			6,088		��	299			4.91	%		2,129			1,991			138			6.93	%		4,178			3,791			387			10.21	%
Insurance commissions		306			1,592			(1,286	)		-80.78	%		1,004			5,383			(4,379	)		-81.35	%		-			338			(338	)		-100.00	%		-			667			(667	)		-100.00	%
Net impairment losses recognized in earnings		-			(4,635	)		4,635			-100.00	%		-			(4,646	)		4,646			-100.00	%
Net loss on sale of securities		-			25			(25	)		-100.00	%		(657	)		(53	)		(604	)		1139.62	%		(43	)		-			(43	)		-			(43	)		-			(43	)		-
Net FDIC indemnification asset amortization		(268	)		(1,369	)		1,101			-80.42	%		(3,186	)		(3,856	)		670			-17.38	%		(516	)		(575	)		59			-10.26	%		(1,068	)		(957	)		(111	)		11.60	%
Net gain on divestiture		-			3,065			(3,065	)		-100.00	%		-			3,065			(3,065	)		-100.00	%
Other income																										2,025			-			2,025			-			3,700			-			3,700			-
Other operating income		593			1,046			(453	)		-43.31	%		2,336			2,554			(218	)		-8.54	%		471			827			(356	)		-43.05	%		1,226			1,429			(203	)		-14.21	%
Total noninterest income	$	7,135		$	5,895		$	1,240			21.03	%	$	18,301		$	20,828		$	(2,527	)		-12.13	%	$	8,649		$	7,016		$	1,633			23.28	%	$	16,729		$	13,627		$	3,102			22.76	%

Three-Month Comparison. Noninterest income comprised ~~24.45%~~27.34% of total net interest and noninterest income in the ~~third~~second quarter of ~~2017~~2019 compared to ~~21.82%~~23.96% in the same quarter of ~~2016.~~2018. Noninterest income increased ~~$1.24~~$1.63 million, or ~~21.03%~~23.28%, primarily due to $2.03 million received from litigation settlements. Other service charges and fees increased $138 thousand, or 6.93%, primarily due to an increase of $159 thousand in net ~~impairment losses recognized~~interchange income. Increases in ~~the third quarter of 2016 and~~noninterest income were offset by the decrease in insurance commissions as a result of the divestiture of the remaining insurance agency in the fourth quarter of 2018. Excluding the impact from litigation settlements and net ~~negative~~FDIC and indemnification asset amortization, noninterest income decreased $451 thousand, or 5.94%, to $7.14 million in the second quarter of 2019, from $7.60 million in the same quarter of 2018.

Six-Month Comparison. Noninterest income comprised 27.02% of total net interest and noninterest income for the first six months of 2019 compared to 23.39% in the same period of 2018. Noninterest income increased $3.10 million, or 22.76%, primarily due to $3.70 million received from litigation settlements. Other service charges and fees increased $387 thousand, or 10.21%, primarily due to an increase of $332 thousand in net interchange income. Increases in noninterest income were offset by the decrease in insurance commissions as a result of the divestiture of the remaining insurance agency in the fourth quarter of 2018. Net amortization related to the FDIC indemnification asset increased as loss share coverage expired June 30, 2017, for commercial loans. See Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report. These changes were offset by a decrease in insurance commissions resulting from the Greenpoint divestiture in the fourth quarter of 2016 and a net gain on the divestiture of six bank branches to First Bank in the third quarter of 2016.well. Excluding the impact from ~~impairment losses, sales of securities~~litigation settlements and ~~branches,~~ net FDIC and indemnification asset amortization, ~~and net gain on divestiture,~~ noninterest income decreased ~~$1.33 million,~~$487 thousand, or ~~15.22%~~3.34%, to ~~$7.40~~$14.10 million in the third quarter of 2017, from $8.73 million in the same quarter of 2016. The decrease was due primarily to a $1.29 million decrease in insurance commissions resulting from the Greenpoint divestiture.

~~Nine-Month~~ ~~Comparison~~~~. Noninterest income comprised 21.84% of total net interest and noninterest income in~~for the first ~~nine~~six months of ~~2017 compared to 24.58% in the same period of 2016. Noninterest income decreased $2.53 million, or 12.13%, primarily due to a decrease in insurance commissions resulting~~2019, from the Greenpoint divestiture in the fourth quarter of 2016 and a net gain on the divestiture of six bank branches to First Bank in the third quarter of 2016 offset by net impairment losses recognized in the third quarter of 2016. See Note 2, “Investment Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report. Net negative amortization related to the FDIC indemnification asset decreased due to additional reserve provisions as loss share coverage expired June 30, 2017, for commercial loans. Excluding the impact from impairment losses, sales of securities and branches, net FDIC indemnification asset amortization, net gain on divestiture, and bank owned life insurance proceeds, noninterest income decreased $4.19 million, or 16.20%, to $21.69 million in the first nine months of 2017, from $25.88$14.58 million in the same period of ~~2016. The decrease was due primarily to a $4.38 million decrease in insurance commissions resulting from the Greenpoint divestiture.~~

2018.

4843

Table of Contents

Noninterest Expense

The following table presents the components of, and changes in, noninterest expense for the periods indicated:

	Three Months Ended				Three Months Ended						Nine Months Ended				Nine Months Ended						Three Months Ended				Three Months Ended						Six Months Ended				Six Months Ended
	September 30,				Increase						September 30,				Increase			%			June 30,				Increase			%			June 30,				Increase			%
	2017		2016		(Decrease)			% Change			2017		2016		(Decrease)			Change			2019		2018		(Decrease)			Change			2019		2018		(Decrease)			Change
(Amounts in thousands)
Salaries and employee benefits	$	9,137	$	9,828	$	(691	)		-7.03	%	$	27,178	$	30,501	$	(3,323	)		-10.89	%	$	9,153	$	8,993	$	160			1.78	%	$	18,319	$	18,434	$	(115	)		-0.62	%
Occupancy expense		1,082		1,249		(167	)		-13.37	%		3,671		4,139		(468	)		-11.31	%		1,082		1,083		(1	)		-0.09	%		2,235		2,333		(98	)		-4.20	%
Furniture and equipment expense		1,133		1,066		67			6.29	%		3,311		3,271		40			1.22	%		1,062		945		117			12.38	%		2,095		1,991		104			5.22	%
Service fees																						1,231		851		380			44.65	%		2,261		1,679		582			34.66	%
Advertising and public relations																						513		461		52			11.28	%		1,037		983		54			5.49	%
Professional fees																						328		430		(102	)		-23.72	%		742		737		5			0.68	%
Amortization of intangibles		266		316		(50	)		-15.82	%		790		871		(81	)		-9.30	%		249		263		(14	)		-5.32	%		495		524		(29	)		-5.53	%
FDIC premiums and assessments		227		363		(136	)		-37.47	%		698		1,109		(411	)		-37.06	%		150		252		(102	)		-40.48	%		318		463		(145	)		-31.32	%
Merger, acquisition, and divestiture expense		-		226		(226	)		-100.00	%		-		675		(675	)		-100.00	%
Other operating expense		5,064		5,509		(445	)		-8.08	%		15,802		15,527		275			1.77	%		2,883		3,939		(1,056	)		-26.81	%		5,934		7,132		(1,198	)		-16.80	%
Total noninterest expense	$	16,909	$	18,557	$	(1,648	)		-8.88	%	$	51,450	$	56,093	$	(4,643	)		-8.28	%	$	16,651	$	17,217	$	(566	)		-3.29	%	$	33,436	$	34,276	$	(840	)		-2.45	%

Three-Month Comparison. Noninterest expense decreased ~~$1.65 million,~~$566 thousand, or ~~8.88%~~3.29%, in the ~~third~~second quarter of ~~2017~~2019 compared to the same quarter of ~~2016,~~2018, which was largely due to a decrease in other operating expense of $1.06 million offset by increases in services fees of $380 thousand and salaries and employee ~~benefits. Salaries and employee~~ benefits ~~decreased as full-time equivalent employees, calculated using the number~~ of ~~hours worked, decreased~~$160 thousand. The decrease in other operating expense is primarily attributable to ~~569 as~~writedowns of ~~September 30, 2017, from 624 as of September 30, 2016, primarily due to the First Bank and Greenpoint transactions that occurred during~~bank-owned properties in the second ~~half of 2016. We incurred expenses totaling $226 thousand related to the branch exchange with First Bank during the third~~ quarter of 2016. Occupancy, furniture, and equipment expense decreased $100 thousand, or 4.32%, due to branch closures and divestitures that occurred during the prior year. Other operating expense included a $421 thousand increase in legal fees, a $146 thousand increase in property writedowns, and a $369 thousand increase in the net loss on sales and expenses related to other real estate owned (“OREO”) to $647 thousand from $278 thousand in the third quarter2018 of ~~2016. These increases were offset by decreases in office supplies expense, other service fees, nonemployee compensation, and consulting fees.~~$400 thousand.

~~Nine-Month~~Six-Month Comparison. Noninterest expense decreased ~~$4.64 million,~~$840 thousand, or ~~8.28%~~2.45%, in the first ~~nine~~six months of ~~2017~~2019 compared to the same period of ~~2016,~~2018, which was largely due to a decrease in salaries and employee benefits. Salaries and employee benefits decreased primarily due to the First Bank and Greenpoint transactions that occurred during the second half of 2016. We incurred expenses totaling $675 thousand related to the First Bank branch exchange during the first nine months of 2016. Occupancy, furniture, and equipment expense decreased $428 thousand, or 5.78%, due to branch closures and divestitures that occurred during the prior year. Otherother operating expense ~~included a $467 thousand increase in legal fees which were~~of $1.20 million offset by ~~a $48 thousand~~increases in services fees of $582 thousand. The decrease in ~~the net loss on sales and expenses related~~other operating expense is primarily attributable to ~~OREO to $1.19 million from $1.24 million~~writedowns of bank-owned properties in the first ~~nine~~six months of ~~2016.~~

2018 in the amount of $910 thousand.

~~Income~~

Income Tax Expense

The Tax Cuts and Jobs Act (“Tax Reform Act”) was enacted on December 22, 2017. Among other things, the new law establishes a new, flat corporate federal statutory income tax rate of 21%; eliminates the corporate alternative minimum tax and allows the use of any such carryforwards to offset regular tax liability for any taxable year; limits the deduction for net interest expense incurred by U.S. corporations; allows businesses to immediately expense the cost of new investments in certain qualified depreciable assets for tax purposes; eliminates or reduces certain deductions related to meals and entertainment expenses; modifies the limitation on excessive employee remuneration to eliminate the exception for performance-based compensation and clarifies the definition of a covered employee; and limits the deductibility of deposit insurance premiums.

The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. The Tax Reform Act enacted on December 22, 2017, reduced our federal statutory income tax rate from 35% to 21% beginning January 1, 2018.

Three-Month ~~Comparison~~. The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies. Income tax expense increased $664 thousand, or 20.56%, and the effective tax rate increased 13 basis points to 33.73% in the third quarter of 2017 compared to the same quarter of 2016. The increase in the effective tax rate was largely due to a decrease in tax-exempt revenue.

~~Nine-Month~~ Comparison. Income tax expense increased ~~$727~~$451 thousand, or ~~7.92%~~18.04%, primarily due to the increase in pretax net income. The effective tax rate increased to 22.02% in the second quarter of 2019 from 21.62% in the same quarter of 2018.

Six-Month Comparison. Income tax expense increased $513 thousand, or 10.12%, and the effective tax rate decreased ~~7 basis points~~ to ~~32.83%~~21.75% in the ~~first nine months~~second quarter of ~~2017 compared to~~2018 from 22.03% in the same ~~period~~quarter of ~~2016. The decrease in the effective tax rate was largely due to an increase in tax-exempt revenue.~~2018.

Non-GAAP Financial Measures

In addition to financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures that management believes provide investors with important information useful in understanding our operational performance and comparing our financial measures with other financial institutions. The non-GAAP financial ~~measures~~measure presented in this report ~~include net interest income on a FTE basis and normalized~~includes net interest income on a FTE basis. While we believe these non-GAAP financial measures enhance understanding of our business and performance, they are supplemental and not a substitute for, or more important than, financial measures prepared on a GAAP basis. Our non-GAAP financial measures may not be comparable to those reported by other financial institutions. The reconciliations of these measures to GAAP measures are presented below.

~~Table of Contents~~

We believe FTE basis is the preferred industry measurement of net interest income and provides better comparability between taxable and tax exempt amounts. We use this non-GAAP financial measure to monitor net interest income performance and to manage the composition of our balance sheet. The FTE basis adjusts for the tax benefits of income from certain tax exempt loans and investments using the federal statutory rate of 35%21%. ~~Normalized net interest income~~While we believe certain non-GAAP financial measures enhance understanding of our business and performance, they are supplemental and not a substitute for, or more important than, financial measures prepared on a ~~FTE basis is a~~GAAP basis. Our non-GAAP ~~measure that excludes non-cash loan accretion income related~~financial measures may not be comparable to ~~PCI loans.~~those reported by other financial institutions. The reconciliations of non-GAAP to GAAP measures are presented below.

Table of Contents

The following table reconciles net interest income and margin, as presented in our consolidated statements of income, to net interest income on a FTE basis for the periods indicated:

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
(Amounts in thousands)
Net interest income, GAAP	$	22,050		$	21,121		$	65,485		$	63,923		$	22,989		$	22,262		$	45,175		$	44,641
FTE adjustment⁽¹⁾		470			509			1,448			1,561			224			226			463			452
Net interest income, FTE		22,520			21,630			66,933			65,484			23,213			22,488			45,638			45,093
Less: non-cash accretion income⁽²⁾		1,377			984			4,257			3,893
Net interest income, normalized	$	21,143		$	20,646		$	62,676		$	61,591

Net interest margin, GAAP		4.17	%		3.85	%		4.15	%		3.91	%		4.67	%		4.22	%		4.61	%		4.25	%
FTE adjustment⁽¹⁾		0.08	%		0.08	%		0.10	%		0.09	%		0.04	%		0.03	%		0.05	%		0.05	%
Net interest margin, FTE		4.25	%		3.95	%		4.25	%		4.01	%		4.72	%		4.25	%		4.66	%		4.30	%
Less: non-cash accretion income⁽²⁾		0.25	%		0.18	%		0.27	%		0.24	%
Net interest margin, normalized		4.00	%		3.77	%		3.98	%		3.77	%


(1)	FTE basis based on the federal statutory rate of ~~35%~~
~~(2)~~	~~Includes non-cash purchase accounting accretion income from acquired loan portfolios~~21% for periods after January 1, 2018.

Financial Condition

Total assets as of ~~September~~June 30, ~~2017,~~2019, decreased ~~$11.62~~$32.35 million, or ~~0.49%, to $2.37 billion~~1.44% from ~~$2.39 billion as of~~ December 31, ~~2016. Total~~2018. In addition, total liabilities as of ~~September~~June 30, ~~2017,~~2019, decreased ~~$25.20~~$33.18 million, or ~~1.23%, to $2.02 billion~~1.74% from ~~$2.05 billion as of~~ December ~~31, 2016.~~31,2018.

Investment Securities

Our investment securities are used to generate interest income through the employment of excess funds, to provide liquidity, to fund loan demand or deposit liquidation, and to pledge as collateral where required. The composition of our investment portfolio changes from time to time as we consider our liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements.

Available-for-sale debt securities as of ~~September~~June 30, ~~2017, increased $8.85~~2019, decreased $34.04 million, or ~~5.34%~~22.23%, compared to December 31, ~~2016, primarily due to the purchase of U.S. Treasury securities offset by the maturity and sale of municipal, single-issue trust preferred, and mortgage-backed Agency securities.~~2018. The market value of debt securities available for sale as a percentage of amortized cost was ~~101.11%~~101.05% as of ~~September~~June 30, ~~2017,~~2019, compared to ~~99.48%~~99.76% as of December 31, ~~2016. Held-to-maturity~~2018. The remaining debt securities asin the held-to-maturity portfolio matured during the first quarter of ~~September 30, 2017, decreased $21.95 million, or 46.57%, compared~~2019. The funds were used to ~~December 31, 2016, primarily due to~~repay the ~~maturity~~Company’s remaining wholesale repurchase agreement of ~~U.S. Agency securities. The market value of securities held to maturity as a percentage of amortized cost was 100.17% as of September 30, 2017, compared to 100.28% as of December 31, 2016.~~$25 million.

Investment securities are reviewed quarterly for possible other-than-temporary impairment (“OTTI”) charges. We recognized no OTTI charges in earnings associated with debt securities for the three and ~~nine~~six months ended ~~September~~June 30, 2017. We recognized credit-related OTTI charges in earnings associated with debt securities of $4.64 million during the three and nine months ended September 30, 2016, due to our change in intent to hold certain trust preferred securities to recovery. We recognized no OTTI charges in earnings associated with equity securities for the three and nine months ended September 30, 2017,2019 or ~~the three months ended September 30, 2016. We recognized OTTI charges in earnings associated with certain equity securities of $11 thousand for the nine months ended September 30, 2016.~~2018. For additional information, see Note 2, ~~“Investment~~“Debt Securities,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

~~Table of Contents~~

Loans Held for Investment

L~~oans~~Loans held for investment, our largest component of interest income, are grouped into commercial, consumer real estate, and consumer and other loan segments. Each segment is divided into various loan classes based on collateral or purpose. Certain loans acquired in FDIC-assisted transactions are covered under loss share agreements (“covered loans”). Total loans held for investment, net of unearned income, as of ~~September~~June 30, ~~2017,~~2019, decreased ~~$15.23~~$54.16 million, or ~~0.82%~~3.05%, compared to December 31, ~~2016,~~2018, primarily due to a ~~$25.71~~$50.86 million, or ~~45.10%~~2.90%, decrease in ~~covered~~non-covered loans, which was driven by declines in non-farm, non-residential, single family owner occupied, and commercial and industrial segments. Covered loans decreased $3.30 million, or 17.51%, as the covered Waccamaw portfolio continues to ~~run off. The decrease was offset by a $10.48 million, or 0.58%, increase in non-covered loans driven by the commercial construction and non-farm, non-real estate commercial segments.~~pay down. For additional information, see Note 3, “Loans,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

~~The following table presents loans, net of unearned income, with non-covered loans by loan class as of the dates indicated:~~

September 30, 2017

December 31, 2016

September 30, 2016

(Amounts in thousands)

Amount

Percent

Amount

Percent

Amount

Percent

Non-covered loans held for investment

Commercial loans

Construction, development, and other land
$ 72,952 3.97 % $ 56,948 3.07 % $ 49,799 2.71 %
Commercial and industrial
90,184 4.91 % 92,204 4.98 % 90,362 4.92 %
Multi-family residential
125,997 6.86 % 134,228 7.24 % 127,468 6.94 %
Single family non-owner occupied
143,213 7.79 % 142,965 7.72 % 144,023 7.84 %
Non-farm, non-residential
613,380 33.38 % 598,674 32.31 % 596,015 32.46 %
Agricultural
6,096 0.33 % 6,003 0.32 % 5,786 0.32 %
Farmland
27,897 1.52 % 31,729 1.71 % 31,974 1.74 %
Total commercial loans
1,079,719 58.76 % 1,062,751 57.35 % 1,045,427 56.93 %
Consumer real estate loans

Home equity lines
102,888 5.60 % 106,361 5.74 % 108,108 5.89 %
Single family owner occupied
501,242 27.27 % 500,891 27.03 % 497,695 27.10 %
Owner occupied construction
47,034 2.56 % 44,535 2.41 % 43,925 2.39 %
Total consumer real estate loans
651,164 35.43 % 651,787 35.18 % 649,728 35.38 %
Consumer and other loans

Consumer loans
70,695 3.85 % 77,445 4.18 % 76,363 4.16 %
Other
4,856 0.26 % 3,971 0.21 % 3,029 0.16 %
Total consumer and other loans
75,551 4.11 % 81,416 4.39 % 79,392 4.32 %
Total non-covered loans
1,806,434 98.30 % 1,795,954 96.92 % 1,774,547 96.63 %
Total covered loans
31,287 1.70 % 56,994 3.08 % 61,837 3.37 %
Total loans held for investment, net of unearned income
1,837,721 100.00 % 1,852,948 100.00 % 1,836,384 100.00 %
Less: allowance for loan losses
19,206 17,948 19,633
Total loans held for investment, net of unearned income and allowance
$ 1,818,515 $ 1,835,000 $ 1,816,751

5145

Table of Contents

The following table presents ~~covered~~ loans,, net of unearned income, with non-covered loans by loan class as of the dates indicated:

	September 30, 2017					December 31, 2016					September 30, 2016					June 30, 2019					December 31, 2018					June 30, 2018
(Amounts in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Non-covered loans held for investment
Commercial loans
Construction, development, and other land	$	40		0.13	%	$	4,570		8.02	%	$	4,699		7.60	%	$	62,155		3.61	%	$	63,508		3.58	%	$	57,986		3.22	%
Commercial and industrial		-		0.00	%		895		1.57	%		941		1.52	%		92,304		5.36	%		104,863		5.91	%		96,614		5.37	%
Multi-family residential		-		0.00	%		8		0.01	%		43		0.07	%		100,569		5.84	%		107,012		6.03	%		110,067		6.12	%
Single family non-owner occupied		292		0.93	%		962		1.69	%		1,328		2.15	%		139,180		8.11	%		140,097		7.89	%		142,076		7.90	%
Non-farm, non-residential		10		0.03	%		7,512		13.18	%		8,312		13.44	%		596,163		34.64	%		613,877		34.58	%		624,999		34.74	%
Agricultural		-		0.00	%		25	��	0.04	%		26		0.04	%		9,462		0.55	%		8,545		0.48	%		8,895		0.49	%
Farmland		-		0.00	%		397		0.70	%		412		0.67	%		17,322		1.01	%		18,905		1.07	%		22,055		1.23	%
Total commercial loans		342		1.09	%		14,369		25.21	%		15,761		25.49	%		1,017,155		59.12	%		1,056,807		59.54	%		1,062,692		59.07	%
Consumer real estate loans
Home equity lines		26,850		85.82	%		35,817		62.84	%		38,737		62.64	%		88,094		5.12	%		93,466		5.27	%		100,194		5.57	%
Single family owner occupied		4,095		13.09	%		6,729		11.81	%		7,058		11.41	%		493,555		28.67	%		510,963		28.78	%		517,058		28.74	%
Owner occupied construction		-		0.00	%		-		0.00	%		201		0.33	%		13,755		0.80	%		18,171		1.02	%		22,647		1.26	%
Total consumer real estate loans		30,945		98.91	%		42,546		74.65	%		45,996		74.38	%		595,404		34.59	%		622,600		35.07	%		639,899		35.57	%
Consumer and other loans
Consumer loans		-		0.00	%		79		0.14	%		80		0.13	%		88,352		5.13	%		71,552		4.03	%		68,885		3.83	%
Other																	4,497		0.26	%		5,310		0.30	%		4,636		0.26	%
Total consumer and other loans																	92,849		5.39	%		76,862		4.33	%		73,521		4.09	%
Total non-covered loans																	1,705,408		99.10	%		1,756,269		98.94	%		1,776,112		98.73	%
Total covered loans	$	31,287		100.00	%	$	56,994		100.00	%	$	61,837		100.00	%		15,520		0.90	%		18,815		1.06	%		22,919		1.27	%
Total loans held for investment, net of unearned income																	1,720,928		100.00	%		1,775,084		100.00	%		1,799,031		100.00	%
Less: allowance for loan losses																	18,540					18,267					19,583
Total loans held for investment, net of unearned income and allowance																$	1,702,388				$	1,756,817				$	1,779,448

The following table presents covered loans, by loan class, as of the dates indicated:

	June 30, 2019					December 31, 2018					June 30, 2018
(Amounts in thousands)	Amount		Percent			Amount		Percent			Amount		Percent
Commercial loans
Construction, development, and other land	$	31		0.20	%	$	35		0.19	%	$	35		0.15	%
Single family non-owner occupied		224		1.44	%		238		1.26	%		252		1.10	%
Non-farm, non-residential		5		0.03	%		6		0.03	%		8		0.04	%
Total commercial loans		260		1.67	%		279		1.48	%		295		1.29	%
Consumer real estate loans
Home equity lines		12,254		78.96	%		15,284		81.24	%		19,151		83.56	%
Single family owner occupied		3,006		19.37	%		3,252		17.28	%		3,473		15.15	%
Total consumer real estate loans		15,260		98.33	%		18,536		98.52	%		22,624		98.71	%
Total covered loans	$	15,520		100.00	%	$	18,815		100.00	%	$	22,919		100.00	%

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R~~isk~~Risk Elements

We seek to mitigate credit risk by ~~adhering to~~following specific underwriting practices and by ongoing monitoring of our loan portfolio. Our underwriting practices include the analysis of ~~borrowers~~’borrowers’ prior credit histories, financial statements, tax returns, and cash flow projections; valuation of collateral based on independent appraisers’ reports; and verification of liquid assets. We believe our underwriting criteria are appropriate for the various loan types we offer; however, losses may occur that exceed the reserves established in our allowance for loan losses. We track certain credit quality indicators that include: trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’s loan review function generally analyzes all commercial loan relationships greater than ~~$4.0~~$4.00 million annually and at various times during the year. Smaller commercial and retail loans are sampled for review during the year.

Nonperforming assets consist of nonaccrual loans, accrual loans contractually past due 90 days or more, unseasoned troubled debt restructurings (“TDRs”), and OREO. Ongoing activity in the classification and categories of nonperforming loans include collections on delinquencies, foreclosures, loan restructurings, and movements into or out of the nonperforming classification due to changing economic conditions, borrower financial capacity, or resolution efforts. Loans acquired with credit deterioration, with a discount, continue to accrue interest based on expected cash flows; therefore, PCI loans are not generally considered nonaccrual. For additional information, see Note 4, “Credit Quality,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

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The following table presents the components of nonperforming assets and related information as of the periods indicated:

	September 30, 2017			December 31, 2016			September 30, 2016			June 30, 2019			December 31, 2018			June 30, 2018
(Amounts in thousands)
Non-covered nonperforming
Nonaccrual loans	$	18,942		$	15,854		$	17,487		$	16,368		$	19,583		$	21,467
Accruing loans past due 90 days or more		-			-			62			37			58			-
TDRs⁽¹⁾		141			114			115			821			161			289
Total nonperforming loans		19,083			15,968			17,664			17,226			19,802			21,756
Non-covered OREO		3,543			5,109			4,052			3,810			3,806			4,805
Total non-covered nonperforming assets	$	22,626		$	21,077		$	21,716		$	21,036		$	23,608		$	26,561

Covered nonperforming
Nonaccrual loans	$	420		$	608		$	688		$	203		$	322		$	509
Total nonperforming loans		420			608			688			203			322			509
Covered OREO		54			276			2,437			152			32			44
Total covered nonperforming assets	$	474		$	884		$	3,125		$	355		$	354		$	553

Total nonperforming
Nonaccrual loans	$	19,362		$	16,462		$	18,175		$	16,571		$	19,905		$	21,976
Accruing loans past due 90 days or more		-			-			62			37			58			-
TDRs⁽¹⁾		141			114			115			821			161			289
Total nonperforming loans		19,503			16,576			18,352			17,429			20,124			22,265
OREO		3,597			5,385			6,489			3,962			3,838			4,849
Total nonperforming assets	$	23,100		$	21,961		$	24,841		$	21,391		$	23,962		$	27,114

Additional Information
Performing TDRs⁽²⁾	$	8,101		$	12,838		$	13,336		$	5,676		$	6,266		$	6,691
Total TDRs⁽³⁾		8,242			12,952			13,451			6,497			6,427			6,980

Non-covered ratios
Nonperforming loans to total loans		1.06	%		0.89	%		1.00	%		1.02	%		1.13	%		1.22	%
Nonperforming assets to total assets		0.97	%		0.90	%		0.91	%		0.96	%		1.06	%		1.14	%
Non-PCI allowance to nonperforming loans		100.64	%		112.32	%		111.08	%		107.63	%		92.25	%		90.01	%
Non-PCI allowance to total loans		1.06	%		1.00	%		1.11	%		1.10	%		1.04	%		1.10	%

Total ratios
Nonperforming loans to total loans		1.06	%		0.89	%		1.00	%		1.02	%	��	1.13	%		1.24	%
Nonperforming assets to total assets		0.97	%		0.92	%		1.01	%		0.97	%		1.07	%		1.15	%
Allowance for loan losses to nonperforming loans		98.48	%		108.28	%		106.98	%		106.37	%		90.77	%		87.95	%
Allowance for loan losses to total loans		1.05	%		0.97	%		1.07	%		1.09	%		1.03	%		1.09	%


(1)	TDRs restructured within the past six months and nonperforming TDRs exclude nonaccrual TDRs of ~~$15~~$ 666 thousand, ~~$224~~$898 thousand, and ~~$268~~$82 thousand for the periods ended ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016,~~2018, respectively.
(2)	TDRs with six months or more of satisfactory payment performance exclude nonaccrual TDRs of ~~$1.50~~$2.02 million, ~~$1.06~~$1.68 million, and ~~$1.04~~$1.93 million for the periods ended ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016,~~2018, respectively.
(3)	Total TDRs exclude nonaccrual TDRs of ~~$1.52~~$2.73 million, ~~$1.28~~$2.58 million, and ~~$1.31~~$2.01 million for the periods ended ~~September~~June 30, ~~2017,~~2019, December 31, ~~2016,~~2018, and ~~September~~June 30, ~~2016,~~2018, respectively.

~~Non-covered~~

Non-covered nonperforming assets as of ~~September~~June 30, ~~2017, increased $1.55~~2019, decreased $2.57 million, or ~~7.35%~~10.89%, from December 31, ~~2016,~~2018, primarily due to a decrease in non-covered nonaccrual loans offset by an increase in ~~non-covered nonaccrual loans.~~troubled debt restructurings. Non-covered nonaccrual loans as of ~~September~~June 30, ~~2017, increased $3.09~~2019, decreased $3.22 million, or ~~19.48%~~16.42%, from December 31, ~~2016.~~2018. As of ~~September~~June 30, ~~2017,~~2019, non-covered nonaccrual loans were largely attributed to single family owner occupied ~~(60.80%)~~53.91% and non-farm, non-residential ~~(17.70%~~(20.17%) loans. As of ~~September~~June 30, ~~2017,~~2019, approximately ~~$833 thousand,~~$1.31 million, or ~~4.40%~~7.99%, of non-covered nonaccrual loans were attributed to performing loans acquired in business combinations. Certain loans included in the nonaccrual category have been written down to estimated realizable value or assigned specific reserves in the allowance for loan losses based on management’s estimate of loss at ultimate resolution.

Table of Contents

Non-covered delinquent loans, comprised of loans 30 days or more past due and nonaccrual loans, totaled $~~25.10~~$25.06 million as of ~~September~~June 30, ~~2017, an increase~~2019, a decrease of ~~$88 thousand,~~$4.82 million, or ~~0.35%~~16.14%, compared to ~~$25.02~~$29.89 million as of December 31, ~~2016.~~2018. Non-covered delinquent loans as a percent of total non-covered loans totaled ~~1.40%~~1.47% as of ~~September~~June 30, ~~2017,~~2019, which includes past due loans ~~(0.34%~~(0.51%) and nonaccrual loans ~~(1.06%~~(0.96%).

~~Table of Contents~~

When restructuring loans for borrowers experiencing financial difficulty, we generally make concessions in interest rates, loan terms, or amortization terms. Certain TDRs are classified as nonperforming when modified and are returned to performing status after ~~nine~~six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. Accruing TDRs as of ~~September~~June 30, ~~2017, decreased $4.71 million,~~2019, increased $70 thousand, or ~~36.37%~~1.09%, to ~~$8.24~~$6.50 million from December 31, ~~2016. Nonperforming~~2018. Unseasoned and nonperforming accruing TDRs as of ~~September~~June 30, ~~2017,~~2019, increased ~~$27~~$660 thousand ~~or 23.68%,~~ to ~~$141~~$821 thousand compared to December 31, ~~2016. Nonperforming~~2018. Unseasoned and nonperforming accruing TDRs as a percent of total accruing TDRs totaled ~~1.71%~~12.64% as of ~~September~~June 30, ~~2017,~~2019, compared to ~~0.88%~~2.51% as of December 31, ~~2016.~~2018. Specific reserves on TDRs totaled ~~$707~~$475 thousand as of ~~September~~June 30, ~~2017,~~2019, compared to ~~$670~~$568 thousand as of December 31, ~~2016.~~2018.

Non-covered OREO, which is carried at the lesser of estimated net realizable value or cost, ~~decreased $1.57 million,~~increased $4 thousand, or ~~30.65%~~0.11%, as of ~~September~~June 30, ~~2017,~~2019, compared to December 31, ~~2016. Non-covered OREO~~2018, and consisted of 2623 properties with an average holding period of ~~13 months as of September 30, 2017.~~11 months. The net loss on the sale of OREO totaled ~~$522~~$192 thousand for the three months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~$184~~$671 thousand for the same period of the prior year and ~~$943~~$556 thousand for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~$1.00 million~~$774 thousand for the same period of the prior year. The following table presents the changes in OREO during the periods indicated:

	Nine Months Ended September 30,																		Six Months Ended June 30,
	2017									2016									2019									2018
	Non-covered			Covered			Total			Non-covered			Covered			Total			Non-covered			Covered			Total			Non-covered			Covered			Total
(Amounts in thousands)
Beginning balance	$	5,109		$	276		$	5,385		$	4,873		$	4,034		$	8,907		$	3,806		$	32		$	3,838		$	2,409		$	105		$	2,514
Additions		1,256			26			1,282			2,452			1,200			3,652			2,564			130			2,694			3,928			-			3,928
Disposals		(2,169	)		(218	)		(2,387	)		(2,561	)		(2,131	)		(4,692	)		(2,129	)		-			(2,129	)		(983	)		(55	)		(1,038	)
Valuation adjustments		(653	)		(30	)		(683	)		(712	)		(666	)		(1,378	)		(431	)		(10	)		(441	)		(549	)		(6	)		(555	)
Ending balance	$	3,543		$	54		$	3,597		$	4,052		$	2,437		$	6,489		$	3,810		$	152		$	3,962		$	4,805		$	44		$	4,849

Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems sufficient to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by the provision for loan losses and recoveries of prior loan charge-offs and decreased by loans charged off. The provision for loan losses is calculated and charged to expense to bring the allowance to an appropriate level using a systematic process of measurement that requires significant judgments and estimates. As of ~~December 31, 2016,~~June 30, 2019, our qualitative risk factors reflect a stable risk of loan losses due to consistent asset quality metrics and relatively stable business and economic conditions in our primary market areas. The loan portfolio is continually monitored for deterioration in credit, which may result in the need to increase the allowance for loan losses in future periods. Management considered the allowance adequate as of ~~September~~June 30, ~~2017;~~2019; however, no assurance can be made that additions to the allowance will not be required in future periods. For additional information, see Note 5, “Allowance for Loan Losses,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

The allowance for loan losses as of ~~September~~June 30, ~~2017,~~2019, increased ~~$1.26 million,~~$273 thousand, or ~~7.01%~~1.49%, from December 31, ~~2016. The increase was largely attributed to a $1.00 million increase in unallocated reserves combined with a $641 thousand increase in specific reserves on impaired loans.~~2018. The non-PCI allowance as a percent of non-covered loans totaled ~~1.06%~~1.09% as of ~~September~~June 30, ~~2017,~~2019, compared to ~~1.00%~~1.03% as of December 31, ~~2016.~~2018. PCI loans were aggregated into five loan pools as of ~~September~~June 30, ~~2017,~~2019, and December 31, ~~2016:~~2018: Waccamaw commercial, Waccamaw serviced home equity lines, Waccamaw residential, Peoples Bank of Virginia (“Peoples”) commercial, and Peoples residential. The cash flow analysis identified no impaired PCI loan pools as of ~~September~~June 30, ~~2017, compared to one impaired PCI loan pool with a cumulative impairment of $12 thousand as of~~2019, or December 31, ~~2016. We recorded a net charge-off of $410 thousand~~2018. Net charge-offs increased $1.85 million for the ~~three~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~a net charge-off of $312 thousand in~~ the same period of the prior ~~year, largely due to an~~year. The increase in ~~recoveries~~net charge-offs was driven by one loan relationship in the commercial ~~loan~~real estate segment ~~in 2016. We recorded a net charge-off of $898 thousand for the nine months ended September 30, 2017, compared to a net charge-off of $1.35 million~~and three larger relationships in the same period of the prior year, largely due to an overall reduction in charge-offs for commercial and consumer real estate loans offset by an increase in recoveries in the commercial loan segment in 2016.owner occupied single family segment.

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The following table presents the changes in the allowance for loan losses ~~by loan class,~~ during the periods indicated:

	Three Months Ended September 30,																	Three Months Ended June 30
	2017									2016								2019								2018
	Non-PCI Portfolio			PCI Portfolio			Total			Non-PCI Portfolio			PCI Portfolio		Total			Non-PCI Portfolio			PCI Portfolio		Total			Non-PCI Portfolio			PCI Portfolio		Total
(Amounts in thousands)
Beginning balance	$	18,878		$	8		$	18,886		$	21,087		$	12	$	21,099		$	18,243		$	-	$	18,243		$	19,500		$	-	$	19,500
Provision for (recovery of) loan losses		738			(8	)		730			(1,154	)		-		(1,154	)
Benefit attributable to the FDIC indemnification asset		-			-			-			-			-		-
Provision for (recovery of) loan losses charged to operations		738			(8	)		730			(1,154	)		-		(1,154	)		1,585			-		1,585			495			-		495
Recovery of loan losses recorded through the FDIC indemnification asset		-			-			-			-			-		-
Charge-offs		(717	)		-			(717	)		(772	)		-		(772	)		(2,114	)		-		(2,114	)		(750	)		-		(750	)
Recoveries		307			-			307			460			-		460			826			-		826			338			-		338
Net charge-offs		(410	)		-			(410	)		(312	)		-		(312	)		(1,288	)		-		(1,288	)		(412	)		-		(412	)
Ending balance	$	19,206		$	-		$	19,206		$	19,621		$	12	$	19,633		$	18,540		$	-	$	18,540		$	19,583		$	-	$	19,583

Nine Months Ended September 30,

2017

2016

Non-PCI Portfolio

PCI Portfolio

Total

Non-PCI Portfolio

PCI Portfolio

Total

(Amounts in thousands)

Beginning balance
$ 17,936 $ 12 $ 17,948 $ 20,179 $ 54 $ 20,233
Provision for (recovery of) loan losses
2,168 (12 ) 2,156 796 (42 ) 754
Benefit attributable to the FDIC indemnification asset
- - - - 1 1
Provision for (recovery of) loan losses charged to operations
2,168 (12 ) 2,156 796 (41 ) 755
Recovery of loan losses recorded through the FDIC indemnification asset
- - - - (1 ) (1 )
Charge-offs
(1,976 ) - (1,976 ) (2,691 ) - (2,691 )
Recoveries
1,078 - 1,078 1,337 - 1,337
Net charge-offs
(898 ) - (898 ) (1,354 ) - (1,354 )
Ending balance
$ 19,206 $ - $ 19,206 $ 19,621 $ 12 $ 19,633

	Six Months Ended June 30
	2019								2018
	Non-PCI Portfolio			PCI Portfolio		Total			Non-PCI Portfolio			PCI Portfolio		Total
(Amounts in thousands)
Beginning balance	$	18,267		$	-	$	18,267		$	19,276		$	-	$	19,276
Provision for (recovery of) loan losses charged to operations		2,805			-		2,805			990			-		990
Charge-offs		(3,736	)		-		(3,736	)		(1,448	)		-		(1,448	)
Recoveries		1,204			-		1,204			765			-		765
Net charge-offs		(2,532	)		-		(2,532	)		(683	)		-		(683	)
Ending balance	$	18,540		$	-	$	18,540		$	19,583		$	-	$	19,583

Deposits

Total deposits as of ~~September~~June 30, ~~2017, increased $22.48~~2019, decreased $7.71 million, or ~~1.22%~~0.42%, compared to December 31, 2016. Noninterest-bearing deposits increased $25.24 million and interest-bearing deposits increased $14.91 million while savings deposits, which include money market accounts and savings accounts, decreased $13.06 million; and2018. The decrease was largely attributable to time deposits which ~~include certificates~~decreased $24.30 million offset by an increase in non-interest bearing demand accounts of ~~deposit and individual retirement accounts, decreased $4.60 as~~$21.02 million, or 4.57%. Other decreases occurred in the interest-bearing transaction category of ~~September 30, 2017, compared to December 31, 2016.~~$5.19 million or 1.15%.

Borrowings

Total borrowings as of ~~September~~June 30, ~~2017,~~2019, decreased ~~$44.93~~$26.29 million, or ~~25.14%~~89.50%, compared to December 31, ~~2016. Short-term borrowings consisted~~2018. During the first quarter of ~~retail repurchase agreements, which decreased $14.22 million, or 19.48%, while~~2019 the ~~weighted average rate remained constant at 0.07%, as of September 30, 2017, and December 31, 2016.~~

~~Long-term borrowings~~ ~~consisted of~~Company’s remaining wholesale repurchase ~~agreements and FHLB borrowings, including convertible and callable advances as~~agreement of ~~September 30, 2017. Wholesale repurchase agreements totaled $25.00~~$25 million with a weighted average rate of 3.18% as of September 30, 2017, and December 31, 2016. Long-term FHLB borrowings decreased $15.00 million, or 23.08%, to $50.00 million and the weighted average rate decreased 4 basis points to 4.00% as of September 30, 2017, compared to December 31, 2016. The decrease was due to a $15.00 million convertible advance with a 4.15% rate that matured on May 4, 2017.matured. The Company ~~redeemed all~~repaid the borrowing with current liquidity, which should result in annualized net pre-tax savings of ~~its trust preferred securities on January 9, 2017, resulting in a decrease of $15.46 million in subordinated debt.~~$378 thousand.

~~Table of Contents~~

Liquidity and Capital Resources

Liquidity

Liquidity is a measure of our ability to convert assets to cash or raise cash to meet financial obligations. We believe that liquidity management should encompass an overall balance sheet approach that draws together all sources and uses of liquidity. Poor or inadequate liquidity risk management may result in a funding deficit that could have a material impact on our operations. We maintain a liquidity risk management policy and contingency funding policy (“Liquidity Plan”) to detect potential liquidity issues and protect our depositors, creditors, and shareholders. The Liquidity Plan includes various internal and external indicators that are reviewed on a recurring basis by our Asset/Liability Management Committee (“ALCO”) of the Board of Directors. ALCO reviews liquidity risk exposure and policies related to liquidity management; ensures that systems and internal controls are consistent with liquidity policies; and provides accurate reports about liquidity needs, sources, and compliance. The Liquidity Plan involves ongoing monitoring and estimation of potentially credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows during a funding crisis. The liquidity model incorporates various funding crisis scenarios and a specific action plan is formulated, and activated, when a financial shock that affects our normal funding activities is identified. Generally, the plan will reflect a strategy of replacing liability outflows with alternative liabilities, rather than balance sheet asset liquidity, to the extent that significant premiums can be avoided. If alternative liabilities are not available, outflows will be met through liquidation of balance sheet assets, including unpledged securities.

Table of Contents

As a financial holding company, the ~~Company~~’sCompany’s primary source of liquidity is dividends received from the Bank, which are subject to certain regulatory limitations. Other sources of liquidity include cash, investment securities, and borrowings. As of ~~September~~June 30, ~~2017,~~2019, the Company’s cash reserves ~~and investment securities~~ totaled ~~$13.84~~$12.87 million and availability on an unsecured, committed line of credit with an unrelated financial institution totaled $15.00 million. There was no outstanding balance on the line of credit as of ~~September~~June 30, ~~2017.~~2019. The Company’s cash reserves and investments provide adequate working capital to meet obligations, projected dividends to shareholders, and anticipated debt repayments for the next twelve months.

In addition to cash on hand and deposits with other financial institutions, we rely on customer deposits, cash flows from loans and investment securities, and lines of credit from the FHLB and the Federal Reserve Bank (“FRB”) Discount Window to meet potential liquidity demands. These sources of liquidity are immediately available to satisfy deposit withdrawals, customer credit needs, and our operations. Secondary sources of liquidity include approved lines of credit with correspondent banks and unpledged available-for-sale securities. As of ~~September~~June 30, ~~2017,~~2019, our unencumbered cash totaled ~~$105.12~~$156.48 million, unused borrowing capacity from the FHLB totaled ~~$446.30~~$379.09 million, available credit from the FRB Discount Window totaled ~~$6.15~~$6.00 million, available lines from correspondent banks totaled $90.00 million, and unpledged available-for-sale securities totaled ~~$73.74~~$93.11 million.

Cash Flows

The following table summarizes the components of cash flow for the periods indicated:

Nine Months Ended September 30,

2017

2016

(Amounts in thousands)

Net cash provided by operating activities
$ 25,877 $ 34,790
Net cash provided by investing activities
34,999 39,572
Net cash used in financing activities
(32,064 ) (60,220 )
Net increase in cash and cash equivalents
28,812 14,142
Cash and cash equivalents at beginning of period
76,307 51,787
Cash and cash equivalents at end of period
$ 105,119 $ 65,929

	Six Months Ended June 30,
	2019			2018
(Amounts in thousands)
Net cash provided by operating activities	$	25,449		$	21,142
Net cash provided by (used in) investing activities		109,689			(15,010	)
Net cash used in financing activities		(55,533	)		(56,126	)
Net increase (decrease) in cash and cash equivalents		79,605			(49,994	)
Cash and cash equivalents, beginning balance		76,873			157,951
Cash and cash equivalents, ending balance	$	156,478		$	107,957

Cash and cash equivalents increased $~~28.81~~$79.61 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, compared to ~~an increase~~a decrease of ~~$14.14~~$49.99 million for the same period of the prior ~~year~~year. The increase was primarily due to ~~financing activities.~~a $124.70 million increase in net cash provided by investing activities due to a net increase in proceeds from repayment of loans as well as proceeds from maturities, calls, and prepayments in the investment portfolios. Net cash used in financing activities decreased ~~$28.16 million for the nine months ended September 30, 2017, compared~~$593 thousand largely due to the ~~same period~~repayment of the ~~prior year primarily due to a decline in interest-bearing deposit runoff and treasury stock repurchases~~Company’s remaining wholesale repurchase agreement offset by ~~the maturity and repayment of FHLB and other borrowings.~~increases in deposits. Net cash provided by operating activities ~~decreased $8.91~~increased $4.31 million for the nine months ended September 30, 2017, compared to the same period of the prior year. Net cash provided by investing activities decreased $4.57 million for the nine months ended September 30, 2017, compared to the same period of the prior year, which was largelyprimarily due to a decrease in accretion on acquired loans and an increase in the provision for loan ~~originations offset by a decrease in proceeds from sales and maturities of available-for-sale securities.~~losses.

~~Table of Contents~~

Capital Resources

We are committed to effectively managing our capital to protect our depositors, creditors, and shareholders. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our operations. Total ~~stockholders~~’stockholders’ equity as of ~~September~~June 30, ~~2017,~~2019, increased ~~$13.58 million,~~$829 thousand, or ~~4.01%~~0.25%, to ~~$352.64~~$333.69 million from ~~$339.06~~$332.86 million as of December 31, ~~2016.~~2018. The change in stockholders’ equity was largely due to ~~net income~~the repurchase of ~~$20.27~~426,900 shares of our common stock totaling $14.36 million and ~~other comprehensive income (“OCI”) of $1.94 million offset by~~ dividends declared on our common stock of ~~$8.50~~$7.26 million, ~~and repurchased treasury shares~~offset by net income of ~~$1.26~~$20.08 million. ~~OCI was~~Accumulated other comprehensive loss decreased $1.05 million to $381 thousand as of June 30, 2019, compared to December 31, 2018, primarily due to net unrealized gains on securities. In accordance with current regulatory guidelines, accumulated other comprehensive income/(loss) is largely excluded from stockholders' equity in the calculation of our capital ratios. ~~We repurchased 50,118 shares of our common stock for $1.26 million in the first nine months of 2017.~~ Our book value per common share increased ~~$0.81,~~$0.55 or ~~4.06%,~~2.65% to ~~$20.76~~$21.34 as of ~~September~~June 30, ~~2017,~~2019, from ~~$19.95~~$20.79 as of December 31, ~~2016.~~2018.

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Capital Adequacy Requirements

Risk-based capital guidelines, issued by state and federal banking agencies, include balance sheet assets and off-balance sheet arrangements weighted by the risks inherent in the specific asset type. Our current risk-based capital requirements, based on the international capital standards known as Basel III, became effective on January 1, 2015, subject to a four-year phase-in period. Basel ~~III~~’sIII’s capital conservation buffer became effective on January 1, 2016, at 0.625%, and ~~will be~~was phased in over a four-year period (increasing by an additional 0.625% each year, ~~until it reaches~~reaching 2.5% on January 1, 2019). A description of the Basel III capital rules is included in Part I, Item 1 of the ~~2016~~2018 Form 10-K. Our current required capital ratios are as follows:

●

4.5% Common Equity Tier 1 capital to risk-weighted assets (effectively 5.~~75%~~6.50% including the capital conservation buffer)

●

6.0% Tier 1 capital to risk-weighted assets (effectively ~~7.25%~~8.00% including the capital conservation buffer)

●

8.0% Total capital to risk-weighted assets (effectively ~~9.25%~~10.00% including the capital conservation buffer)

●

4.0% Tier 1 capital to average consolidated assets (“Tier 1 leverage ratio”)

The following table presents our capital ratios as of the dates indicated:

		September 30, 2017	December 31, 2016	June 30, 2019						December 31, 2018
The Company
				Company			Bank			Company			Bank

Common equity Tier 1 ratio	Common equity Tier 1 ratio	13.90%	13.88%		14.29	%		13.15	%		13.72	%		12.55	%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	13.90%	14.74%		14.29	%		13.15	%		13.72	%		12.55	%
Total risk-based capital ratio	Total risk-based capital ratio	14.96%	15.79%		15.42	%		14.27	%		14.79	%		13.62	%
Tier 1 leverage ratio	Tier 1 leverage ratio	11.18%	11.07%		11.15	%		10.25	%		10.95	%		9.98	%

The Bank
Common equity Tier 1 ratio		12.68%	12.93%
Tier 1 risk-based capital ratio		12.68%	12.93%
Total risk-based capital ratio		13.74%	13.98%
Tier 1 leverage ratio		10.18%	9.71%

Our risk-based capital ratios as of June 30, 2019, increased from December 31, 2018, due to a decrease in risk-weighted assets. As of ~~September~~June 30, ~~2017,~~2019, we continued to meet all capital adequacy requirements and were classified as well-capitalized under the regulatory framework for prompt corrective action. Management believes there have been no conditions or events since those notifications that would change the Bank’s classification. Additionally, our capital ratios were in excess of the minimum standards under the Basel III capital rules ~~on a fully phased-in basis, if such requirements were in effect,~~ as of ~~September~~June 30, ~~2017.~~2019.

Off-Balance Sheet Arrangements

We extend contractual commitments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. Our exposure to credit loss in the event of nonperformance by other parties to financial instruments is the same as the contractual amount of the instrument.

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The following table presents our off-balance sheet arrangements as of the dates indicated:

	September 30, 2017		December 31, 2016			June 30, 2019		December 31, 2018
(Amounts in thousands)					(Amounts in thousands)
Commitments to extend credit	$	245,978	$	261,801	Commitments to extend credit	$	185,437	$	215,239
Financial letters of credit		550		4,756
Performance letters of credit⁽¹⁾		117,768		79,144
Standby letters of credit and financial guarantees (1)					Standby letters of credit and financial guarantees (1)		143,984		149,494
Total off-balance sheet risk	$	364,296	$	345,701	Total off-balance sheet risk	$	329,421	$	364,733

Reserve for unfunded commitments	$	66	$	326	Reserve for unfunded commitments	$	66	$	66


(1) Includes FHLB letters of credit

Market Risk and Interest Rate Sensitivity

Market risk represents the risk of loss due to adverse changes in current and future cash flows, fair values, earnings, or capital due to movements in interest rates and other factors. Our profitability is largely dependent upon net interest income, which is subject to variation due to changes in the interest rate environment and unbalanced repricing opportunities. We are subject to interest rate risk when interest-earning assets and interest-bearing liabilities reprice at differing times, when underlying rates change at different levels or in varying degrees, when there is an unequal change in the spread between two or more rates for different maturities, and when embedded options, if any, are exercised. ALCO reviews our mix of assets and liabilities with the goal of limiting exposure to interest rate risk, ensuring adequate liquidity, and coordinating sources and uses of funds while maintaining an acceptable level of net interest income given the current interest rate environment. ALCO is also responsible for overseeing the formulation and implementation of policies and strategies to improve balance sheet positioning and mitigate the effect of interest rate changes.

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In order to manage our exposure to interest rate risk, we periodically review ~~third-party~~internal simulation and ~~internal simulation~~third-party models that project net interest income at risk, which measures the impact of different interest rate scenarios on net interest income, and the economic value of equity at risk, which measures potential long-term risk in the balance sheet by valuing our assets and liabilities at fair value under different interest rate scenarios. Simulation results show the existence and severity of interest rate risk in each scenario based on our current balance sheet position, assumptions about changes in the volume and mix of interest-earning assets and interest-bearing liabilities, and estimated yields earned on assets and rates paid on liabilities. The simulation model provides the best tool available to us and the industry for managing interest rate risk; however, the model cannot precisely predict the impact of fluctuations in interest rates on net interest income due to the use of significant estimates and assumptions. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in our strategies that management might undertake in response to a sudden and sustained rate shock.

~~The~~As of June 30, 2019, the Federal Open Market Committee ~~maintained~~had set the benchmark federal funds rate atto a range of ~~100~~225 to ~~125~~250 basis points. The following table presents the sensitivity of net interest income from immediate and sustained rate shocks in various interest rate scenarios over a twelve-month period for the periods indicated. ~~Due to the current target rate, we do not reflect a decrease of more than 100 basis points from current rates in our analysis.~~

	September 30, 2017					December 31, 2016						June 30, 2019						December 31, 2018
	Change in					Change in						Change in			Percent			Change in			Percent
Increase (Decrease) in Basis Points	Net Interest Income			Percent Change		Net Interest Income			Percent Change			Net Interest Income			Change			Net Interest Income			Change
(Dollars in thousands)
300	$	1,655		1.9	%	$	526			0.6	%	$	480			0.5	%	$	(1,215	)		-1.3	%
200		1,294		1.5	%		438			0.5	%		606			0.7	%		(545	)		-0.6	%
100		775		0.9	%		183			0.2	%		449			0.5	%		(135	)		-0.1	%
(100)		(4,039	)	-4.8	%		(2,616	)		-3.1	%		(3,590	)		-4.0	%		(3,322	)		-3.7	%
(200)													(7,758	)		-8.6	%		(7,525	)		-8.4	%

~~We have established policy limits for tolerance of interest rate risk in various interest rate scenarios and exposure limits to changes in the economic value of equity.~~ ~~As of September 30, 2017, exposure to interest rate risk is within our defined policy limits.~~

~~The Company primarily uses derivative instruments to manage exposure to market risk and meet customer financing needs. As of~~ September 30, 2017, we maintained interest rate swap agreements with notional amounts totaling $5.89 million to modify our exposure to interest rate risk caused by changes in the LIBOR curve in relation to certain designated fixed rate loans. The fair value of the swap agreements, which are accounted for as fair value hedges and recorded as derivative liabilities, totaled $151 thousand as of September 30, 2017, and $167 thousand as of December 31, 2016. For additional information, see Note 9, “Derivative Instruments and Hedging Activities,” to the Condensed Consolidated Financial Statements in Item 1 of this report.

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Inflation and Changing Prices

Our consolidated financial statements and related notes are presented in accordance with GAAP, which requires the measurement of results of operations and financial position in historical dollars. Inflation may cause a rise in price levels and changes in the relative purchasing power of money. These inflationary effects are not reflected in historical dollar measurements. The primary effect of inflation on our operations is increased operating costs. In ~~management~~’smanagement’s opinion, interest rates have a greater impact on our financial performance than inflation. Interest rates do not necessarily fluctuate in the same direction, or to the same extent, as the price of goods and services; therefore, the effect of inflation on businesses with large investments in property, plant, and inventory is generally more significant than the effect on financial institutions. The U.S. inflation rate continues to be relatively stable, and management believes that any changes in inflation will not be material to our financial performance.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The information required in this item is incorporated by reference to “Market Risk and Interest Rate Sensitivity” in Item 1 of this report.

Item 4. Controls and Procedures

~~Controls and Procedures~~

Evaluation of Disclosure Controls and Procedures

In connection with this report, we conducted an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures under the Exchange Act Rule 13a-15(b). Based upon that evaluation, the CEO and CFO concluded that, as of ~~September~~June 30, ~~2017,~~2019, our disclosure controls and procedures were effective.

Disclosure controls and procedures are our ~~Company~~’sCompany’s controls and other procedures that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions about required disclosure.

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Management, including the CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or ~~management~~’smanagement’s override of the controls.

Changes in Internal Control over Financial Reporting

We assess the adequacy of our internal control over financial reporting quarterly and enhance our controls in response to internal control assessments and internal and external audit and regulatory recommendations. There were no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2017,~~2019, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.

OTHER INFORMATION

ITEM 1.

Legal Proceedings

We are currently a defendant in various legal actions and asserted claims in the normal course of business. Although we are unable to assess the ultimate outcome of each matter with certainty, we believe that the resolution of these actions should not have a material adverse effect on our financial position, results of operations, or cash flows.

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ITEM 1A.

Risk Factors

Our risk factors discuss potential events, trends, or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, access to capital resources, and, consequently, cause the market value of our common stock to decline. These risks could cause our future results to differ materially from historical results and expectations of future financial performance. If any of the risks occur and the market price of our common stock declines significantly, individuals may lose all, or part, of their investment in our ~~company.~~Company. Individuals should carefully consider our risk factors and information included, or incorporated by reference, in this report before making an investment decision. There may be risks and uncertainties that we have not identified or that we have deemed immaterial that could adversely affect our business; therefore, ~~our~~the following risk factors are not intended to be an exhaustive list of all risks we face. There have been no material changes to the risk factors included in Part I, Item 1A, “Risk Factors,” of our ~~2016~~2018 Form 10-K.

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

(a)	Not Applicable

(b)	Not Applicable

(c)	Issuer Purchases of Equity Securities

We repurchased ~~39,516~~194,000 shares of our common stock during the ~~third~~second quarter of ~~2017~~2019 compared to ~~171,225~~286,940 shares during the same quarter of 2018 and 426,900 shares during the ~~prior year.~~first six months of 2019 compared to 474,240 shares during the same period of 2018.

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The following table provides information about purchases of our common stock made by us or on our behalf by any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the Exchange Act, during the periods indicated:

Total Number of
Shares
Purchased

Average Price
Paid per
Share

Total Number of Shares
Purchased as Part of a
Publicly Announced Plan

Maximum Number of Shares
that May Yet be Purchased
Under the Plan⁽¹⁾

July 1-31, 2017
- $ - - 635,804
August 1-31, 2017
13,177 25.16 13,177 622,627
September 1-30, 2017
26,339 25.57 26,339 604,723
Total
39,516 $ 25.43 39,516

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan		Maximum Number of Shares that May Yet be Purchased Under the Plan⁽¹⁾

April 1-30, 2019		64,900	$	34.01		64,900		920,627
May 1-31, 2019		89,800		33.97		89,800		830,827
June 1-30, 2019		39,300		33.55		39,300		791,527
Total		194,000	$	33.90		194,000

(1)

On June 27, 2018, our Board of Directors increased the number of shares authorized under the stock repurchase plan by 1,600,000 shares. Our stock repurchase plan, as amended, authorizes the purchase and retention of up to ~~5,000,000~~6,600,000 shares. The plan has no expiration date and is currently in effect. ~~No determination has been made to terminate the plan or to cease making purchases. We held 4,395,277 shares in treasury as of September 30, 2017.~~

ITEM 3.

Defaults Upon ~~Senior~~Senior Securities

~~None~~.None.

ITEM 4.

Mine Safety Disclosures

~~None~~.None.

ITEM 5.

Other Information

~~None~~.

None.

ITEM 6.

Exhibits

~~Exhibit~~

~~No.~~2.1

~~Exhibit~~

Agreement and Plan of Reincorporation and Merger between First Community Bancshares, Inc. and First Community Bankshares, Inc., incorporated by reference to Appendix A of the Definitive Proxy Statement on Form DEF 14A dated April 24, 2018, filed on March 13, 2018

3.1

Articles of Incorporation of First Community ~~Bancshares,~~Bankshares, Inc., ~~as amended,~~ incorporated by reference to ~~Exhibit 3(i)~~Appendix B of the ~~Quarterly Report~~Definitive Proxy Statement on Form ~~10-Q for the period ended June 30, 2010,~~DEF 14A dated April 24, 2018, filed on ~~August 16, 2010~~March 13, 2018

3.2

~~Amended and Restated~~ Bylaws of First Community ~~Bancshares,~~Bankshares, Inc., incorporated by reference to Exhibit ~~3.1~~3.2 of the Current Report on Form 8-K dated ~~February 23, 2016,~~and filed ~~on February 25, 2016~~October 2, 2018

4.1

~~Specimen stock certificate~~Description of First Community ~~Bancshares, Inc.,~~Bankshares, Inc. Common Stock, incorporated by reference to Exhibit 4.1 of the ~~Annual~~Current Report on Form ~~10-K for the period ended December 31, 2002,~~8-K dated and filed ~~on March 25, 2003~~October 2, 2018

4.2		~~Indenture between~~Form of First Community ~~Bancshares,~~Bankshares, Inc. ~~and Wilmington Trust Company,~~Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the ~~Quarterly~~Current Report on Form ~~10-Q for the period ended September 30, 2003,~~8-K dated and filed ~~on November 10, 2003~~
~~4.3~~		~~Amended and Restated Declaration of Trust of FCBI Capital Trust, incorporated by reference to Exhibit 4.3 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003~~October 2, 2018

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~~4.4~~		~~Preferred Securities Guarantee Agreement, incorporated by reference to Exhibit 4.4 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003~~
10.1.1**		First Community Bancshares, Inc. 1999 Stock Option Plan, incorporated by reference to Exhibit 10.1 of the Annual Report on Form 10-K/A for the period ended December 31, 1999, filed on April 13, 2000

10.1.2**

Amendment One to the First Community Bancshares, Inc. 1999 Stock Option Plan, incorporated by reference to Exhibit 10.1.1 of the Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed on May 7, 2004

10.2**

First Community Bancshares, ~~Inc~~.Inc. 1999 Stock Option Agreement, incorporated by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002

10.3**

First Community Bancshares, Inc. 2001 Nonqualified Director Stock Option ~~Agreement,~~Agreement, incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002

10.4**

First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan, incorporated by reference to Annex B of the Definitive Proxy Statement on Form DEF 14A dated April 27, 2004, filed on March 15, 2004

10.5**

First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan Stock Award Agreement, incorporated by reference to Exhibit 10.13 of the Quarterly ~~Repo~~rtReport on Form 10-Q for the period ended June 30, 2004, filed on August 6, 2004

10.6**

First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan, incorporated by reference to Appendix B of the Definitive Proxy Statement on Form DEF 14A dated ~~Apri~~lApril 24, 2012, filed on March 7, 2012

10.7**

First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan Restricted Stock Grant Agreement, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated and filed May 28, 2013

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10.8*10.8**

First Community Bancshares, Inc. Life Insurance Endorsement Method Split Dollar Plan and Agreement, incorporated by reference to Exhibit 10.5 of the Annual Report on Form 10-K/A for the period ended December 31, 1999, filed on April 13, 2000

10.9.1**

First Community Bancshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 30, 2008, filed on January 5, 2009; Amendment #1, incorporated by reference to Exhibit ~~10.~~310.3 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010; Amendment #2, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated February 21, 2013, filed on February 25, 2013; Amendment #3, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 24, 2016, filed on May 27, 2016; and Amendment #4, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on February 28, 2017

10.9.2**

~~Amendment~~Amendment #1 to the First Community Bancshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.3 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010

10.9.3**

Amendment #2 to the First ~~Community~~Community Bancshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated February 21, 2013, filed on February 25, 2013

10.9.4**

Amendment #3 to the First Community Bancshares, Inc. andand Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated May 24, 2016, filed on May 31, 2016

10.9.5**

Amendment #4 to the First Community Bancshares, Inc. and Affiliates Executive Retention Plan, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on February 28, 2017

10.10**

Amended and Restated Deferred ~~Compensati~~onCompensation Plan for Directors of First Community Bancshares, Inc. and Affiliates, incorporated by reference to Exhibit 99.2 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006

10.11.1**

First Community Bancshares, Inc. Amended and Re~~stated~~Restated Nonqualified Supplemental Cash or Deferred Retirement Plan, incorporated by reference to Exhibit 99.1 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006, and Amendment #2, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on February 28, 2017

10.11.2**

Amendment #2 to the First Community Bancshares, Inc. Amended and Restated Nonqualified Supplemental Cash or Deferred Retirement Plan, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on February 28, 2017

10.12.1**

First Community Bancshares, Inc. Supplemental Directors Retirement Plan, as amended and restated, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010, and Amendment #2, ~~incorporated~~incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated May 24, 2016, filed on May 31, 2016

10.12.2**

Amendment #2 to the First Community Bancshares, Inc. Supplemental Directors Retirement Plan, as amended and restated, incorporated by re~~ference~~reference to Exhibit 10.2 of the Current Report on Form 8-K dated May 24, 2016, filed on May 31, 2016

10.13**

Employment Agreement between First Community Bancshares, Inc. and David D. Brown, incorporated by reference to Exhibit 10.3 of the Current Report onon Form 8-K dated and filed on April 16, 2015

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10.14**

Employment Agreement between First Community Bancshares, Inc. and E. Stephen Lilly, incorporated by reference to Exhibit 10.5 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.15**

Employment Agreement between First Community Bancshares, Inc. and Gary R. Mills, incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.16**

Employment Agreement between First Community Bancshares,, Inc. and William P. Stafford, II, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated and filed on April 16, 2015

10.17**		Employment Agreement between First Community Bank and Mark R. Evans, incorporated by reference to ~~Exhibit~~Exhibit 2.1 of the Current Report on Form 8-K dated April 2, 2009, filed on April 3, 2009

11		~~Statement Regarding Computation of Earnings per Share, incorporated by reference to Note 13 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this report~~

31.1*

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the ~~Sarbanes-Oxley~~Sarbanes-Oxley Act of 2002

101***

Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017,~~2019, (Unaudited) and December 31, ~~2016;~~2018; (ii) Condensed Consolidated Statements of Income (Unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016 ;~~2018; (iii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016;~~2018; (iv) Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016;~~2018; (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016;~~2018; and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).

*	Filed herewith

**	Indicates a management contract or compensation plan or ~~agreement~~

~~***~~

~~Submitted electronically herewith~~agreement. These contracts, plans, or agreements were assumed by First Community Bankshares, Inc. in October 2018 in connection with First Community Bancshares, Inc., a Nevada corporation, merging with and into its wholly-owned subsidiary, First Community Bankshares, Inc., a Virginia corporation, pursuant to an Agreement and Plan of Reincorporation and Merger with First Community Bankshares, Inc. continuing as the surviving corporation.

*** Submitted electronically herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned,, thereunto duly authorized, on the 3^rd2nd day of ~~November, 2017.~~August, 2019.

		First Community ~~Bancshares,~~Bankshares, Inc. (Registrant)


		/s/ William P. Stafford, II

		William P. Stafford, II
		Chief Executive Officer
		(Principal Executive Officer)




		/s/ David D. Brown

		David D. Brown
		Chief Financial Officer
		(Principal Accounting Officer)

6357

PART I.	FINANCIAL INFORMATION		~~PAGE~~Page

Item 1.	Financial Statements
			Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 (Unaudited) and December 31, ~~2016~~2018	4
		Condensed Consolidated Statements of Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)		5
		Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)		6
		Condensed Consolidated Statements of Changes in ~~Stockholders~~’Stockholders’ Equity for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)		7
		Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (Unaudited)		89
		Notes to Condensed Consolidated Financial Statements (Unaudited)		910
Item 2.	~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations		4138
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		5953
Item 4.	Controls and Procedures		5953

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		5954
Item 1A.	Risk Factors		6054
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		6054
Item 3.	Defaults Upon Senior Securities		6055
Item 4.	Mine Safety Disclosures		6055
Item 5.	Other Information		6055
Item 6.	Exhibits		6055

~~SIGNATURES~~Signatures			6357

FIRST COMMUNITY ~~BANCSHARES,~~BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED
JUNE 30, 2019 AND 2018

FIRST COMMUNITY ~~BANCSHARES,~~BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED
JUNE 30, 2019 AND 2018

FIRST COMMUNITY ~~BANCSHARES,~~BANKSHARES, INC.
FORM 10-Q
INDEX

FIRST COMMUNITY ~~BANCSHARES,~~BANKSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,			June 30,			December 31,
	2017				2016⁽¹⁾		2019			2018⁽¹⁾
(Amounts in thousands, except share and per share data)	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	37,050		$	36,645		$	38,742		$	40,421
Federal funds sold		67,124			38,717			116,740			35,457
Interest-bearing deposits in banks		945			945			996			995
Total cash and cash equivalents		105,119			76,307			156,478			76,873
Securities available for sale		174,424			165,579
Securities held to maturity		25,182			47,133
Loans held for investment, net of unearned income
Non-covered		1,806,434			1,795,954
Covered		31,287			56,994
Less: allowance for loan losses		(19,206	)		(17,948	)
Debt securities available for sale								119,076			153,116
Debt securities held to maturity								-			25,013
Loans held for investment, net of unearned income (includes covered loans of $15,520 and $18,815, respectively)								1,720,928			1,775,084
Allowance for loan losses								(18,540	)		(18,267	)
Loans held for investment, net		1,818,515			1,835,000			1,702,388			1,756,817
FDIC indemnification asset		7,465			12,173			4,020			5,108
Premises and equipment, net		48,949			50,085			48,262			45,785
Other real estate owned, non-covered		3,543			5,109
Other real estate owned, covered		54			276
Other real estate owned (includes covered OREO of $152 and $32, respectively)								3,962			3,838
Interest receivable		5,156			5,553			5,317			5,481
Goodwill		95,779			95,779			92,744			92,744
Other intangible assets		6,417			7,207			4,532			5,026
Other assets		84,177			86,197			75,248			74,573
Total assets	$	2,374,780		$	2,386,398		$	2,212,027		$	2,244,374

Liabilities
Deposits
Noninterest-bearing	$	452,940		$	427,705		$	480,573		$	459,550
Interest-bearing		1,410,880			1,413,633			1,367,465			1,396,200
Total deposits		1,863,820			1,841,338			1,848,038			1,855,750
Securities sold under agreements to repurchase		83,783			98,005			3,083			29,370
FHLB borrowings		50,000			65,000
Other borrowings		-			15,708
Interest, taxes, and other liabilities		24,540			27,290			27,220			26,397
Total liabilities		2,022,143			2,047,341			1,878,341			1,911,517

Stockholders' equity
Preferred stock, undesignated par value; 1,000,000 shares authorized; Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; none outstanding		-			-			-			-
Common stock, $1 par value; 50,000,000 shares authorized; 21,381,779 shares issued at September 30, 2017, and December 31, 2016; 4,395,277 and 4,387,571 shares in treasury at September 30, 2017, and December 31, 2016, respectively		21,382			21,382
Common stock, $1 par value; 50,000,000 shares authorized; 15,633,388 shares issued and outstanding at June 30, 2019; 16,007,263 shares issued and outstanding at December 31, 2018								15,633			16,007
Additional paid-in capital		228,510			228,142			109,816			122,486
Retained earnings		182,145			170,377			208,618			195,793
Treasury stock, at cost		(79,333	)		(78,833	)
Accumulated other comprehensive loss		(67	)		(2,011	)		(381	)		(1,429	)
Total stockholders' equity		352,637			339,057			333,686			332,857
Total liabilities and stockholders' equity	$	2,374,780		$	2,386,398		$	2,212,027		$	2,244,374

(1) Derived from audited financial statements

FIRST COMMUNITY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

FIRST COMMUNITY BANKSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	September 30, 2017		December 31, 2016
(Amounts in thousands, except impaired loan pools)
Unpaid principal balance	$	-	$	1,086
Recorded investment		-		1,085
Allowance for loan losses related to PCI loan pools		-		12

Impaired PCI loan pools		-		1

	September 30, 2017
(Amounts in thousands)	Loans Individually Evaluated for Impairment		Allowance for Loans Individually Evaluated		Loans Collectively Evaluated for Impairment		Allowance for Loans Collectively Evaluated
Commercial loans
Construction, development, and other land	$	-	$	-	$	72,293	$	1,099
Commercial and industrial		2,400		262		87,782		478
Multi-family residential		254		-		125,743		1,133
Single family non-owner occupied		1,103		69		140,150		2,308
Non-farm, non-residential		2,561		325		606,773		6,706
Agricultural		-		-		6,096		44
Farmland		940		50		26,957		130
Total commercial loans		7,258		706		1,065,794		11,898
Consumer real estate loans
Home equity lines		-		-		116,468		825
Single family owner occupied		8,259		754		496,264		3,852
Owner occupied construction		-		-		47,034		376
Total consumer real estate loans		8,259		754		659,766		5,053
Consumer and other loans
Consumer loans		-		-		70,695		795
Other		-		-		4,856		-
Total consumer and other loans		-		-		75,551		795
Total loans, excluding PCI loans	$	15,517	$	1,460	$	1,801,111	$	17,746

	Wholesale Repurchase Agreements		FHLB Borrowings		Total
(Amounts in thousands)
2017	$	-	$	-	$	-
2018		-		-		-
2019		25,000		-		25,000
2020		-		-		-
2021		-		50,000		50,000
2022 and thereafter		-		-		-
Total long-term borrowings	$	25,000	$	50,000	$	75,000

Weighted average maturity (in years)		1.41		3.27		2.65

	U.S. Treasury Securities		U.S. Agency Securities		Municipal Securities		Mortgage-backed Agency Securities		Total
(Amounts in thousands)
Overnight and continuous	$	5,240	$	12,874	$	37,953	$	2,639	$	58,706
Up to 30 days		-		-		-		-		-
30 - 90 days		-		-		-		-		-
Greater than 90 days		9,000		3,400		-		12,677		25,077
	$	14,240	$	16,274	$	37,953	$	15,316	$	83,783

	Valuation	Unobservable	Discount Range (Weighted Average)
	Technique	Input	September 30, 2017					December 31, 2016

Impaired loans, non-covered	Discounted appraisals⁽¹⁾	Appraisal adjustments⁽²⁾		2%	to	63%	(18%)		3%	to	39%	(17%)
OREO, non-covered	Discounted appraisals⁽¹⁾	Appraisal adjustments⁽²⁾		10%	to	62%	(28%)		0%	to	88%	(30%)
OREO, covered	Discounted appraisals⁽¹⁾	Appraisal adjustments⁽²⁾		0%	to	65%	(56%)		0%	to	44%	(40%)

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan		Maximum Number of Shares that May Yet be Purchased Under the Plan⁽¹⁾

July 1-31, 2017		-	$	-		-		635,804
August 1-31, 2017		13,177		25.16		13,177		622,627
September 1-30, 2017		26,339		25.57		26,339		604,723
Total		39,516	$	25.43		39,516