Forward-looking statements in filings with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q and the accompanying Exhibits, filings incorporated by reference, reports to shareholders, and other communications that represent the Company’s beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates, and intentions are made in good faith pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and other similar expressions identify forward-looking statements. The following factors, among others, could cause financial performance to differ materially from that expressed in such forward-looking statements:

This list of important factors is not exclusive. If one or more of the factors affecting these forward-looking statements proves incorrect, actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this Quarterly Report on Form 10-Q and other reports we file with the Securities and Exchange Commission. Therefore, the Company cautions you not to place undue reliance on forward-looking information and statements. Further, statements about the potential effects of the COVID-19 pandemic on our business, financial condition, liquidity and results of operations may contain forward-looking statements and are subject to the risk that the actual effects may differ, possibly materially, from what is reflected in those forward-looking statements due to factors and future developments that are uncertain, unpredictable and in many cases beyond our control. The Company does not intend to update any forward-looking statements, whether written or oral, to reflect changes. These cautionary statements expressly qualify all forward-looking statements that apply to the Company including the risk factors presented in Part II, Item 1A, “Risk Factors,” of this ~~report~~Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

First Community Bankshares, Inc. (the “Company”), is a financial holding company ~~was founded in~~ ~~1989~~ ~~and~~ incorporated under the laws of the Commonwealth of ~~Virginia in~~ ~~2018.~~ The Company 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 reincorporation was completed on~~ ~~October 2, 2018.~~ The Company’s principal executive office is located ~~at One Community Place,~~in 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 offers wealth management and investment advice through its Trust Division and wholly owned subsidiary First Community Wealth Management, Inc. (“FCWM”). 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.

The Company’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, and wealth management. 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.

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, ~~2020~~2021 (the “~~2020~~2021 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on ~~April 2, 2021.~~March 3,2022.The condensed consolidated balance sheet as of December 31, ~~2020~~2021, has been derived from the audited consolidated financial statements.

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

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, 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.

The Company’s significant accounting policies are 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 ~~2020~~2021 Form 10-K.

On January 1, 2021, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU applies to all financial assets measured at amortized cost and off balance sheet credit exposures, including loans, investment securities, and unfunded commitments. The Company applied the ASU’s provisions using the modified retrospective method as a cumulative-effect adjustment to retained earnings as of January 1, 2021. The cumulative-effect adjustment was a decrease to retained earnings net of tax of $5.87 million. ~~The Company is~~ ~~not~~ required to restate comparative prior periods presented in the financial statements utilizing this method; but will present comparative prior periods disclosures using the previous accounting guidance for the allowance for loan losses. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and reason for the change, which is solely a result of the adoption of the required standard.

The Company no longer evaluates securities for other-than-temporary impairment (“OTTI”), as ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” changes the accounting for recognizing impairment on available-for-sale debt securities. Each quarter, the Company evaluates impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value. The nature of the collateral is considered along with potential future changes in collateral values, default rates, delinquency rates, third-party guarantees, credit ratings, interest rate changes since purchase, volatility of the security’s fair value and historical loss information for financial assets secured with similar collateral among other factors. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses in the Statement of Income and establish an allowance for credit losses on the Balance Sheet.

The Company excludes the accrued interest receivable from the amortized cost basis in measuring expected credit losses on the investment ~~securities. Nor~~securities and does ~~the Company~~not record an allowance for credit losses on accrued interest receivable. As of September 30, ~~2021~~2022, the accrued interest receivable for investment securities available for sale was ~~$353 thousand.~~$1.06 million.

The ACL is an estimate of losses that will result from the inability of borrowers to make required loan payments. The Company established the incremental increase in the ACL at the adoption of ASU 2016-13,through retained earnings and subsequent adjustments ~~will be~~are made through a provision for credit losses charged to earnings. Loans charged off are recorded against the ACL and subsequent recoveries increase the ACL when they are recognized.

A systematic methodology is used to determine ACL for loans held for investment and certain off-balance sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgement and reflects management’s best estimate within the range of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s ACL is calculated using collectively evaluated and individually evaluated loans.

The Company collectively evaluates loans that share similar risk characteristics. In general, loans are segmented by loan purpose. The Company collectively evaluates loans within the following consumer and commercial segments: Loans secured by 1-4 Family Properties, Home Equity Lines of Credit (“HELOC”), Owner Occupied Construction Loans, Consumer Loans, Commercial and Industrial, Multi-family, Non-farm/Non-residential Property, Commercial Construction/A&D/other Land Loans, Agricultural Loans, Credit Card Loans, Loans Secured by Farmland, and Other Consumer Loans (Overdrafts).

For collectively evaluated loans, the Company uses a combination of discounted cash flow and remaining life to estimate expected credit losses.

In addition to its own loss experience, management also includes peer bank historical loss experience in its assessment of expected credit losses to determine the ACL. The Company ~~utilized~~utilizes call report data to measure its and its peers' historical credit losses experience with similar risk characteristics within the segments over an economic cycle. Management ~~reviewed~~reviews the historical loss information to appropriately adjust for differences in current asset specific risk characteristics. Also considered ~~were~~are further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that existed for the period over which historical information ~~was~~is evaluated. For the majority of the segments of collectively evaluated loans, the Company ~~incorporated~~incorporates at least one macroeconomic driver either using a statistical regression modeling methodology.

Management considers forward-looking information in estimated expected credit losses. The Company subscribes to a third-party service which provides summary detail of dozens of economic forecasts. Using that information and other publicly available economic forecasts, management determines the economic variables to use for the one-year reasonable and supportable forecast period. Management has determined that the forecast period is consistent with how the Company has historically forecasted for its profitability planning and capital management. Management has evaluated the appropriateness of the reasonable and supportable forecast for the current period along with the inputs used in the estimation of expected credit losses. For the contractual term that extends beyond the reasonable and supportable forecast period, the Company reverts to historical loss information over eight quarters using a straight-line approach. Management may apply different reversion techniques depending on the economic environment for the financial asset portfolio and as of the current period has utilized a linear reversion technique.

Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance sheet credit exposures, Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation. Each period the Company considers qualitative factors that are relevant within the qualitative framework that includes the following: 1) changes in lending polices and procedures, 2) changes in economic conditions, 3) changes in portfolio nature and volume, 4) changes in management, 5) changes in past due loans, 6) changes in the quality of the Company’s credit review system, 7) changes in the value of underlying collateral, 8) the effect of concentrations of credit, and 9) the effect of other external factors.

When a loan no longer shares similar risk characteristics with its segment, the asset is assessed to determine whether it should be included in another pool or should be individually evaluated. The Company currently maintains a net book balance threshold of $500,000 for individually-evaluated loans . Generally, individually-evaluated loans other than Troubled Debt Restructurings, otherwise referred to herein as “TDRs,” are on nonaccrual status. Based on the threshold above, consumer loans will generally remain in pools unless they meet the dollar threshold and foreclosure is probable. The expected credit losses on individually-evaluated loans will be estimated based on discounted cash flow analysis unless the loan meets the criteria for use of the fair value of collateral, either by virtue of an expected foreclosure or through meeting the definition of collateral-dependent. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

Management measures expected credit losses over the contractual term of the loans. When determining the contractual term, the Company considers expected prepayments but is precluded from considering expected extensions, renewals, or modifications, unless the Company reasonably expects it will execute a TDR with a borrower. In the event of a reasonably-expected TDR, the Company factors the reasonably-expected TDR into the current expected credit losses estimate. The effects of a TDR are recorded when an individual asset is specifically identified as a reasonably-expected TDR. For consumer loans, the point at which a TDR is reasonably expected is when the Company approves the borrower’s application for a modification (i.e. the borrower qualifies for the TDR) or when the Credit Administration department approves loan ~~concessions on substandard loans.~~concessions. For commercial loans, the point at which a TDR is reasonably expected is when the Company approves the loan for modification or when the Credit Administration department approves loan ~~concessions on substandard loans.~~concessions. The Company uses a discounted cash flow methodology to calculate the effect of the concession provided to the borrower in TDR within the ACL.

Purchased credit-deteriorated, otherwise referred to herein as PCD, assets are defined as acquired individual financial assets (or acquired groups of financial assets with similar risk characteristics) that, as of the date of acquisition, have experienced a more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment. The Company records acquired PCD loans by adding the expected credit losses (i.e. allowance for credit losses) to the purchase price of the financial assets rather than recording through the provision for credit losses in the income statement. The expected credit loss, as of the acquisition date, of a PCD loan is added to the allowance for credit losses. The non-credit discount or premium is the difference between the fair value and the amortized cost basis as of the acquisition date. Subsequent to the acquisition date, the change in the ACL on PCD loans is recognized through the provision for credit losses. The non-credit discount or premium is accreted or amortized, respectively, into interest income over the remaining life of the PCD loan on a level-yield basis. In accordance with the transition requirements within the standard, the Company’s acquired purchased credit impaired loans were treated as PCD loans.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, Management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and does not record an allowance for credit losses on accrued interest receivable. As of September 30, ~~2021~~2022, the accrued interest receivable for loans was ~~$7.77~~$7.28 million.

The Company has a variety of assets that have a component that qualifies as an off-balance sheet exposure. These primarily include undrawn portions of revolving lines of credit and standby letters of credit. The expected losses associated with these exposures within the unfunded portion of the loans will be recorded as a liability on the balance sheet with an offsetting income statement expense. Management has determined that a majority of the Company’s off-balance-sheet credit exposures are not unconditionally cancellable. As of September 30, ~~2021~~2022, the liability recorded for expected credit losses on unfunded commitments in Other Liabilities was ~~$678 thousand. The current adjustment to the ACL for unfunded commitments would be recognized through the provision for credit losses in the Statement of Income.~~$1.42 million.

During the last ~~2020~~two ~~and continuing into~~ ~~2021,~~-and-a-half years, government reaction to the novel coronavirus (“COVID-19”) pandemic significantly disrupted local, national, and global economies and adversely impacted a broad range of industries, including banking and other financial services. As COVID-19 events unfolded, ~~during~~ ~~2020~~ ~~and~~ ~~2021,~~the Company implemented various plans, strategies and protocols to protect its employees, maintain services for customers, assure the functional continuity of its operating systems, controls and processes, and mitigate financial risks posed by changing market conditions.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU requires earlier recording of credit losses on loans and other financial assets held by financial institutions and other organizations. This ASU also 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. It further 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’s portfolio. In addition, the ASU amends the accounting for credit losses in investments in debt securities and purchased financial assets with credit deterioration. The Company adopted the new standard as of January 1, 2021. The standard was applied using the modified retrospective method as a cumulative-effect adjustment to retained earnings as of January 1, 2021. Under this method, comparative periods will not be required to be restated for financial statements related to Topic 326. Comparative prior period disclosures will be presented using the guidance for the allowance for loan losses. This adoption method is considered a change in accounting principle requiring additional disclosure of the nature of and the reasons for the change, which is solely a result of the adoption of the required standard. This standard did not have a material impact on our investment securities portfolio at implementation. Related to the implementation of the standard, the Company recorded an additional ACL for loans of $13.11 million, deferred tax assets of $1.81 million, and additional reserve for unfunded commitments of $509 thousand and an adjustment to retained earnings, net of tax, of $5.87 million. See the table below for the impact of ASU 2016-13 on the Company’s consolidated balance sheet.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes”. This ASU simplifies the accounting for income taxes by removing certain exceptions to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition for deferred tax liabilities for outside basis differences. The Company adopted this ASU as of January 1, 2021, and it did not have a material effect on the Company's financial statements.

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.

In March 2022, the Financial Accounting Standards Board issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. This new accounting topic provides accounting guidance for troubled debt restructuring (TDR) and write-offs, effective January 1, 2023, with early adoption permitted. The amendments eliminate TDR accounting guidance for issuers that have adopted ASU 2016-13, create a single loan modification accounting model, and clarify disclosure requirements for loan modifications and write-offs. We are currently reviewing the impact of the updated guidance on our Consolidated Financial Statements, but do no anticipate a material impact. At this time, the Company has no plans to early adopt this guidance.

On September 16, 2022, the Company completed the sale of its Emporia, Virginia branch to Benchmark Community Bank (the "Emporia Branch Sale") . The sale included the branch real estate, certain personal property, and all deposits associated with the branch. There were no loans included in the transaction. Benchmark paid a deposit premium of two percent for certain deposits. In addition, Benchmark paid $1.50 million for branch real estate and certain personal property. Total deposits acquired by Benchmark totaled $61.05 million. The deposits were composed of $18.38 million in demand, $28.46 million in interest-bearing demand, $11.52 million in savings, and $2.69 million in time deposits. The Company recognized a gain of $1.66 million from the Emporia Branch Sale.

There was 0no allowance for credit losses for ~~investments~~debt securities as of September 30, ~~2021~~2022; therefore, it is not presented in the table below. 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:

The following table presents the amortized cost and aggregate fair value of available-for-sale 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.

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:

There were 15136 individual debt securities in an unrealized loss position as of September 30, ~~2021~~2022, and the combined depreciation in value represented ~~0.76%~~7.27% of the debt securities portfolio. There were 623 individual debt securities in an unrealized loss position as of December 31, ~~2020~~2021, and their combined depreciation in value represented ~~0.12%~~0.91% of the debt securities portfolio. The decline in the market value of debt securities available for sale from December 31, 2021, is primarily attributable to the increasing rate environment throughout 2022.

Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities available for sale in an unrealized loss position as of September 30, ~~2021~~ 2022, continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary. Also, as part of our evaluation of our intent and ability to hold investments for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategy, cash flow needs, liquidity position, capital adequacy and interest rate risk position. We do not currently intend to sell the securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities. See Note 1 – Basis of Presentation for further discussion.

Management continues to monitor all of our securities with a high degree of scrutiny. There can be no assurance that we will not conclude in future periods that conditions existing at that time indicate some or all of its securities may be sold or would require a charge to earnings as a provision for credit losses in such periods.

~~The following table presents~~There were no gross realized gains and losses from the sale of available-for-sale debt securities for the ~~periods indicated:~~three and nine months ended September 30, 2022 and 2021.

The carrying amount of securities pledged for various purposes totaled ~~$23.80~~$27.82 million as of September 30, ~~2021~~2022, and ~~$36.56~~$22.15 million as of December 31, ~~2020~~2021.

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. Customer overdrafts reclassified as loans totaled ~~$1.65~~$1.29 million as of September 30, ~~2021~~2022, and ~~$1.13~~$1.65 million as of December 31, ~~2020~~2021. Deferred loan fees, net of loan costs, totaled ~~$5.40~~$4.11 million as of September 30, ~~2021~~2022, and ~~$5.58~~$5.06 million as of December 31, ~~2020~~2021. For information about off-balance sheet financing, see Note ~~14,~~15, “Litigation, Commitments, and Contingencies,” to the Condensed Consolidated Financial Statements of this report.

In accordance with the adoption of ASU 2016-13, the table below reflects the loan portfolio at the amortized cost basis ~~for the current period~~ ~~September 30, 2021~~, to include net deferred loan fees of ~~$5.40~~$4.11 million and $5.06 million and unamortized discount ~~total~~ related to loans acquired of ~~$6.18 million.~~$4.11 million and $5.41 million million for September 30, 2022, and December 31, 2021, respectively. Accrued interest receivable (AIR) of ~~$7.77~~$7.28 million as of September 30, 2022, and $7.54 million as of December 31, 2021, is accounted for separately and reported in Interest Receivable on the Consolidated Balance Sheet.

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

~~Included in total loans~~ ~~December 31, 2020,~~ ~~were covered loans generally reimbursable by the FDIC at the applicable loss share percentage of~~ ~~80%.~~ ~~Covered loan balances totaled $9.68 million at year-end~~ ~~2020.~~ ~~The Company terminated its remaining loss share agreement with the FDIC effective,~~ ~~September 28, 2021~~ associated with Waccamaw Bank. The termination eliminates the FDIC guarantee on particular loan losses and removes future responsibility related to the agreement. The following table presents loans, net of unearned income, within the portfolio by loan class, as of the dates indicated:

The Company began participating as a Small Business Administration Paycheck Protection Program lender during the second quarter of 2020. At September 30, ~~2021~~2022, ~~the~~there was no remaining balance of PPP loans, ~~had a current balance of $26.93 million,~~ compared to ~~$57.06~~$20.64 million at December 31, ~~2020~~2021, ~~and~~which were included in commercial and industrial loan balances. ~~Deferred~~There were no remaining net deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, ~~totaled $4.34 million~~ at September 30, ~~2021~~2022~~, and $2.3 million at~~. At December 31, ~~2020~~2021., the amount of net deferred loan origination fees related to PPP loans was $733 thousand. During the third quarter of ~~2021~~2022, the Company recorded amortization of net deferred loan origination fees of ~~$708 th~~$~~ousand~~80 thousand on PPP loans and ~~$2.24 million~~ recorded $734 thousand in amortization for the nine month period of ~~2021,~~2022 ~~compared with $287 thousand and $479 thousand for~~ ~~2020~~ ~~for the~~ ~~third~~ ~~quarter and~~ ~~nine~~~~-month period, respectively.~~. The ~~remaining~~Company recorded amortization of net deferred loan origination fees ~~will be amortized over~~on PPP loans of $708 thousand and $2.24 million in amortization for the ~~expected life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income.~~

~~Prior to the adoption of ASU~~ ~~2016~~-~~13,~~ the Company identified certain purchased loans as impaired when fair values were established at acquisition and grouped those purchased credit impaired (“PCI”) loans into loan pools with common risk characteristics. The Company estimated cash flows to be collected on PCI loans and discounted those cash flows at a market rate of interest. Effective ~~January 1, 2020,~~ ~~the Company consolidated the insignificant PCI loans and discounts~~same periods, respectively, for ~~Peoples, Waccamaw, and other acquired loans into the core loan portfolio. The only remaining PCI pools were those loans acquired in the Highlands acquisition on~~ ~~December 31, 2019.~~2021.

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

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

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:

The following table presents the recorded investment of the loan portfolio, by loan class and credit quality, as of the dates ~~indicated. Included in total loans~~ ~~December 31, 2020,~~ ~~were covered loans generally reimbursable by the FDIC at the applicable loss share percentage of~~ ~~80%.~~ ~~Covered loan balances totaled $9.68 million year-end~~ ~~2020.~~indicated:

The following tables present the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of the date ~~indicated.~~indicated:

~~Prior to the adoption of ASU~~ ~~2016~~-~~13,~~ ~~the Company identified 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. When the Company determined that it was probable all principal and interest amounts due would ~~not~~ ~~be collected in accordance with the contractual terms of the loan agreement, the loan was generally deemed impaired.~~

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 date indicated prior to the adoption of ASU ~~2016~~-~~13:~~

~~Prior to the adoption of ASU~~ ~~2016~~-~~13,~~ ~~the Company presented the average recorded investment and interest income recognized on impaired loans, excluding PCI loans. The table below presents the information for the period indicated:~~

The Company generally places a loan on nonaccrual status when it is 90 days or more past due. The following table presents nonaccrual loans, by loan class, as of the dates indicated:

During the ~~three~~third ~~month period~~quarter of ~~2021,~~2022 ~~$14~~, $1 thousand in nonaccrual loan interest was ~~recognized;~~recognized compared to $14 thousand for the ~~nine~~ ~~month~~same period of 2021 ~~$38~~. During the firstnine months of 2022 $4 thousand in nonaccrual loan interest was ~~recognized.~~

~~The following table presents nonaccrual loans prior to the adoption of ASU~~ ~~2016~~-~~13.~~2021 ~~PCI loans were generally~~ ~~not~~ ~~classified as nonaccrual due to the accrual of interest income under the accretion method of accounting. Covered nonaccrual loans totaled $297 thousand at~~ ~~December 31, 2020~~~~; the total was comprised of consumer real estate loans. The following table presents nonaccrual loans, by loan class, as of the date indicated:~~.

The following ~~table~~tables presents the aging of past due loans, by loan class, as of the ~~date~~dates indicated. Nonaccrual loans 30 days or more past due are included in the applicable delinquency ~~category.~~category:

~~The following table presents the aging of past due loans, by loan class, as of the date indicated prior to the adoption of ASU~~ ~~2016~~-~~13.~~ ~~Nonaccrual loans~~ 30 days or more past due are included in the applicable delinquency category. Loans acquired with credit deterioration, with a discount, continued to accrue interest based on expected cash flows; therefore, PCI loans were ~~not~~ ~~generally considered nonaccrual. Non-covered accruing loans contractually past due~~ 90 ~~days or more totaled $295 thousand as of~~ ~~December 31, 2020~~.

ASC 326 prescribes that when an entity determines foreclosure is probable, the expected credit loss is required to be measured based on the fair value of the collateral. As a practical expedient, an entity may use the fair value as of the reporting date when recording the net carrying amount of the asset. For the collateral dependent asset ("CDA") a credit loss expense is recorded for loan amounts in excess of fair value of the collateral. The table below summarizes collateral dependent loans, where foreclosure is probable, by type of collateral, and the extent to which they are collateralized during the period. As of September 30, 2022, there were no collateral dependent loans.

The Company may make concessions in interest rates, loan terms and/or amortization terms when restructuring loans for borrowers experiencing financial difficulty. Certain 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.

The CARES Act included a provision allowing banks to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020, and the earlier of (i) December 31, 2021, or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt this provision of the CARES Act.

~~From~~ ~~March, 2020,~~ ~~through~~ ~~September 30, 2021~~~~, the Company modified a total of 3,958 loans with principal balances totaling $472.43 million related to COVID-~~19 ~~relief. Those modifications were generally short-term payment deferrals and are~~ ~~not~~ ~~considered TDRs based on the CARES Act. The Company’s policy is to downgrade commercial loans modified for COVID-~~19 to Special Mention due to a higher-than-usual level of risk, which caused the significant increase in loans in that rating. Subsequent upgrade or downgrade will be on a case by case basis. The Company will consider upgrading these loans back to pass once the modification period has ended and timely contractual payments resume. Further downgrade would be based on a number of factors, including but ~~not~~ ~~limited to additional modifications, payment performance and current underwriting. As of~~ ~~September 30, 2021~~~~, total COVID-~~19 ~~loan deferrals stood at $4.71 million.~~

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

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

The following tables present loans modified as TDRs, by type of concession made and loan class, that were restructured during the periods indicated:

There ~~was~~were ~~one~~no payment ~~default on~~defaults for loans modified as TDRs restructured within the previous 12 months ~~for $1.37 million.as~~as of September 30, 2022, and there was one payment default in the amount of $ 1.37 million as of September 30, 2021~~, and~~ ~~one~~ ~~loan for $100 thousand as of~~ ~~September 30, 2020~~ .

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

The following tables present the changes in the allowance for credit losses, by loan segment, during the periods ~~indicated.~~indicated:

The following table presents the allowance for loan losses and recorded investment in loans evaluated for impairment, excluding PCI loans, by loan class, as of the date indicated prior to the adoption of ASU ~~2016~~-~~13:~~

~~The following table presents the recorded investment in PCI loans and the allowance for loan losses on PCI loans, by loan pool, as of the date indicated prior to the adoption of ASU~~ ~~2016~~-~~13:~~

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

Operating leases are recorded as a right of use (“ROU”) asset and operating lease liability. The ROU asset is recorded in other assets, while the lease liability is recorded in other liabilities on the condensed balance sheet beginning January 1, 2019, when the Company adopted ASU 2016-02, on a prospective basis. 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 ROU asset and lease liability have been recognized based on the present value of the lease payments using a discount rate that represented our incremental borrowing rate at the lease commencement date or the date of adoption of ASU 2016-02. 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 condensed statements of income.

The Company’s current operating leases relate ~~primarily~~ to one existing bank ~~branches.~~branch and one operating lease acquired in a prior bank acquisition. The acquired operating lease was for vacant land and will terminate in July of 2029. The Company’s ROU asset was ~~$763~~$672 thousand as of September 30, ~~2021~~2022 compared to ~~$830~~$741 thousand as of December 31, ~~2020~~2021. The operating lease liability as of September 30, ~~2021~~2022, was ~~$800~~$692 thousand compared to ~~$891~~$770 thousand as of December 31, ~~2020~~2021. The Company’s total operating leases have remaining terms of ~~1-8~~2 - 7 years; compared with ~~1-9~~4 months to 7.5 years as of December 31, ~~2020~~2021. The September 30, ~~2021~~2022 weighted average discount rate of 3.22% did not change from December 31, ~~2020~~2021.

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

Repurchase agreements are secured by certain securities that remain under the Company’s control during the terms of the agreements.

Unused borrowing capacity with the FHLB totaled ~~$291.99~~$422.61 million, net of FHLB letters of credit of ~~$151.75~~$126.54 million, as of September 30, ~~2021~~2022. As of September 30, ~~2021~~2022, the Company pledged ~~$752.46~~$736.92 million in qualifying loans to secure the FHLB borrowing capacity.

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.

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’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. In March 2020, the Company adopted ASU 2020-04, "Reference Rate Reform" which provided temporary guidance to ease the potential burden in accounting for reference rate reform. With global capital markets moving away from LIBOR, the guidance provided optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships that reference LIBOR. The migration from LIBOR is not expected to have any material effect on the Company's financial statements when and as changes are made to migrate from the reference rate.

Certain of 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 fair value hedges were effective as of September 30, ~~2021~~2022. ~~The remaining~~

Through July 2022, the Company had certain interest rate swaps dothat did not qualify as fair value hedges and the fair value changes in the derivative ~~are~~were recognized in earnings each period. On July 26, 2022, these swaps were terminated at a cost of $72 thousand.

The following table presents the notional, or contractual, amounts and fair values of derivative instruments as of the dates indicated:

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

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’s unfunded Benefit Plans include the Supplemental Executive Retention Plan ("SERP") and the Directors’ Supplemental Retirement ~~Plan.~~Plan ("Director Plan"). The SERP was frozen near the end of 2021; the Director Plan was fundamentally frozen at that time as well. The following table presents the components of net periodic pension cost and the effect on the consolidated statements of income for the periods indicated:

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

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

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

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:

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.

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 that are subject to a fair value hedge are reported at fair value derived from third-party models. Loans designated in 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.

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:

Impaired Loans. Prior to the adoption of ASU 2016-13, impaired loans were 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’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.

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:

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

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 fair value is estimated at their carrying amount, which is considered a reasonable estimate due to the short-term nature of these instruments.

Accrued Interest Receivable/Payable. Accrued interest receivable/payable fair value is estimated at 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 and repurchase agreements with fixed maturities and rates are estimated 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 estimated at fair value using discounted future cash flows that apply interest rates available to the Company for borrowings with similar characteristics and maturities.

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, “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:

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.

The Company is a party to financial instruments with off 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 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’s performance under certain letters of credit is based on management’s credit evaluation of the customer.

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

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

Management’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, ~~2020~~2021 (the ~~“2020~~“2021 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.

First Community 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 30, ~~2021,~~2022, the Bank operated 4948 branches ~~as First Community Bank~~ in Virginia, West Virginia, North Carolina and Tennessee. As of September 30, ~~2021,~~2022, full-time equivalent employees, calculated using the number of hours worked, totaled ~~598.~~613. 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. 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 trust management, estate administration, and investment advisory services through its Trust Division and wholly owned subsidiary First Community Wealth Management Inc. (“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 administration. As of September 30, ~~2021,~~2022, the Trust Division and FCWM managed and administered ~~$1.27~~$1.19 billion in combined assets under various fee-based arrangements as fiduciary or agent. The Bank also offers a full range of commercial and personal insurance products through its strategic partnership with Bankers Insurance, LLC.

Our business has been, and continues to be, impacted by the COVID-19 pandemic. As the pandemic is ongoing and dynamic in nature, there are many uncertainties related to COVID-19 including the ongoing impact to our customers, employees, and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to contain the outbreak or to mitigate its impact (both economic and health-related). Although significant progress has been made to combat the outbreak of COVID-19 with the availability and distribution of COVID-19 vaccines and lock-down restrictions have been eased, we recognize that our business and consumer customers are continuing to experience varying degrees of financial distress, which we expect to continue, though to a lesser degree, throughout 2021. Commercial activity has improved, but has not returned to the levels existing prior to the outbreak of the COVID-19 pandemic, which may result in our customers' inability to meet their loan obligations to us. In addition, the economic pressures and uncertainties related to the COVID-19 pandemic appear to have resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. We continue to monitor our customers in the energy, hotel/lodging, restaurants, entertainment, retail and commercial real estate businesses, which have been significantly impacted by the COVID-19 pandemic. We recognize that the industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on a more permanent basis as a result of the COVID-19 pandemic.

The PPP loan program was extended and amended through additional legislation during 2020. The Consolidated Appropriations Act of 2021 was adopted in December, 2020, to provide additional COVID-19 relief and among other measures, extended weekly unemployment benefits, provided another round of economic stimulus payments to individuals and families, lengthened temporary suspensions and modifications of several bank-related provisions and provided more aid to small businesses. The 2021 Consolidated Appropriations Act reauthorized and appropriated up to $284.5 billion for the PPP for both first-time and second-time borrowers to receive loan disbursements for a period ending March 31, 2021, expanded the list of eligible PPP expenses and created a simplified loan forgiveness application for loans under $150 thousand.

President Biden has signed a number of executive orders relating to stimulus and relief measures. These orders include, among other things, (i) an extension, through March 31, 2021, of the moratorium on evictions and foreclosures on federally-backed mortgages, (ii) an extension, through September 30, 2021, of the deferral of federal student loan payments and interest and (iii) an extension, through June 30, 2021, of certain mortgage forbearance programs and guidelines.

On September 9, 2021, President Biden issued an Executive Order (EO) announcing a proposed new rule requiring all employers with at least 100 employees to ensure that their employees are fully vaccinated or require unvaccinated workers to get a negative COVID test at least weekly. The Department of Labor's Occupational Safety and Health Administration (OSHA) drafted an emergency regulation to carry out this mandate. OSHA has now released its Emergency Temporary Standard (ETS), as directed by President Biden’s EO, which establishes binding requirements related to COVID vaccination and/or testing for large employers (100 or more employees). This ETS appears to be applicable to the Company. The ETS is complex, but in some ways lacking in detail. Accordingly, implementation and enforcement will be difficult, time consuming, and extremely risky. Absent Court intervention, the ETS will become effective in 2 phases as follows:

Compliance with the ETS will require extensive effort and resources by the Company over a very short period of time. All new policies and procedures will need to be compliant with both state and federal law. While this ETS is meant to pre-empt state law where inconsistent, additional state requirements, such as those from VOSH, will still apply (e.g. there is now a hospitalization/fatality reporting requirement to OSHA in addition to our VOSH reporting requirements). The expense and risks to the Company associated with complying with the ETS, and possession by the Company of employee personal healthcare information, could be significant. Otherwise, it is currently not possible to predict with certainty the additional impact the ETS will have on the Company, but potential results could include employee attrition. Lost employees could have an adverse effect on future operations, including the temporary need to close branches or other facilities, lost revenues, and additional operating costs, any of which could be material.

On March 11, 2021, the American Rescue Plan Act of 2021 (the “ARP Act”) was enacted, implementing a $1.9 trillion package of stimulus and relief proposals. Among other things, the ARP Act provides (i) additional funding for the PPP program and an expansion of the program for the benefit of certain nonprofits, (ii) funding for the Small Business Administration (“SBA”) to make targeted grants for restaurants and similar establishments, (iii) direct cash payments of up to $1,400 to individuals, subject to income provisions, (iv) an increase in the maximum annual Child Tax Credit, subject to income limitation provisions, (v) $300 a week in expanded unemployment insurance lasting through September 6, 2021 and makes $10,200 in unemployment benefits tax free for households, subject to income limitation provisions, (vi) tax relief making any student loan forgiveness incurred between December 31, 2020, and January 1, 2026, non-taxable income, and (vii) funding to support state and local governments; K-12 schools and higher education; the Centers for Disease Control; public transit; rental assistance; child care; and airline industry workers.

On March 27, 2021, the COVID-19 Bankruptcy Relief Extension Act of 2021 was enacted, extending the bankruptcy relief provisions enacted in the Coronavirus Aid, Relief and Economic Security (“CARES”) Act of 2020 bill until March 27, 2022. These provisions provide financially distressed small businesses and individuals greater access to bankruptcy relief.

On March 30, 2021, the PPP Extension Act of 2021 was enacted, extending the Paycheck Protection Program from its previous expiration date of March 31, 2021 to June 30, 2021. Beginning June 1, 2021, the SBA may only process applications submitted prior to that date, and it may not accept any new loan applications. We are continuing to monitor the potential development of additional legislation and further actions taken by the U.S. government.

The Company's business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. While it appears that epidemiological and macroeconomic conditions are trending in a positive direction as of September 30, 2021, if there is a resurgence in the virus, the Company could experience further adverse effects on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and any potential resulting measures to curtail its spread, will have on the Company's future operations, the Company is disclosing potentially material items of which it is aware.

In 2020, COVID-19 had a material impact on our allowance for credit losses. While we did not experience any significant charge-offs related to COVID-19, our allowance calculation and resulting provision for credit losses were significantly impacted by governmental reactions and forced shutdowns. On January 1, 2021, we adopted ASU 2016-13, ("CECL"), which had the effect of increasing our allowance for credit losses by $13.11 million largely due to the uncertainty around the impact of COVID-19 which adversely affected the economic forecasts that were utilized in the adoption. In the first nine months of 2021, the economic forecasts improved significantly and credit quality remained strong; with both factors contributing to a reversal of provision for credit losses of $7.63 million. However, should economic conditions or forecasts worsen and credit quality deteriorate, we could experience further increase in our required allowance for credit losses and record additional provision for credit. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

The Company's fee income has been reduced due to COVID-19. Consumer spending behavior has proven to be very conservative during the pandemic resulting in a decrease in overdraft behavior that generates NSF and other fee income. However, as lock-down restrictions have either eased or been lifted, the Company is beginning to experience an upward trend in these fees. Recovering from a negative trend throughout the last half of 2020 and the first quarter of 2021, service charges on deposits increased $187 thousand or 1.96%, year to date from 2020, and there was an increase of $349 thousand in the third quarter of 2021, or 10.74%, compared to the same quarter of last year. Should the pandemic and the global response escalate further, it is possible that the Company could see further decreases in fees in future periods; however, at this time, the Company is unable to project the materiality of such an impact on the results of operations in future periods.

The Company's interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company continues to work with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees continue to accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, the related loans would be placed on nonaccrual status and interest income and fees accrued would be reversed. In such a scenario, interest income in future periods could be negatively impacted. As of September 30, 2021, the Company carried $3.15 million of accrued income and fees on outstanding deferrals made to COVID-19 affected borrowers compared to $3.47 million at year-end 2020.

As of September 30, 2021, the Company and Bank 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 that would change the Bank's classification. Additionally, our capital ratios were in excess of the minimum standards under the Basel III capital rules as of September 30, 2021. While we believe that we have sufficient capital, our reported and regulatory capital ratios could be adversely impacted by loan losses and other negative trends initiated by the pandemic. We rely on cash on hand as well as dividends from the Bank to pay dividends to our shareholders. If our capital deteriorates such that the Bank is unable to pay dividends for an extended period of time, we may not be able to pay dividends to our shareholders.

We maintain access to multiple sources of liquidity. Wholesale funding markets remain open to us, however, short-term funding rates have been volatile throughout the pandemic. If funding costs are elevated for an extended period of time, it could have an adverse effect on our net interest margin. In addition, if an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

~~Asset valuation~~

COVID-19 has not affected our ability to account timely for the assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgements will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

~~Our processes, controls and business continuity plan~~

The Company maintains an Enterprise Risk Management team to respond to, prepare, and execute responses to unforeseen circumstances, such as, natural disasters and pandemics. Upon the pandemic declaration, the Company's Enterprise Risk Management team implemented its Board approved Business Continuity Plan. The Company appointed an internal pandemic preparedness task force comprised of the Company's management to address both operational and financial risks posed by COVID-19. Shortly after invoking the Plan, the Company deployed a successful remote working strategy, provided timely communication to team members and customers, implemented protocols for team member safety, and initiated strategies for monitoring and responding to local COVID-19 impacts - including customer relief efforts. The Company's preparedness efforts, coupled with quick and decisive plan implementation, resulted in minimal impacts to operations. At September 30, 2021, a significant portion of our backroom operations employees continue to work remotely with no disruption to our operations. We have not incurred additional material cost related to our remote working strategy to date, nor do we anticipate incurring material cost in future periods. In addition, employee availability has had limited impact on operations to date.

As of September 30, 2021, we do not anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of our business continuity plans.

~~Lending operations and accommodations to borrowers~~

The CARES Act as amended included a provision allowing banks to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020, and the earlier of (i) December 31, 2021, or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt this provision of the CARES Act. Through September 30, 2021, we have modified a total of 3,958 commercial and consumer loans totaling $472.43 million. Those modifications were generally short-term payment deferrals and are not considered TDRs based on the CARES Act. Our policy is to downgrade commercial loans modified for COVID-19 to special mention, which caused the significant increase in loans in that rating. Subsequent upgrade or downgrade will be on a case by case basis. The Company is upgrading these loans back to pass once the modification period has ended and timely contractual payments resume. Further downgrade would be based on a number of factors, including but not limited to additional modifications, payment performance and current underwriting. As of September 30, 2021, current COVID-19 loan deferrals stood at $4.71 million. It is possible that these deferrals could be extended further under the CARES Act; as amended by the Consolidated Appropriations Act of 2021, signed into law on December 27, 2020, that extended the ability to provide necessary loan modifications to our customers and not consider these troubled debt restructurings. However, the volume of these future potential extensions is unknown. It is also possible that in spite of our best efforts to assist our borrowers and achieve full collection of our investment, these deferred loans could result in future charge-offs with additional credit loss expense charged to earnings; however, the amount of any future charge-offs on modified loans is unknown.

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.

Allowance for Credit Losses or "ACL"

The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 1 – "Basis of Presentation - Significant Accounting Policies" in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 5 — "Allowance for Credit Losses" in this Quarterly Report on Form 10-Q, “Provision for Loan Losses and Nonperforming Assets” in this MD&A. Periods prior to the January 1, 2021, adoption of ASU 2016-13 follow prior accounting guidance for estimated loan losses and may not be comparable.

Our accounting policies are fundamental in understanding MD&A and the disclosures presented in Item 1, “Financial Statements,” of this ~~report.~~Quarterly Report on Form 10-Q. 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 September 30, ~~2021,~~2022, and in Note 1, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of our ~~2020~~2021 Form 10-K. Our critical accounting estimates are detailed in the “Critical Accounting Estimates” section in Part II, Item 7 of our ~~2020~~2021 Form 10-K.

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Performance Overview

Highlights of our results of operations for the three and nine months ended September 30, ~~2021,~~2022, and financial condition as of September 30, ~~2021,~~2022, include the following:

●

Net income of $13.35 million for the quarter ~~increased $4.34 million~~was an increase of $743 thousand compared to $12.61 million recorded in the same quarter of 2021. The increase is primarily attributable to an increase in net interest income of $4.2 million and the branch sale gains of $1.66 million offset by an increase in the provision for credit losses of $2.08 million and an increase in salaries and employee benefits of $1.44 million compared to 2021.

	●	On September 16, 2022, the Company completed the sale of First Community Bank’s Emporia, Virginia branch to Benchmark Community Bank. A gain of $1.66 million was realized from the sale.
	●	Net interest margin for the third quarter was 4.01%, which was a 45 basis point increase from 3.56% reported for third quarter of 2021. The yield on earning assets increased 42 basis points, primarily driven by increased earnings on securities and overnight funds.
	●	The cost of interest-bearing deposits declined 6 basis points to 0.08%, primarily driven by a decrease in the cost of time deposits and focus on non-maturing deposits. Additionally, non-maturing deposit balances remained strong even after the Emporia Branch Sale.

	●	Net interest income increased $4.2 million compared to the same quarter of ~~2020. The large~~2021. Interest income from securities of $1.79 million was an increase ~~in net income includes~~of $1.34 million over the ~~reversal~~third quarter of ~~$1.39~~2021. Interest on fed funds also increased $1.31 million ~~in allowance for credit losses~~to $1.53 million for the third quarter as a result of ~~2021~~the Federal Open Market Committee’s incremental 300 basis point rate increase in overnight rates throughout 2022 as compared to the ~~$4.70~~overnight rates of 2021. Interest and fees on loans increased $1.29 million ~~in loan loss provision that was recorded in~~from the ~~third~~same quarter of ~~2020. Net income~~2021 and is primarily attributable to loan demand and originations.
	●	The provision for credit losses of $685 thousand for the ~~nine month period ended September 30, 2021, increased $16.24~~quarter was an increase of $2.08 million compared to the same ~~period~~quarter of ~~2020. Similarly, for the nine month period,~~2021. The increase was attributable to a ~~reversal of $7.63 million in the allowance for credit losses accounts for 2021~~return to normalized provisions as compared to the $12.03 million in loan loss provision for the same period in 2020 accounts for a large part of the increase in net income over the same period in 2020. The decreases in credit loss provisioning are primarily due to significantly improved economic forecasts and GDP growth and solid credit quality metrics in the current year, andwith prior year ~~provisioning driven by the pandemic.~~

●

~~On January 26, 2021, the Board~~recoveries of Directors approved a new plan to repurchase, on the open market at prevailing prices, up to 2.4 million shares of the Company's common stock through January 26, 2024. During the quarter, the Company repurchased 277,386 common shares for $8.46 million. Year-to-date the Company has repurchased 726,686 common shares for $21.43 million.

pandemic-related provisioning.

	●	~~The Company terminated its remaining~~Despite the significant increase in credit loss ~~share agreement with the FDIC and received a payment of $176 thousand in consideration. The termination eliminates the FDIC guarantee~~provision over 2021, annualized return on ~~particular loan losses associated with Waccamaw Bank and removes future responsibility related to the agreement.~~
	●	~~Diluted earnings per share increased $0.26 to $0.73 compared to the same quarter of 2020. Diluted earnings per share~~average assets was 1.63% for the third quarter and 1.41% for the first nine ~~month period increased $0.95 to $2.32 compared to 2020.~~

	●	months of 2022. Annualized return on average common equity was 12.60% for the third quarter and 10.73% for the first nine months of 2022.
	●	Salaries and employee benefits for the third quarter increased ~~to 11.65% compared to 7.83%~~$1.44 million, or 13.48%, over the same quarter ~~of 2020,~~in 2021. Salaries and ~~annualized return on average equity~~employee benefits for the first nine months increased $3.52 million, or 11.10%, over the first nine months of 2021. During the first quarter of 2022, the Company implemented annualized wage increases of approximately $2.5 million as part of its ongoing strategic initiative to ~~12.70% compared to 7.76% from the same period last year.~~enhance Human Capital Management, which included an increased minimum wage.
	●	~~Annualized return on average assets~~The Company’s loan portfolio increased ~~to 1.59% compared to 1.11% over~~by $197.16 million, an annualized growth rate of 12.17%, during the ~~same quarter~~first nine months of ~~2020, while year-to-date annualized return on average assets increased to 1.74% compared to 1.14% for the same period of 2020.~~2022. Loan demand and originations were strong in all categories, including construction, commercial real estate, residential mortgage, and consumer loans.
	●	~~Net charge-offs for~~Total deposits sold to Benchmark as part of the Emporia Branch Sale totaled $61.05 million.
	●	During the third quarter, the Company repurchased 235,400 of ~~2021 were $586 thousand, or 0.11% annualized~~its common shares for $7.38 million. The Company repurchased 650,907 common shares for $19.42 million during the first nine months of ~~average loans, and non-performing loans to total loans remains a very low 1.05%.~~ 2022.
	●	The allowance for credit losses to total loans ~~remains very strong at 1.39%~~decreased slightly to 1.24% of total loans.
	●	Book value per ~~common~~ share at September 30, ~~2021,~~2022, was ~~$25.03, an increase~~$25.33, a slight decrease of ~~$0.95~~$0.01 from year-end ~~2020.~~ 2021.

Results of Operations

Net Income

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

	Three Months Ended												Nine Months Ended												Three Months Ended												Nine Months Ended
(Amounts in thousands, except per	September 30,						Increase						September 30,						Increase						September 30,						Increase						September 30,						Increase
share data)	2021			2020			(Decrease)			% Change			2021			2020			(Decrease)			% Change			2022			2021			(Decrease)			% Change			2022			2021			(Decrease)			% Change

Net income	$	12,608		$	8,266		$	4,342			52.53	%	$	40,613		$	24,376		$	16,237			66.61	%	$	13,351		$	12,608		$	743			5.89	%	$	34,079		$	40,613		$	(6,534	)		-16.09	%

Basic earnings per common share		0.73			0.47			0.26			55.32	%		2.32			1.37			0.95			69.34	%		0.82			0.73			0.09			12.33	%		2.05			2.32			(0.27	)		-11.64	%
Diluted earnings per common share		0.73			0.47			0.26			55.32	%		2.32			1.37			0.95			69.34	%		0.81			0.73			0.08			10.96	%		2.05			2.32			(0.27	)		-11.64	%

Return on average assets		1.59	%		1.11	%		0.48	%		43.24	%		1.74	%		1.14	%		0.60	%		52.63	%		1.63	%		1.59	%		0.04	%		2.52	%		1.41	%		1.74	%		-0.33	%		-18.97	%
Return on average common equity		11.65	%		7.83	%		3.82	%		48.79	%		12.70	%		7.76	%		4.94	%		63.66	%		12.60	%		11.65	%		0.95	%		8.15	%		10.73	%		12.70	%		-1.97	%		-15.51	%

Three-Month Comparison.

Net income increased ~~$4.34 million~~$743 thousand in the third quarter of ~~2021~~2022 largely due to a ~~$6.10~~$4.2 million ~~decrease~~increase in net interest income and the branch sale gains totaling $1.66 million. The increases were offset by an increase in the provision for credit losses asof $2.08 million to $685 thousand for the third quarter of 2022 compared to a ~~result~~recovery of ~~recovering~~provision of $1.39 million in the third quarter of ~~credit loss~~2021. The current year provision is largely due to ~~recognize~~ the ~~impact~~loan growth, in particular commercial loan demand. The recovery of ~~significantly improving economic forecasts, GDP growth,~~provision in the third quarter of 2021 was due to the recovery of pandemic-related provisioning. In addition, salaries and ~~improving unemployment rates and~~employee benefits increased $1.44 million when compared to ~~prior year provisioning driven by~~ the ~~pandemic. This increase was offset by a decrease in net interest income~~same period of ~~$1.69 million, reflective of the current historic low rate environment.~~2021.

Nine-Month Comparison. Net income ~~increased $16.24~~decreased $6.53 million in the first nine months of ~~2021~~2022 largely due to a ~~$19.66~~$10.78 million ~~decrease~~increase in the provision for credit losses. Provision for credit losses astotaled $3.16 million for the first nine months of 2022 compared to a ~~result~~recovery of ~~recovering~~provision of $7.63 million in the same period of ~~credit loss~~2021. As noted for the quarter, the current year provision is largely due to ~~recognize~~loan growth in the ~~impact~~first nine months, in particular commercial loan demand. The recovery of ~~significantly improving economic forecasts, GDP growth, and improving unemployment rates and to prior year provisioning~~provision in 2021 was driven by the ~~pandemic. Additional increases were due to $1.89~~recovery of pandemic-related provisioning. In addition, salaries and employee benefits increased $3.52 million ~~in residual merger expenses that were recognized in~~for the first ~~quarter~~nine months when compared to the same period of 2020. In addition, other service charges increased $1.74 million and the Company received $1.00 million for a recovery of an acquired loan from a failed bank acquisition that had been written down prior to acquisition, which is included in other operating income on the consolidated statement of income.2021. These ~~increases~~decreases were offset by ~~decreases of $3.61 million~~an increase in net interest income ~~reflective~~ of the current historic low rate environment, $781 thousand for the write-down in value of bank property, and $710 thousand in accelerated indemnification asset amortization to write the carrying value of the asset to zero in the second quarter of 2021$4.8 million, as well as the ~~remaining loss share agreement with~~Emporia Branch Sale gains totaling $1.66 million for first nine months of 2022 when compared to the ~~FDIC associated with Waccamaw Bank was terminated in September~~same period of 2021.

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

AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Three Months Ended September 30,														Three Months Ended September 30,
	2021							2020							2022							2021
	Average				Average Yield/			Average				Average Yield/			Average				Average Yield/			Average				Average Yield/
(Amounts in thousands)	Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)
Assets
Earning assets
Loans⁽²⁾⁽³⁾	$	2,149,647	$	25,161		4.64	%	$	2,171,023	$	27,331		5.01	%	$	2,334,596	$	26,474		4.50	%	$	2,149,647	$	25,161		4.64	%
Securities available for sale		79,995		509		2.52	%		93,263		720		3.07	%		301,360		1,833		2.41	%		79,995		509		2.52	%
Interest-bearing deposits		586,787		225		0.15	%		352,144		90		0.10	%		275,290		1,531		2.21	%		586,787		225		0.15	%
Total earning assets		2,816,429		25,895		3.65	%		2,616,430		28,141		4.28	%		2,911,246		29,838		4.07	%		2,816,429		25,895		3.65	%
Other assets		330,679							344,285							328,534							330,679
Total assets	$	3,147,108						$	2,960,715						$	3,239,780						$	3,147,108

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	651,237	$	27		0.02	%	$	580,165	$	73		0.05	%	$	689,376	$	28		0.02	%	$	651,237	$	27		0.02	%
Savings deposits		826,144		63		0.03	%		720,657		136		0.08	%		887,454		67		0.03	%		826,144		63		0.03	%
Time deposits		378,895		552		0.58	%		448,275		951		0.84	%		317,294		285		0.36	%		378,895		552		0.58	%
Total interest-bearing deposits		1,856,276		642		0.13	%		1,749,097		1,160		0.26	%		1,894,124		380		0.08	%		1,856,276		642		0.13	%
Borrowings
Retail repurchase agreements		1,040		1		0.07	%		969		1		0.14	%		2,378		-		N/M			1,040		1		0.07	%
Total borrowings		1,040		1		0.07	%		969		1		0.14	%		2,378		-		N/M			1,040		1		0.07	%
Total interest-bearing liabilities		1,857,316		643		0.14	%		1,750,066		1,161		0.26	%		1,896,502		380		0.08	%		1,857,316		643		0.14	%
Noninterest-bearing demand deposits		824,112							754,147							881,429							824,112
Other liabilities		36,419							36,379							41,373							36,419
Total liabilities		2,717,847							2,540,592							2,819,304							2,717,847
Stockholders' equity		429,261							420,123							420,476							429,261
Total liabilities and stockholders' equity	$	3,147,108						$	2,960,715						$	3,239,780						$	3,147,108
Net interest income, FTE⁽¹⁾			$	25,252						$	26,980						$	29,458						$	25,252
Net interest rate spread						3.51	%						4.02	%						3.99	%						3.51	%
Net interest margin, FTE⁽¹⁾						3.56	%						4.10	%						4.01	%						3.56	%

(1)	Interest income and average yield/rate are presented on a FTE, non-GAAP, basis using the federal statutory income tax rate of 21%.
(2)	Nonaccrual loans are included in the average balance; however, no related interest income is recorded during the period of nonaccrual.
(3)	Interest on loans includes non-cash and accelerated purchase accounting accretion of ~~$1.01 million~~$487 thousand and ~~$1.77~~$1.01 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

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AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

	Nine Months Ended September 30,														Nine Months Ended September 30,
	2021							2020							2022							2021
	Average				Average Yield/			Average				Average Yield/			Average				Average Yield/			Average				Average Yield/
(Amounts in thousands)	Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)			Balance		Interest(1)		Rate(1)
Assets
Earning assets
Loans(2)(3)	$	2,149,556	$	77,722		4.83	%	$	2,127,383	$	82,476		5.18	%
Loans⁽²⁾⁽³⁾															$	2,269,974	$	76,886		4.53	%	$	2,149,556	$	77,722		4.83	%
Securities available for sale		82,563		1,590		2.57	%		110,852		2,619		3.16	%		241,640		4,230		2.34	%		82,563		1,590		2.57	%
Interest-bearing deposits		555,435		509		0.12	%		270,106		706		0.34	%		398,326		2,549		0.86	%		555,435		509		0.12	%
Total earning assets		2,787,554		79,821		3.83	%		2,508,341		85,801		4.57	%		2,909,940		83,665		3.84	%		2,787,554		79,821		3.83	%
Other assets		331,239							351,589							329,508							331,239
Total assets	$	3,118,793						$	2,859,930						$	3,239,448						$	3,118,793

Liabilities and stockholders' equity
Interest-bearing deposits
Demand deposits	$	639,809	$	99		0.02	%	$	543,539	$	261		0.06	%	$	689,226	$	85		0.02	%	$	639,809	$	99		0.02	%
Savings deposits		807,863		217		0.04	%		702,604		790		0.15	%		888,062		200		0.03	%		807,863		217		0.04	%
Time deposits		395,465		1,919		0.65	%		466,126		3,380		0.97	%		331,808		1,003		0.40	%		395,465		1,919		0.65	%
Total interest-bearing deposits		1,843,137		2,235		0.15	%		1,712,269		4,431		0.35	%		1,909,096		1,288		0.09	%		1,843,137		2,235		0.15	%
Borrowings
Retail repurchase agreements		1,179		1		0.07	%		1,218		3		0.32	%		2,161		1		0.07	%		1,179		1		0.07	%
FHLB advances and other borrowings		-		-	N/M				48		1	2.23		%
Total borrowings		1,179		1		0.07	%		1,266		4		0.42	%		2,161		1		0.07	%		1,179		1		0.07	%
Total interest-bearing liabilities		1,844,316		2,236		0.16	%		1,713,535		4,435		0.35	%		1,911,257		1,289		0.09	%		1,844,316		2,236		0.16	%
Noninterest-bearing demand deposits		809,128							688,891							864,119							809,128
Other liabilities		37,871							38,001							39,487							37,871
Total liabilities		2,691,315							2,440,427							2,814,863							2,691,315
Stockholders' equity		427,478							419,503							424,585							427,478
Total liabilities and stockholders' equity	$	3,118,793						$	2,859,930						$	3,239,448						$	3,118,793
Net interest income, FTE(1)			$	77,585						$	81,366
Net interest income, FTE⁽¹⁾																	$	82,376						$	77,585
Net interest rate spread						3.67	%						4.22	%						3.75	%						3.67	%
Net interest margin, FTE(1)						3.72	%						4.33	%
Net interest margin, FTE⁽¹⁾																				3.78	%						3.72	%

(1)	Interest income and average yield/rate are presented on a FTE, non-GAAP, basis using the federal statutory income tax rate of 21%.
(2)	Nonaccrual loans are included in the average balance; however, no related interest income is recorded during the period of nonaccrual.
(3)	Interest on loans includes non-cash and accelerated purchase accounting accretion of ~~$3.45~~$2.22 million and ~~$5.22~~$3.45 million for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Table of Contents

The following table presents the impact to net interest income on a FTE basis due to changes in volume (change in average volume times the prior year’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												Nine Months Ended
	September 30, 2021 Compared to 2020												September 30, 2021 Compared to 2020												September 30, 2022 Compared to 2021												September 30, 2022 Compared to 2021
	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	$	(801	)	$	(5,924	)	$	4,555		$	(2,170	)	$	859		$	(5,485	)	$	(128	)	$	(4,754	)	$	6,424		$	(2,327	)	$	(2,784	)	$	1,313		$	4,354		$	(4,915	)	$	(275	)	$	(836	)
Securities available-for-sale		(305	)		(382	)		476			(211	)		(668	)		(482	)		121			(1,029	)		4,180			(67	)		(2,789	)		1,324			3,064			(145	)		(279	)		2,640
Interest-bearing deposits with other banks		179			131			(175	)		135			724			(439	)		(482	)		(197	)		(353	)		9,018			(7,359	)		1,306			(144	)		3,046			(862	)		2,040
Total interest earning assets		(927	)		(6,175	)		4,856			(2,246	)		915			(6,406	)		(489	)		(5,980	)		10,251			6,624			(12,932	)		3,943			7,274			(2,014	)		(1,416	)		3,844

Interest paid on
Demand deposits		27			(146	)		73			(46	)		46			(177	)		(31	)		(162	)		5			(2	)		(2	)		1			8			(20	)		(2	)		(14	)
Savings deposits		59			(242	)		110			(73	)		118			(601	)		(90	)		(573	)		14			(2	)		(8	)		4			22			(35	)		(4	)		(17	)
Time deposits		(438	)		(896	)		935			(399	)		(512	)		(1,117	)		168			(1,461	)		(267	)		(625	)		625			(267	)		(309	)		(723	)		116			(916	)
Retail repurchase agreements		-			(1	)		1			-			-			(1	)		(1	)		(2	)		(1	)		-			-			(1	)		-			-			-			-
FHLB advances and other borrowings		-			-			-			-			(1	)		-			-			(1	)		-			-			-			-			-			-			-			-
Total interest-bearing liabilities		(352	)		(1,285	)		1,119			(518	)		(349	)		(1,896	)		46			(2,199	)		(249	)		(629	)		615			(263	)		(279	)		(778	)		110			(947	)

Change in net interest income(1)	$	(575	)	$	(4,890	)	$	3,737		$	(1,728	)	$	1,264		$	(4,510	)	$	(535	)	$	(3,781	)	$	10,500		$	7,253		$	(13,547	)	$	4,206		$	7,553		$	(1,236	)	$	(1,526	)	$	4,791

(1)	FTE basis based on the federal statutory rate of 21%.

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Three-Month Comparison. Net interest income comprised ~~74.25%~~74.68% of total net interest and noninterest income in the third quarter of ~~2021~~2022 compared to ~~77.84%~~74.25% in the same quarter of ~~2020.~~2021. Net interest income on a GAAP basis ~~decreased $1.69~~increased $4.2 million, or ~~6.29%~~16.69%, compared to ~~a decrease~~an increase of ~~$1.73~~$4.21 million, or ~~6.40%~~16.66%, on a FTE basis. The net interest margin on a FTE basis ~~decreased 54~~increased 45 basis points and the net interest spread on a FTE basis ~~decreased 51~~increased 48 basis points. The increase was primarily driven by increased earnings on securities and overnight funds and a decrease in the ~~net interest margin and the net interest spread are primarily attributable to the current historically low interest rate environment.~~cost of time deposits.

Average earning assets increased ~~$200.00~~$94.82 million, or ~~7.64%~~3.37%, primarily due to an increase in ~~overnight funds.~~both the securities available for sale and loan portfolios. Securities available for sale increased $221.37 million, or 276.72%, due to recent purchases of $264.96 million in the first nine months of 2022. In addition, average loans increased $184.95 million, or 8.60%, primarily due to strong levels of loan demand in all categories. Average interest-bearing deposits ~~increased $234.64~~decreased $311.50 million, or ~~66.63%~~53.09%. This increase is primarily due to unprecedented levels of federal government stimulus during the pandemic. Average loans decreased $21.38 million, or 0.98% primarily driven by payments received from the SBA for debt forgiveness of loans originated under the Small Business Administration Paycheck Protection Program. In addition securities available-for-sale decreased $13.27 million, or 14.23%. The decrease was primarily attributable to maturities and paydowns of securities in the portfolio. The yield on earning assets ~~decreased 63~~increased 42 basis points, or ~~14.72%~~11.51%, primarily due to the ~~historically low~~increase in yield on overnight funds due to the Federal Open Market Committee's incremental increase in the fed funds rate ~~environment.~~of 300 basis points throughout 2022. The average loan to deposit ratio ~~decreased~~increased to ~~80.20%~~84.11% from ~~86.73%~~80.20% in the same quarter of ~~2020.~~2021. Non-cash accretion income decreased ~~$756~~$522 thousand, or ~~42.83%~~51.73%.

Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, increased ~~$107.25~~$39.19 million, or ~~6.13%~~2.11%, primarily due to an increase in interest-bearing deposits. The yield on interest-bearing liabilities decreased 126 basis points. Average interest-bearing deposits increased ~~$107.20~~$37.85 million, or ~~6.13%, which was driven by unprecedented levels of federal government stimulus during the pandemic.~~2.04%. Savings deposits increased ~~$105.49~~$61.31 million, or ~~14.64%~~7.42%, and interest-bearing demand deposits increased ~~$71.07~~$38.14 million, or ~~12.25%~~5.86%. These increases were offset by a decrease in time deposits of ~~$69.38~~$61.60 million, or ~~15.48%~~16.26%.

Nine-Month Comparison. Net interest income comprised ~~75.48%~~74.56% of total net interest and noninterest income in the ~~first~~ nine months ~~of 2021~~ended September 30, 2022 compared to ~~78.53%~~75.48% in the same period of ~~2020.~~2021. Net interest income on a GAAP basis ~~decreased $3.61~~increased $4.80 million, or ~~4.47%~~6.21%, compared to ~~a decrease~~an increase of ~~$3.78~~$4.79 million, or ~~4.65%~~6.18%, on a FTE basis. The net interest margin on a FTE basis ~~decreased 61~~increased 6 basis points and the net interest spread on a FTE basis ~~decreased 55~~increased 8 basis points. ~~The~~As noted for the quarter increase, the nine-month period increase was primarily driven by increased earnings on securities and overnight funds and a decrease in the ~~net interest margin and the net interest spread are primarily attributable to the current historically low interest rate environment.~~cost of time deposits.

Average earning assets increased ~~$279.21~~$122.39 million, or ~~11.13%~~4.39%, primarily due to an increase in ~~overnight funds~~both the securities available for sale and ~~an increase~~loan portfolios. Securities available for sale increased $159.08 million, or 192.67%, due to recent purchases of $264.96 million in the first nine months of 2022. In addition, average ~~loans.~~loans increased $120.42 million, or 5.60%, primarily due to strong levels of loan demand in all categories. Average interest-bearing deposits ~~increased $285.33~~decreased $157.11 million, or ~~105.64%~~28.29%. This increase is primarily due to unprecedented levels of federal government stimulus during the pandemic. Average loans increased $22.17 million, or 1.04%. These increases were offset by a decrease in securities available-for-sale of $28.29 million, or 25.52%. The decrease was primarily attributable to the sale of the Highlands portfolio in the first quarter of 2020. The yield on earning assets ~~decreased 74~~increased 1 basis ~~points or 16.19%, primarily due~~point for the nine month period as compared to ~~the historically low rate environment.~~2021. The average loan to deposit ratio ~~decreased~~increased to ~~81.05%~~81.85% from ~~88.60%~~81.05% in the same period of ~~2020.~~2021. Non-cash accretion income decreased ~~$1.77~~$1.23 million, or ~~33.91%~~35.57%.

Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, increased ~~$130.78~~$66.94 million, or ~~7.63%~~3.63%, primarily due to an increase in interest-bearing deposits. The yield on interest-bearing liabilities decreased 197 basis points. Average interest-bearing deposits increased ~~$130.87~~$65.96 million, or ~~7.64%, which was driven by unprecedented levels of federal government stimulus during the pandemic.~~3.58%. Savings deposits increased ~~$105.26~~$80.2 million, or ~~14.98%~~9.93%, and interest-bearing demand deposits increased ~~$96.27~~$49.42 million, or ~~17.71%~~7.72%. These increases were offset by a decrease in time deposits of ~~$70.66~~$63.66 million, or ~~15.16%~~16.10%.

Provision for Credit Losses

Three-Month Comparison. The provision charged to operations ~~decreased $6.10~~increased $2.08 million, ~~or 129.64%,~~in the third quarter of 2022 compared to the same quarter of 2021. Provision for credit losses of $685 thousand was recorded in the third quarter of 2022 and was primarily attributable to loan growth. A recovery of provision of $1.39 million was recorded in the third quarter of 2021 compared to the same quarter of 2020. The decrease is attributable to the reversal of $1.39 million in allowance for credit losses for the the current quarter compared to $4.70 million in loan loss provision that was recorded in the same quarter of 2020. The reversal in provisionand was due to significantly improved economic forecasts ~~for unemployment, GDP growth, and home prices~~ from ~~those used for the same period in 2020.~~pandemic provisioning.

Nine-Month Comparison. The provision charged to operations ~~decreased $19.66~~increased $10.78 million, ~~or 163.36%, in~~for the ~~first~~ nine months ~~of 2021~~ended September 30, 2022 compared to the same period of ~~2020. The decrease is attributable to the reversal of $7.63 million in allowance~~2021. Provision for credit losses of $3.16 million was recorded for the ~~the current~~first nine ~~month period compared~~months of 2022 and was primarily attributable to ~~$12.03~~loan growth. A recovery of provision of $7.63 million ~~in loan loss provision that~~ was recorded in the same period of ~~2020. The reversal in provision~~2021 and was due to significantly improved economic forecasts ~~for unemployment, GDP growth, and home prices~~ from ~~those used for the same period in 2020.~~pandemic provisioning.

Noninterest Income

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

	Three Months Ended											Nine Months Ended												Three Months Ended										Nine Months Ended
	September 30,					Increase			%			September 30,						Increase			%			September 30,				Increase			%			September 30,				Increase			%
	2021		2020			(Decrease)			Change			2021			2020			(Decrease)			Change			2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change
(Amounts in thousands)
Wealth management	$	974	$	909		$	65			7.15	%	$	2,913		$	2,607		$	306			11.74	%	$	932	$	974	$	(42	)		-4.31	%	$	2,897	$	2,913	$	(16	)		-0.55	%
Service charges on deposits		3,599		3,250			349			10.74	%		9,728			9,541			187			1.96	%		3,689		3,599		90			2.50	%		10,859		9,728		1,131			11.63	%
Other service charges and fees		3,143		2,748			395			14.37	%		9,331			7,596			1,735			22.84	%		2,988		3,143		(155	)		-4.93	%		9,302		9,331		(29	)		-0.31	%
Net gain on sale of securities		-		-			-			-			-			385			(385	)		-100.00	%
Net FDIC indemnification asset amortization		-		(383	)		383			-100.00	%		(1,226	)		(1,352	)		126			-9.32	%
Divestiture Gain																									1,658		-		1,658			-			1,658		-		1,658			-
Other operating income		1,004		1,114			(110	)		-9.87	%		4,340			3,323			1,017			30.60	%		683		1,004		(321	)		-31.97	%		3,282		3,114		168			5.39	%
Total noninterest income	$	8,720	$	7,638		$	1,082			14.17	%	$	25,086		$	22,100		$	2,986			13.51	%	$	9,950	$	8,720	$	1,230			14.11	%	$	27,998	$	25,086	$	2,912			11.61	%

Three-Month Comparison. Noninterest income comprised ~~25.75%~~25.32% of total net interest and noninterest income in the third quarter of ~~2021~~2022 compared to ~~22.16%~~25.75% in the same quarter of ~~2020.~~2021. Noninterest income increased ~~$1.08~~$1.23 million or ~~14.17%~~14.11%. ~~Other service charges~~The increase is primarily driven by the $1.66 million gain realized during the quarter for the Emporia Branch Sale.

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Nine-Month Comparison. Noninterest income comprised 25.44% of total net interest and noninterest income for the first nine months of 2022 compared to 24.52% in the same period of 2021. Noninterest income increased ~~$395 thousand,~~$2.91 million or ~~14.37% and service~~11.61%. A gain $1.66 million was realized during the quarter for the sale of the Emporia, Virginia branch. Service charges on deposits increased ~~$349 thousand,~~$1.13 million, or ~~10.74%~~11.63%, compared with the ~~third quarter~~same period of ~~2020. Both~~2021. The increases are primarily attributable to increased customer activity compared to the activity levels experienced during the pandemic lock-downs of 2020. Additionally, no FDIC indemnification asset amortization was recognized during the third quarter of 2021 as the asset was fully amortized in the second quarter of 2021. The remaining loss share agreement with the FDIC associated with Waccamaw Bank was terminated at the end of September 2021.

~~Table of Contents~~

~~Nine-Month Comparison~~. Noninterest income comprised 24.52% of total net interest and noninterest income in the first nine months of 2021 compared to 21.47% in the same period of 2020. Noninterest income increased $2.99 million, or 13.51%. The increase was primarily due to an increase in other services charges of $1.74 million, or 22.84%, due primarily to an increase in net interchange income of $1.59 million, compared to the nine month period in 2020. In addition, a recovered amount of $1.00 million was received and recorded in other operating income during the second quarter of 2021 for the recovery of an acquired loan from a failed bank acquisition that had been written down prior to acquisition. These increases were offset by a gain on the sale of securities of $385 thousand in the first quarter of 2020.

Noninterest Expense

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

	Three Months Ended										Nine Months Ended										Three Months Ended										Nine Months Ended
	September 30,				Increase			%			September 30,				Increase			%			September 30,				Increase			%			September 30,				Increase			%
	2021		2020		(Decrease)			Change			2021		2020		(Decrease)			Change			2022		2021		(Decrease)			Change			2022		2021		(Decrease)			Change
(Amounts in thousands)
Salaries and employee benefits	$	10,646	$	10,485	$	161			1.54	%	$	31,746	$	32,886	$	(1,140	)		-3.47	%	$	12,081	$	10,646	$	1,435			13.48	%	$	35,270	$	31,746	$	3,524			11.10	%
Occupancy expense		1,155		1,228		(73	)		-5.94	%		3,545		3,818		(273	)		-7.15	%		1,188		1,155		33			2.86	%		3,622		3,545		77			2.17	%
Furniture and equipment expense		1,385		1,412		(27	)		-1.91	%		4,209		4,112		97			2.36	%		1,478		1,385		93			6.71	%		4,588		4,209		379			9.00	%
Service fees		1,530		1,581		(51	)		-3.24	%		4,378		4,433		(55	)		-1.24	%		1,635		1,530		105			6.86	%		5,701		4,378		1,323			30.22	%
Advertising and public relations		536		430		106			24.65	%		1,487		1,417		70			4.94	%		718		536		182			33.96	%		1,835		1,487		348			23.40	%
Professional fees		313		408		(95	)		-23.28	%		1,069		948		121			12.76	%		208		313		(105	)		-33.55	%		1,205		1,069		136			12.72	%
Amortization of intangibles		365		365		-			0.00	%		1,082		1,086		(4	)		-0.37	%		365		365		-			0.00	%		1,082		1,082		-			0.00	%
FDIC premiums and assessments		216		191		25			13.09	%		619		224		395			176.34	%		321		216		105			48.61	%		796		619		177			28.59	%
Merger expense		-		-		-			-			-		1,893		(1,893	)		-100.00	%
Divestiture expense																						153		-		153			-			153		-		153			-
Other operating expense		2,690		3,071		(381	)		-12.41	%		8,882		8,931		(49	)		-0.55	%		2,998		2,690		308			11.45	%		8,134		8,882		(748	)		-8.42	%
Total noninterest expense	$	18,836	$	19,171	$	(335	)		-1.75	%	$	57,017	$	59,748	$	(2,731	)		-4.57	%	$	21,145	$	18,836	$	2,309			12.26	%	$	62,386	$	57,017	$	5,369			9.42	%

Three-Month Comparison. Noninterest expense ~~decreased $335 thousand,~~increased $2.31 million, or ~~1.75%~~12.26%, in the third quarter of ~~2021~~2022 compared to the same quarter of ~~2020.~~2021. The ~~decrease~~increase was largely ~~due~~attributable to ~~2020 charges of $230 thousand for~~ an early contract termination and a decrease in communications charges of $222 thousand; both charges are included in other operating expense. Additional decreases occurred in professional fees of $95 thousand and $73 thousand in occupancy expense. These decreases were offset by increasesincrease in salaries and employee benefits of ~~$161~~$1.44 million or 13.48%. Early in the first quarter of 2022, the Company implemented annualized wage increases of approximately $2.5 million as part of its strategic initiative to enhance Human Capital Management, which included an increased minimum wage. Other operating expense increased $308 thousand, or 11.45%. The increase is primarily attributable to a $310 thousand increase in the provision for off-balance sheet credit losses. Other increases occurred in advertising and public relations of $182 thousand and ~~advertising~~divestiture expense of ~~$106~~$153 thousand.

Nine-Month Comparison. Noninterest expense ~~decreased $2.73~~increased $5.37 million, or ~~4.57%~~9.42%, in the first nine months of ~~2021~~2022 compared to the same period of ~~2020. The decrease~~2021. As in the quarter, the increase was largely attributable to an increase in salaries and employee benefits of $3.52 million or 11.10%. The increase is due to ~~$1.89 million in residual merger expenses recognized~~wage increases implemented in the first quarter as part of ~~2020.~~the Company's strategic initiative to enhance Human Capital Management, which included an increased minimum wage. In addition, ~~salaries and employee benefits decreased $1.14~~service fees increased $1.32 million, or 30.22% primarily due to ~~COVID-19 pay differentials implemented~~an increase in ~~2020 as well as from branch closures.~~core processing expense. These ~~decreases~~increases were offset by ~~an increase~~a decrease in ~~FDIC premiums and assessments~~other operating expense of ~~$395~~$748 thousand, ~~due~~or 8.42%. The decrease is primarily attributable to the ~~small~~2021 write-down of bank ~~credit received from the FDIC in 2020.~~property of $781 thousand.

Income Tax Expense

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.

Three-Month Comparison. Income tax expense increased ~~$1.48 million,~~$295 thousand, or ~~63.64%~~7.73% and was primarily due to the decrease in pre-tax income. The effective tax rate increased to ~~23.23%~~23.54% in the third quarter of ~~2021~~2022 from ~~22.00%~~23.23% in the same quarter of ~~2020. The increases were primarily attributable to an increase in fully taxable income.~~2021.

Nine-Month Comparison. Income tax expense ~~increased $5.53~~decreased $1.90 million, or ~~81.30%~~15.45% and was primarily due to the decrease in pre-tax income. The effective tax rate increased 13 basis points to ~~23.28% in~~23.41% for the first nine months of ~~2021 from 21.80%~~2022 compared to 23.28% in the same period of ~~2020. The increases were primarily attributable to an increase in fully taxable income.~~2021.

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 measure presented in this report includes net interest income on a FTE basis. 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 21%. 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 GAAP basis. Our non-GAAP financial measures may not be comparable to those reported by other financial institutions. The reconciliations of non-GAAP to GAAP measures are presented below.

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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 September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020			2022			2021			2022			2021
(Amounts in thousands)
Net interest income, GAAP	$	25,146		$	26,834		$	77,242		$	80,855		$	29,342		$	25,146		$	82,042		$	77,242
FTE adjustment(1)		106			146			343			511			116			106			334			343
Net interest income, FTE		25,252			26,980			77,585			81,366			29,458			25,252			82,376			77,585

Net interest margin, GAAP		3.54	%		4.08	%		3.70	%		4.30	%		3.99	%		3.54	%		3.77	%		3.70	%
FTE adjustment(1)		0.02	%		0.02	%		0.02	%		0.03	%		0.02	%		0.02	%		0.01	%		0.02	%
Net interest margin, FTE		3.56	%		4.10	%		3.72	%		4.33	%		4.01	%		3.56	%		3.78	%		3.72	%

(1) FTE basis of 21%.

Financial Condition

Total assets as of September 30, ~~2021, increased $128.58~~2022, decreased $33.72 million, or ~~4.27%~~1.06%, from December 31, ~~2020.~~2021. The ~~increase~~decrease in assets was primarily driven by a ~~increase~~decrease in overnight funds of ~~$186.53~~$454.9 million, or ~~47.13%~~72.55%. ~~In addition, total~~The decrease in overnight funds was offset by an increase in available-for-sale debt securities of $223.33 million, or 292.73%, and an increase in loans of $197.16 million, or 9.10%. Total liabilities decreased $18.20 million, or 0.66%, as of September 30, ~~2021, increased $127.94 million, or 4.95%~~2022, from December 31, ~~2020.~~2021. The ~~increase~~decrease in liabilities was primarily ~~the result of an increase~~driven by a decrease in total deposits of ~~$127.60~~$19.17 million, or ~~5.01%~~0.70%. The decrease in deposits was primarily due to the $61.05 million divestiture of deposits in the Emporia branch sale offset by an increase in deposits of $41.88 million excluding the effect of the Emporia Branch Sale.

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 30, ~~2021, decreased $5.92~~2022, increased $223.33 million, or ~~7.10%~~292.73%, compared to December 31, ~~2020.~~2021. The increase is due to the purchase of $264.96 million in securities comprised of U. S. Treasury Notes, mortgage-backed securities, and corporate notes. The purchases were offset by $19.86 million in maturities, prepayments, and calls. The market value of debt securities available for sale as a percentage of amortized cost was ~~100.51%~~93.22% as of September 30, ~~2021,~~2022, compared to ~~101.71%~~100.02% as of December 31, ~~2020.~~2021. The decrease in the market value of debt securities available for sale as a percentage of amortized cost is primarily attributable to the increasing rate environment since year-end 2021.

Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. U.S. Treasury Securities, Agency-Backed Securities including GNMA, FHLMC, FNMA, FHLB, FFCB and SBA. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities available for sale in an unrealized loss position as of September 30, ~~2021~~2022 continue to perform as scheduled and we do not believe that a provision for credit losses is necessary.

Loans Held for Investment

Loans held for investment, which generates the 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. Effective September 28, 2021, the Company terminated its remaining loss share agreement with the FDIC associated with Waccamaw Bank and received a payment of $176 thousand in consideration. The termination eliminates the FDIC guarantee on particular loan losses associated with Waccamaw Bank and removes future responsibility related to the agreement. Prior to the termination, certain loans acquired in the FDIC-assisted transaction were covered under the loss share agreement and noted as (“covered loans”). Covered loans were $9.68 million, and $10.74 million at December 31, 2020, and September 30, 2020, respectively. Total loans held for investment, net of unearned income, as of September 30, 2021, decreased $34.53 million, or 1.58%, compared to December 31, 2020.

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

	September 30, 2021					December 31, 2020					September 30, 2020					September 30, 2022					December 31, 2021					September 30, 2021
(Amounts in thousands)	Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent			Amount		Percent
Loans held for investment
Commercial loans
Construction, development, and other land	$	56,466		2.62	%	$	44,674		2.04	%	$	46,812		2.13	%	$	109,104		4.62	%	$	65,806		3.04	%	$	56,466		2.62	%
Commercial and industrial		133,923		6.22	%		173,024		7.91	%		179,714		8.19	%		148,024		6.26	%		133,630		6.17	%		133,923		6.22	%
Multi-family residential		100,444		4.67	%		115,161		5.27	%		105,647		4.81	%		135,489		5.73	%		100,402		4.64	%		100,444		4.67	%
Single family non-owner occupied		196,946		9.15	%		187,783		8.59	%		189,453		8.63	%		196,133		8.30	%		198,778		9.18	%		196,946		9.15	%
Non-farm, non-residential		711,861		33.08	%		734,793		33.60	%		748,815		34.11	%		777,350		32.90	%		707,506		32.67	%		711,861		33.08	%
Agricultural		9,784		0.45	%		9,749		0.45	%		10,362		0.47	%		10,537		0.45	%		9,341		0.43	%		9,784		0.45	%
Farmland		17,614		0.82	%		19,761		0.90	%		22,973		1.05	%		12,127		0.51	%		15,013		0.69	%		17,614		0.82	%
Total commercial loans		1,227,038		57.01	%		1,284,945		58.76	%		1,303,776		59.39	%		1,388,764		58.77	%		1,230,476		56.82	%		1,227,038		57.01	%
Consumer real estate loans
Home equity lines		83,079		3.86	%		96,526		4.41	%		102,135		4.65	%		77,424		3.28	%		79,857		3.69	%		83,079		3.86	%
Single family owner occupied		684,930		31.83	%		661,054		30.24	%		647,048		29.48	%		726,780		30.76	%		703,864		32.50	%		684,930		31.83	%
Owner occupied construction		25,551		1.19	%		17,720		0.81	%		17,460		0.80	%		14,602		0.62	%		16,910		0.78	%		25,551		1.19	%
Total consumer real estate loans		793,560		36.88	%		775,300		35.46	%		766,643		34.93	%		818,806		34.66	%		800,631		36.97	%		793,560		36.88	%
Consumer and other loans
Consumer loans		126,578		5.88	%		120,373		5.50	%		118,738		5.41	%		151,022		6.39	%		129,794		5.99	%		126,578		5.88	%
Other		4,927		0.23	%		6,014		0.28	%		5,838		0.26	%		4,141		0.18	%		4,668		0.22	%		4,927		0.23	%
Total consumer and other loans		131,505		6.11	%		126,387		5.78	%		124,576		5.67	%		155,163		6.57	%		134,462		6.21	%		131,505		6.11	%
Total loans held for investment, net of unearned income		2,152,103		100.00	%		2,186,632		100.00	%		2,194,995		100.00	%		2,362,733		100.00	%		2,165,569		100.00	%		2,152,103		100.00	%
Less: allowance for credit losses		29,877					26,182					27,277					29,388					27,858					29,877
Total loans held for investment, net of unearned income and allowance	$	2,122,226				$	2,160,450				$	2,167,718				$	2,333,345				$	2,137,711				$	2,122,226

Total loans ~~decreased $34.53~~as of September 30, 2022, increased $197.16 million, or 9.10%, compared to December 31, ~~2020.~~2021, with increases in all three loan segments. The ~~decrease was primarily attributable to a decrease~~largest increase, $158.29 million, occurred in the ~~total~~ commercial loan ~~category of $57.91 million;~~segment. The increase was comprised of ~~decreases~~increases of ~~$39.10~~$69.84 million in ~~commercial and industrial, $22.93 in commercial~~non-farm, non-residential real estate, ~~and $14.72~~$43.30 million ~~in multi-family. These decreases were offset by an increase~~ in construction, development, and other land, ~~of $11.79~~and $35.09 million in multi-family categories. Consumer and other loans increased $20.70 million and anconsumer real estate loans increased $18.18 million with the increase concentrated in the single family ~~non-owner~~owner occupied of $9.16 million. During the second quarter of 2020, we began participating as a Small Business Administration Paycheck Protection Program lender. The decrease in commercial loans from December 2020 to September 2021 is primarily attributable to $65.65 million received from the SBA for debt forgiveness. At September 30, 2021, the PPP loans had a current balance, which includes second round originations, of $26.93 million, and were included in commercial and industrial loan balances. Remaining deferred loan origination fees related to the PPP loans, net of deferred loan origination costs were also recorded, totaling $4.34 million at September 30, 2021, $2.30 million at December 31, 2020, and $2.30 million at September 30, 2020. During the third quarter of 2021, we recorded amortization of net deferred loan origination fees of $708 thousand on PPP loans; for the nine month period of 2021 we recorded amortization of net fees of $2.24 million. In 2020, amortization of net deferred loan origination fees on PPP loans totaled $287 thousand, while year to date totals totaled $479 thousand. The remaining net deferred loan origination fees will be amortized over the expected life of the respective loans, or until forgiven by the SBA, and will be recognized in net interest income. The decreases in the both the commercial real estate and multi-family were primarily attributable payoffs of loans acquired in the Highlands Union Bank acquisition.category.

~~Loans Modified Under CARES Act~~

As of September 30, 2021, total COVID-19 loan deferrals stood at $4.71 million; down significantly from $115.63 million at September 30, 2020, and from $32.26 million at December 31, 2020. The September 30, 2021, total included $2.00 million in commercial loan deferrals. Commercial loan COVID-19 deferrals continue to decrease from $102.54 million at September 30, 2020 and year-end 2020 of $26.54 million.

Risk Elements

We seek to mitigate credit risk by following specific underwriting practices and by ongoing monitoring of our loan portfolio. Our underwriting practices include the analysis of 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~~Company's loan review function ~~generally analyzes all~~performs an independent credit analysis on a risk-based sample of commercial loan relationships ~~greater than $4.00 million~~ annually, and ~~at various times during the year. Smaller~~performs a qualitative review of a sample of smaller commercial and retail ~~loans are sampled for review during the year.~~loans.

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. Prior to the adoption of ASU 2016-13 ("CECL"), 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.

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

	September 30, 2021			December 31, 2020			September 30, 2020			September 30, 2022			December 31, 2021			September 30, 2021
(Amounts in thousands)
Nonperforming
Nonaccrual loans	$	22,067		$	22,003		$	24,756		$	15,303		$	20,768		$	22,067
Accruing loans past due 90 days or more		5			295			43			131			87			5
TDRs(1)		584			187			456			1,331			1,367			584
Total nonperforming loans		22,656			22,485			25,255			16,765			22,222			22,656
OREO		1,240			2,083			2,103			559			1,015			1,240
Total nonperforming assets	$	23,896		$	24,568		$	27,358		$	17,324		$	23,237		$	23,896


Additional Information
Total Accruing TDRs(2)		8,185			10,248			10,936		$	7,028		$	8,652		$	8,185


Asset Quality Ratios:
Nonperforming loans to total loans		1.05	%		1.03	%		1.15	%		0.71	%		1.03	%		1.05	%
Nonperforming assets to total assets		0.76	%		0.82	%		0.93	%		0.55	%		0.73	%		0.76	%
Allowance for loan losses to nonperforming loans		131.87	%		116.44	%		108.01	%
Allowance for loan losses to total loans		1.39	%		1.20	%		1.24	%
Allowance for credit losses to nonperforming loans											175.29	%		125.36	%		131.87	%
Allowance for credit losses to total loans											1.24	%		1.29	%		1.39	%

(1)	TDRs restructured within the past six months and nonperforming TDRs exclude nonaccrual TDRs of ~~$3.03~~$2.09 million, ~~$1.18~~$1.80 million, and ~~$1.57~~$3.03 million for the periods ended September 30, ~~2021,~~2022, December 31, ~~2020,~~2021, and September 30, ~~2020,~~2021, respectively. They are included in nonaccrual loans.
(2)	Total accruing TDRs exclude nonaccrual TDRs of ~~$3.60~~$1.48 million, ~~$1.81~~$2.52 million, and ~~$2.04~~$3.60 million for the periods ended September 30, ~~2021,~~2022, December 31, ~~2020,~~2021, and September 30, ~~2020,~~2021, respectively. They are included in nonaccrual loans.

Nonperforming assets as of September 30, ~~2021,~~2022, decreased ~~$672 thousand,~~$5.91 million, or ~~2.73%~~25.45%, from December 31, ~~2020, primarily due to a~~2021, with the largest decrease ~~in OREO of $843~~occurring on nonaccrual loans. Nonaccrual loans decreased $5.47 million, or 26.31%, non-performing TDR's decreased $36 thousand, or ~~40.47%~~2.63%, ~~as well as a decrease in loans 90 days past due of $290~~and OREO decreased $456 thousand, or ~~98.30%~~44.93%. ~~These decreases were offset by an increase in non-performing TDRs of $397 thousand.~~ As of September 30, ~~2021,~~2022, nonaccrual loans were largely attributed to single family owner occupied ~~(41.17%~~(55%), non-farm, non-residential ~~(25.95%~~(14.85%), and ~~single family non-owner occupied~~consumer loans ~~(12.50%~~(12.72%). 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.

Delinquent loans, comprised of loans 30 days or more past due and nonaccrual loans, totaled ~~$31.36~~$27.41 million as of September 30, ~~2021,~~2022, a decrease of ~~$4.76~~$5.70 million, or ~~13.19%~~17.21%, compared to ~~$36.12~~$33.10 million as of December 31, ~~2020.~~2021. Delinquent loans as a percent of total loans totaled ~~1.46%~~1.16% as of September 30, ~~2021,~~2022, which includes past due loans ~~(0.43%~~(0.51%) and nonaccrual loans ~~(1.03%~~(0.65%).

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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 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 30, ~~2021,~~2022, decreased ~~$2.06~~$1.62 million, or ~~20.13%~~18.77%, to ~~$8.19~~$7.03 million from December 31, ~~2020.~~2021. Unseasoned, or loans restructured within the last six months, and nonperforming accruing TDRs as of September 30, ~~2021, increased $397~~2022, decreased $36 thousand compared to December 31, ~~2020.~~2021. Unseasoned and nonperforming accruing TDRs as a percent of total accruing TDRs totaled ~~7.14%~~18.94% as of September 30, ~~2021,~~2022, compared to ~~1.82%~~15.81% as of December 31, ~~2020.~~2021. There ~~was $154 thousand in~~were no specific reserves related to TDRs as of September 30, ~~2021, compared to $353 thousand as of~~2022, or December 31, ~~2020.~~2021.

The CARES Act included a provision allowing banks to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020, and the earlier of (i) December 31, 2021, or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt this provision of the CARES Act.

Through September 30, 2021 we had modified a total of 3,958 loans for $472.43 million related to COVID-19 relief. Those modifications were generally short-term payment deferrals and are not considered TDRs based on the CARES Act. Our policy is to downgrade commercial loans modified for COVID-19 to special mention, which caused the significant increase in loans in that rating. Subsequent upgrade or downgrade will be on a case by case basis. The Company has upgraded these loans back to pass once the modification period has ended and timely contractual payments resume. Further downgrade would be based on a number of factors, including but not limited to additional modifications, payment performance and current underwriting. As of September 30, 2021, current COVID-19 loan deferrals stood at $4.71 million, down significantly from $115.63 million at September 30, 2020, and from $32.26 million at December 31, 2020.

OREO, which is carried at the lesser of estimated net realizable value or cost, decreased ~~$843~~$456 thousand, or ~~40.47%~~44.93%, as of September 30, ~~2021,~~2022, compared to December 31, ~~2020,~~2021, and consisted of 1710 properties with an average holding period of approximately 12 months. The net loss on the sale of OREO totaled ~~$135~~$422 thousand for the nine months ended September 30, ~~2021,~~2022, compared to ~~a net loss of $296~~$135 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,
							Nine Months Ended September 30,
	2021			2020			2022			2021
(Amounts in thousands)
Beginning balance	$	2,083		$	3,969		$	1,015		$	2,083
Additions		1,147			695			438			1,147
Disposals		(1,738	)		(2,139	)		(442	)		(1,738	)
Valuation adjustments		(252	)		(422	)		(452	)		(252	)
Ending balance	$	1,240		$	2,103		$	559		$	1,240

Allowance for Credit Losses

The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s measurement of credit losses policy adheres to GAAP as well as interagency guidance. The Company's ACL is calculated using collectively evaluated and individually evaluated loans.

For collectively evaluated loans, the Company in general uses two modeling approaches to estimate expected credit losses. The Company projects the contractual run-off of its portfolio at the segment level and incorporates a prepayment assumption in order to estimate exposure at default. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

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Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework. For further discussion of our Allowance for Credit Losses - See Note 1 - "Basis of Presentation - Significant Accounting Policies".

With the adoption of ASU 2016-13 effective January 1, 2021, the Company changed its method for calculating it allowance for loans from an incurred loss method to a life of loan method. See Note 1 – "Basis of Presentation - Significant Accounting Policies" for further details. As of September 30, ~~2021,~~2022, the balance of the ACL for loans was ~~$29.88~~$29.39 million, or ~~1.39%~~1.24% of total loans. The ACL at September 30, ~~2021,~~2022, increased ~~$5.68~~$1.53 million from the balance of ~~$26.18~~$27.86 million recorded ~~before the adoption of the new standard on January 1,~~at December 31, 2021. This increase included a ~~$13.11~~$3.16 million ~~cumulative adjustment for the adoption of ASU 2016-13~~provision offset by ~~a reversal of provision of $7.63 million and~~ net charge-offs for the nine months of ~~$1.79~~$1.63 million. The ~~reversal~~provision was primarily driven by loan growth in ~~provision for both~~ the ~~three months and~~first nine months ~~ended September 30, 2021, was due to significantly improved economic forecasts for unemployment, GDP growth, and home prices from those used at year-end 2020.~~of 2022.

At September 30, ~~2021,~~2022, the Company also had an allowance for unfunded commitments of ~~$678 thousand~~$1.42 million which was recorded in Other Liabilities on the Balance Sheet. ~~With~~During the ~~adoption~~first nine months of ~~ASU 2016-13 effective January 1, 2021, the Company increased its allowance for credit losses on unfunded commitments by $509 thousand. During 2020,~~2022, the provision for credit losses on unfunded commitments was ~~$66~~$737 thousand ~~which was~~compared to a provision of $102 thousand recorded in the ~~provision for credit losses on the Statement~~same period of ~~Income. The Company did not have an allowance for credit losses or record a provision for credit losses on investment securities or other financial assets during~~ 2021.

~~The following table presents the changes in the allowance for credit losses for loans during the periods indicated:~~

Three Months Ended September 30,

2021

2020

(Amounts in thousands)

Beginning balance
$ 31,857 $ 23,758
Provision for (recovery of) loan losses charged to operations
(1,394 ) 4,703
Charge-offs
(1,255 ) (1,563 )
Recoveries
669 379
Net charge-offs
(586 ) (1,184 )
Ending balance
$ 29,877 $ 27,277

Nine Months Ended September 30,

2021

2020

(Amounts in thousands)

Beginning balance
$ 26,182 $ 18,425
Cumulative effect of adoption of ASU 2016-13
13,107 -
Provision for (recovery of) loan losses charged to operations
(7,625 ) 12,034
Charge-offs
(4,887 ) (4,429 )
Recoveries
3,100 1,247
Net charge-offs
(1,787 ) (3,182 )
Ending balance
$ 29,877 $ 27,277

Deposits

Total deposits as of September 30, ~~2021, increased $127.60~~2022, decreased $19.17 million, or ~~5.01%~~0.70%, compared to December 31, ~~2020.~~2021. Total deposits divested in the Emporia Branch Sale to Benchmark totaled $61.05 million. The divested deposits were composed of $18.38 million in demand, $28.46 million in interest-bearing demand, $11.52 million in savings, and $2.69 million in time deposits. Excluding the effect of the branch sale, deposits increased $41.88 million. The increase was largely attributable to ~~savings and interest-bearing~~an increase in non-interest bearing demand ~~deposits which increased $76.82~~of $54.02 million, or ~~10.18%~~6.41%, and ~~$52.46~~an increase in savings of $24.87 million, or ~~8.77%, respectively. Noninterest-bearing~~2.91%. Interest-bearing demand deposits also reflected growth with an increase of ~~$47.35~~$10.42 million, or ~~6.13%~~1.54%. These increases were offset by a decrease in time deposits of ~~$49.03~~$47.43 million, or ~~11.66%~~13.37%. ~~We attribute a significant amount of the increase in deposits to the unprecedented level of federal government stimulus during the first quarter of 2021.~~

Borrowings

Total borrowings in the form of retail repurchase agreements as of September 30, ~~2021,~~2022, increased ~~$142~~$422 thousand, or ~~14.73%~~27.47%, compared to December 31, ~~2020.~~2021.

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.

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As a financial holding company, the Company’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 30, ~~2021,~~2022, the Company’s cash reserves and short-term investment securities totaled ~~$11.49 million.~~$10.54 million and $43.32 million, respectively. The Company’s cash reserves and investments provide adequate working capital to meet obligations 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 30, ~~2021,~~2022, our unencumbered cash totaled ~~$635.01~~$229.10 million, unused borrowing capacity from the FHLB totaled ~~$291.99~~$422.61 million, available credit from the FRB Discount Window totaled $6.08 million, available lines from correspondent banks totaled $90.00 million, and unpledged available-for-sale securities totaled ~~$53.63~~$271.80 million.

~~Cash Flows~~

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

Nine Months Ended September 30,

2021

2020

(Amounts in thousands)

Net cash provided by operating activities
$ 36,593 $ 32,028
Net cash provided by investing activities
48,722 304
Net cash provided by (used in) financing activities
93,131 126,323
Net increase in cash and cash equivalents
178,446 158,655
Cash and cash equivalents, beginning balance
456,561 217,009
Cash and cash equivalents, ending balance
$ 635,007 $ 375,664

Cash and cash equivalents increased $178.45 million for the nine months ended September 30, 2021, compared to an increase of $158.66 million for the same period of the prior year. The increase in cash and cash equivalents for the nine month period was due largely to proceeds received from the SBA for debt forgiveness for loans originated through the Small Business Administration's Paycheck Protection Lending program.

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’ equity as of September 30, ~~2021, increased $634 thousand,~~2022, decreased $15.52 million, or ~~0.15%~~3.63%, to ~~$427.36~~$412.26 million from ~~$426.73~~$427.78 million as of December 31, ~~2020.~~2021. The change in stockholders’ equity was largely due to net income of ~~$40.61~~$34.08 million offset by other comprehensive loss of $17.48 million, the repurchase of ~~726,686~~650,907 shares of our common stock totaling ~~$21.43~~$19.42 million, and dividends declared on our common stock of ~~$13.47 million and by the cumulative effect adjustment resulting from the adoption of ASU 2016-13 of $5.87 million, net of tax.~~$13.81 million. In accordance with current regulatory guidelines, accumulated other comprehensive income/(loss) is largely excluded from stockholders’ equity in the calculation of our capital ratios. Our book value per common share ~~increased $0.95,~~decreased $0.01, or ~~3.95%~~0.04%, to ~~$25.03~~$25.33 as of September 30, ~~2021,~~2022, from ~~$24.08~~$25.34 as of December 31, ~~2020.~~2021.

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 are based on the international capital standards known as Basel III. A description of the Basel III capital rules is included in Part I, Item 1 of the ~~2020~~2021 Form 10-K. Our current required capital ratios are as follows:

●

4.5% Common Equity Tier 1 capital to risk-weighted assets (effectively 7.00% including the capital conservation buffer)

●

6.0% Tier 1 capital to risk-weighted assets (effectively 8.50% including the capital conservation buffer)

●

8.0% Total capital to risk-weighted assets (effectively 10.50% 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, 2021		December 31, 2020		September 30, 2022		December 31, 2021
	Company	Bank	Company	Bank	Company	Bank	Company	Bank

Common equity Tier 1 ratio	14.57%	13.55%	14.28%	13.57%	13.09%	11.70%	14.39%	13.37%
Tier 1 risk-based capital ratio	14.57%	13.55%	14.28%	13.57%	13.09%	11.70%	14.39%	13.37%
Total risk-based capital ratio	15.82%	14.80%	15.53%	14.82%	14.34%	12.95%	15.65%	14.62%
Tier 1 leverage ratio	9.78%	9.10%	10.24%	9.73%	9.53%	8.53%	9.65%	8.94%

Our risk-based capital ratios as of September 30, ~~2021, increased~~2022, decreased from December 31, ~~2020,~~2021, due to ~~a decrease~~an increase in our risk-weighted assets. The ~~decrease~~increase in risk-weighted assets was primarily due to the ~~decrease~~increase in total loans as well as an increase in available for sale debt securities from year-end ~~2020.~~2021. As of September 30, ~~2021,~~2022, 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 as of September 30, ~~2021.~~2022.

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

	September 30, 2021		December 31, 2020		September 30, 2022		December 31, 2021
(Amounts in thousands)
Commitments to extend credit	$	270,105	$	229,408	$	302,765	$	272,447
Standby letters of credit and financial guarantees (1)		154,610		179,022		129,527		153,717
Total off-balance sheet risk	$	424,715	$	408,430	$	432,292	$	426,164

Allowance for unfunded commitments	$	678	$	66	$	1,416	$	678

(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.

In order to manage our exposure to interest rate risk, we periodically review internal simulation and 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.

As of September 30, ~~2021,~~2022, the Federal Open Market Committee had set the benchmark federal funds rate to a range of 0300 to 25325 basis points. ~~Given the current~~The level of benchmark interest rates at year-end 2021, rendered a complete downward shock of 100 and 200 basis points ~~is rendered~~ meaningless; accordingly, a downward rate scenario is only presented for the ~~prior year end.~~current period. In the downward rate ~~shocks~~shock presented, benchmark interest rates were assumed at levels with floors near 0%. 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.

	September 30, 2021					December 31, 2020
	Change in		Percent			Change in		Percent			September 30, 2022						December 31, 2021
Increase (Decrease) in Basis Points	Net Interest Income		Change			Net Interest Income		Change			Change in Net Interest Income			Percent Change			Change in Net Interest Income		Percent Change
(Dollars in thousands)
300	$	14,776		15.15	%	$	8,429		8.50	%	$	2,858			2.44	%	$	14,960		14.90	%
200		10,140		10.40	%		5,912		6.00	%		1,859			1.59	%		10,303		10.30	%
100		5,557		5.70	%		3,130		3.20	%		1,062			0.91	%		5,502		5.50	%
(100)												(6,709	)		-5.72	%		N/A		N/A
(200)												(14,486	)		-12.36	%		N/A		N/A

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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’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.

Astronomic federal government spending, growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications, have contributed to rising inflation. In response, the Federal Reserve Bank has begun raising interest rates and signaled that it will continue to raise rates, taper its purchase of mortgage and other bonds and reduce the size of the balance sheet over time. The ~~U.S.~~timing and impact of inflation ~~rate continues~~and rising interest rates on our business and related financial results will depend on future developments, which are highly uncertain and difficult to ~~be relatively stable, and management believes that any changes in inflation will not be material to our financial performance.~~predict.

In anticipation of the potential discontinuance of the London Interbank Offered Rate (LIBOR) ~~at the end of 2021,~~in 2023, the Company has developed a LIBOR transition plan. In 2018, the Company discontinued the use of LIBOR as a reference rate in new loan originations. Additionally, the Company has the ability to substitute an alternative referenced rate for most adjustable rate loans originated prior to 2018.

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 2 of this ~~report.~~Quarterly Report on Form 10-Q.

Item 4.

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 30, ~~2021,~~2022, our disclosure controls and procedures were effective.

Disclosure controls and procedures are our Company’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.

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’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 30, ~~2021,~~2022, 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.

ITEM 1A.

Risk Factors

The risk factors set forth in our annual report on Form 10-K for the year ended December 31, ~~2020,~~2021, 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. Individuals should carefully consider our risk factors and information included in our annual report on Form 10-K for the year ended December 31, ~~2020~~2021 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, such 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 annual report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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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 ~~277,386~~235,400 shares of our common stock during the third quarter of ~~2021. No~~2022 compared to 277,386 shares ~~of our common stock were~~ purchased during the same quarter of ~~2020.~~2021.

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

July 1-31, 2021
50,800 $ 29.28 1,487,211.06 1,950,700
August 1-31, 2021
108,700 31.21 3,392,651.12 1,842,000
September 1-30, 2021
117,886 30.41 3,584,804.76 1,724,114
Total
277,386 $ 30.52 8,464,666.94

	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

July 1-31, 2022		89,700	$	29.85		89,700		945,407
August 1-31, 2022		76,400		32.46		76,400		869,007
September 1-30, 2022		69,300		32.12		69,300		799,707
Total		235,400	$	31.36		235,400

ITEM 3.

Defaults Upon Senior Securities

None.

ITEM 4.

Mine Safety Disclosures

None.

ITEM 5.

Other Information

On November 3, 2021, the Compensation and Retirement Committee (the “CRC”) of the Board of Directors of First Community Bankshares, Inc. (the “Company”) approved the exchange of certain unvested restricted stock awards granted under Restricted Stock Grant Agreements dated as of March 19, 2021 (the “Restricted Stock Grant Agreements”) between the Company and certain officers and directors, including each of William P. Stafford, II, Gary R. Mills, David D. Brown, Jason R. Belcher, and Sarah W. Harmon (the “Named Executive Officers”), for unvested stock options of equivalent value. As proposed, each of the unvested restricted share awards will be exchanged for 4.1931 unvested stock options, each with an exercise price equal to the greater of $33.00 or the closing price of a share of the Company's stock on the trading day before the date of grant. These stock options will vest over a period of three years.

The directors and all members of management, including the Named Executive Officers, will remain subject to any sale restrictions in respect of prior stock grant agreements, as well as the Company’s Stock Ownership Policy. Under this policy, Messrs. Stafford and Mills must each own stock with a market value of at least 3.5 times his base compensation. Messrs. Brown and Belcher, and Ms. Harmon must each own shares with a market value of 2.5 times his or her base compensation. The proposed exchange of restricted shares awards for stock options is subject to the consent of the individuals who received the restricted share awards.

~~Table of Contents~~

The CRC elected to approve the aforesaid exchange of the unvested restricted stock awards for unvested stock options after the Company initiated a review of its restricted stock awards under the 2012 Omnibus Equity Compensation Plan (the “2012 Plan”) in response to a shareholder demand letter received in June, 2021. The shareholder demand letter alleges that, although the Company complied with the overall share issuance limit in the 2012 Plan, grants of restricted stock and performance awards prior to 2021 allegedly exceeded a sub-limit in the 2012 Plan that limited the award of certain forms of restricted stock, restricted stock units, or performance awards to 300,000 shares. The Company disagrees with that assertion. Nevertheless, the CRC took the above-described actions prior to vesting of the restricted share awards in order to ensure that the Company remained in compliance with the referenced sublimit during 2021.

The following table sets forth the number of restricted stock awards and performance awards granted by the Company prior to 2021 and granted by the Company in 2021 following the exchange, and the aggregate number of awards granted under the 2012 Plan.

Restricted

Performance

Unrestricted

Stock Awards

Awards

Stock Awards

Summary of awards at the end of 2020

Awards granted under the 2012 Plan prior to December 31, 2020
241,424 80,872 36,420 ⁽¹⁾
Forfeited awards
(7,040 ) (6,730 ) -
Cancelled awards
- (9,848 ) -
Net awards under the 2012 Plan prior to December 31, 2020
234,384 64,294 36,420

Summary of 2021 awards

Awards granted in 2021
3,941 ⁽²⁾ - 10,816
Forfeited awards
(2,650 ) - -
Net awards granted in 2021 under the 2012 Plan
1,291 - 10,816

Total awards under the 2012 Plan
235,675 64,294 47,236

~~(1) These shares were referred to inadvertently as restricted shares in certain prior disclosures, including the Company’s Form 10-K for the year ended December 31, 2020.~~

(2) Excludes the above-described 31,291 shares of unvested restricted stock awards which were exchanged for stock options and 7,254 shares of unvested restricted stock awards originally awarded to non-executive employees. On November 3, 2021 the CRC approved the amendment of each Restricted Stock Grant Agreement entered into in 2021 between the Company and these non-executive employees to fully vest the awards under those Restricted Stock Agreements totaling 7,254 shares and to eliminate a provision requiring that those shares be held, unencumbered, for five years after vesting. These proposed changes to the Restricted Stock Grant Agreements are subject to the consent of each non-executive employee who received the awards.

During 2021, the CRC retained a compensation consultant. This engagement includes a review of the 2012 Plan and assistance in developing a new Omnibus Equity Compensation Plan to replace the 2012 Plan, which expires in 2022. As part of that review, the compensation consultant is reviewing the Company’s compensation practices and policies. Any changes to the Company’s compensation practices or policies will be discussed in the Compensation Discussion and Analysis section of the Company’s 2022 Annual Meeting Proxy Statement. At the 2022 Annual Meeting, the Company intends to request approval of a new Omnibus Equity Compensation Plan to replace the expiring 2012 Plan.

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ITEM 6.

Exhibits

2.1	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
2.2	Agreement and Plan of Merger between First Community Bankshares, Inc. and Highlands Bankshares, Inc., incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K dated and filed September 11, 2019
3.1	Articles of Incorporation of First Community Bankshares, Inc., incorporated by reference to Appendix B of the Definitive Proxy Statement on Form DEF 14A dated April 24, 2018, filed on March 13, 2018
3.2	Bylaws of First Community Bankshares, Inc., incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K dated and filed October 2, 2018
4.1	Description of First Community Bankshares, Inc. Common Stock, incorporated by reference to Exhibit 4.1 of the Current Report on Form 8-K dated and filed October 2, 2018
4.2	Form of First Community Bankshares, Inc. Common Stock Certificate, incorporated by reference to Exhibit 4.2 of the Current Report on Form 8-K dated and filed October 2, 2018
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. 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 13, 2002
10.3**	First Community Bancshares, Inc. 2001 Nonqualified Director Stock Option 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 Report 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 April 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
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;
10.9.2**	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 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

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10.9.4**	Amendment #3 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 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
10.9.6*	Amendment #5 to the First Community Bancshares, Inc. and Affiliates Executive Retention Plan.
10.9.7*	Amendment #6 to the First Community Bancshares, Inc. and Affiliates Executive Retention Plan.
10.10**	Amended and Restated Deferred Compensation Plan for Directors of First Community Bancshares, Inc. and Affiliates, incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K dated December 16, 2019, filed on December 19,2019
10.11.1**	First Community Bancshares, Inc. Amended and 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 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 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 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
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 Act of 2002

101***

Interactive data files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets as of September 30, ~~2021,~~2022, (Unaudited) and December 31, ~~2020;~~2021; (ii) Condensed Consolidated Statements of Income (Unaudited) for the three and nine months ended September 30, ~~2021~~2022 and ~~2020;~~2021; (iii) Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three and nine months ended September 30, ~~2021~~2022 and ~~2020;~~2021; (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, ~~2021~~2022 and ~~2020;~~2021; (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, ~~2021~~2022 and ~~2020;~~2021; and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).

104*

The cover page of First Community Bankshares, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021,~~2022, formatted in Inline XBRL (included within the Exhibit 101 attachments).

*	Filed herewith
**	Indicates a management contract or compensation plan or 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 ~~9th~~8th day of November, ~~2021.~~2022.

		First Community 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)

5853

(Former name, former address and former fiscal year, if changed since last report)

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

FIRST COMMUNITY BANKSHARES, INC.
FORM 10-Q
INDEX

PART I.	FINANCIAL INFORMATION		Page

Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets as of September 30, ~~2021~~2022 (Unaudited) and December 31, ~~2020~~2021	4
		Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	5
		Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	6
		Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	7
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	9
		Notes to Condensed Consolidated Financial Statements (Unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3734
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		5349
Item 4.	Controls and Procedures		5349

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		5349
Item 1A.	Risk Factors		5349
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5450
Item 3.	Defaults Upon Senior Securities		5450
Item 4.	Mine Safety Disclosures		5450
Item 5.	Other Information		5450
Item 6.	Exhibits		5651

Signatures			5853

	*September 30,*			*December 31,*			*September 30,*			*December 31,*
	*2021*			2020⁽¹⁾			*2022*			2021⁽¹⁾
(Amounts in thousands, except share and per share data)	(Unaudited)						(Unaudited)
Assets
Cash and due from banks	$	49,367		$	58,404		$	54,795		$	47,067
Federal funds sold		582,285			395,756			172,141			627,036
Interest-bearing deposits in banks		3,355			2,401			2,159			3,336
Total cash and cash equivalents		635,007			456,561			229,095			677,439
Debt securities available for sale		77,440			83,358			299,620			76,292
Loans held for investment, net of unearned income (includes covered loans of $9,680, December 31, 2020) ⁽²⁾		2,152,103			2,186,632
Loans held for investment, net of unearned income								2,362,733			2,165,569
Allowance for credit losses ⁽³⁾		(29,877	)		(26,182	)		(29,388	)		(27,858	)
Loans held for investment, net		2,122,226			2,160,450			2,333,345			2,137,711
Premises and equipment, net		52,842			57,700			47,891			52,284
Other real estate owned		1,240			2,083			559			1,015
Interest receivable		8,146			9,052			8,345			7,900
Goodwill		129,565			129,565			129,565			129,565
Other intangible assets		5,987			7,069			4,541			5,622
Other assets		107,258			105,298			107,838			106,691
Total assets	$	3,139,711		$	3,011,136		$	3,160,799		$	3,194,519

Liabilities
Deposits
Noninterest-bearing	$	820,147		$	772,795		$	878,423		$	842,783
Interest-bearing		1,853,699			1,773,452			1,831,798			1,886,608
Total deposits		2,673,846			2,546,247			2,710,221			2,729,391
Securities sold under agreements to repurchase		1,106			964			1,958			1,536
Interest, taxes, and other liabilities		37,395			37,195			36,362			35,817
Total liabilities		2,712,347			2,584,406			2,748,541			2,766,744

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		0			0			-			-
Common stock, $1 par value; 50,000,000 shares authorized; 24,134,311 shares issued and 17,071,052 outstanding at September 30, 2021; 24,319,076 shares issued and 17,722,507 outstanding at December 31, 2020		17,071			17,723
Common stock, $1 par value; 50,000,000 shares authorized; 23,412,168 shares issued and 16,273,177 outstanding at September 30, 2022; 23,971,347 shares issued and 16,878,220 outstanding at December 31, 2021								16,273			16,878
Additional paid-in capital		154,086			173,345			129,914			147,619
Retained earnings		258,860			237,585			285,096			264,824
Accumulated other comprehensive loss		(2,653	)		(1,923	)		(19,025	)		(1,546	)
Total stockholders' equity		427,364			426,730			412,258			427,775
Total liabilities and stockholders' equity	$	3,139,711		$	3,011,136		$	3,160,799		$	3,194,519

(1) Derived from audited financial statements
~~(2) Effective September 28, 2021, the Company terminated its remaining loss share agreement with the FDIC. The termination eliminates the FDIC guarantee on particular loan losses.~~
~~(3) Effective January 1, 2021, the Company adopted the current expected credit loss methodology ("CECL"), prior to January 1, 2021, the Company utilized the incurred credit loss methodology.~~
See Notes to Condensed Consolidated Financial Statements.

	*Three Months Ended*						*Nine Months Ended*						*Three Months Ended*						*Nine Months Ended*
	*September 30,*						*September 30,*						*September 30,*						*September 30,*
	*2021*			*2020*			*2021*			*2020*			*2022*			*2021*			*2022*			*2021*
(Amounts in thousands)
Net income	$	12,608		$	8,266		$	40,613		$	24,376		$	13,351		$	12,608		$	34,079		$	40,613
Other comprehensive income, before tax
Available-for-sale debt securities:
Change in net unrealized (losses) gains on debt securities without other-than-temporary impairment		(207	)		(268	)		(1,007	)		873
Reclassification adjustment for net (gains) recognized in net income		0			0			0			(385	)
Net unrealized (losses) gains on available-for-sale debt securities		(207	)		(268	)		(1,007	)		488
Net unrealized losses on available-for-sale debt securities														(9,355	)		(207	)		(21,802	)		(1,007	)
Employee benefit plans:
Net actuarial (loss)		0			(1	)		(206	)		(446	)
Net actuarial loss														(1	)		-			(424	)		(206	)
Reclassification adjustment for amortization of prior service cost and net actuarial loss recognized in net income		96			97			289			290			34			96			101			289
Net unrealized gains (losses) on employee benefit plans		96			96			83			(156	)		33			96			(323	)		83
Other comprehensive (loss) income, before tax		(111	)		(172	)		(924	)		332
Income tax (benefit) expense		(23	)		(36	)		(194	)		70
Other comprehensive (loss) income, net of tax		(88	)		(136	)		(730	)		262
Other comprehensive loss, before tax														(9,322	)		(111	)		(22,125	)		(924	)
Income tax benefit														(1,957	)		(23	)		(4,646	)		(194	)
Other comprehensive loss, net of tax														(7,365	)		(88	)		(17,479	)		(730	)
Total comprehensive income	$	12,520		$	8,130		$	39,883		$	24,638		$	5,986		$	12,520		$	16,600		$	39,883

	●	the cost and effects of cyber incidents or other failures, interruptions, or security breaches of our systems or those of third-party providers;
	●	the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;

												*Accumulated*
						*Additional*						*Other*
(Amounts in thousands,	*Preferred*		*Common*			*Paid-in*			*Retained*			*Comprehensive*
except share and per share data)	*Stock*		*Stock*			*Capital*			*Earnings*			*Income (Loss)*			*Total*

Balance July, 1 2020	$	0	$	17,710		$	172,601		$	226,627		$	(1,108	)	$	415,830
Net income		0		0			0			8,266			0			8,266
Other comprehensive income		0		0			0			0			(136	)		(136	)
Common dividends declared -- $0.25 per share		0		0			0			(4,429	)		0			(4,429	)
Equity-based compensation expense		0		1			262			0			0			263
Issuance of common stock to 401(k) plan -- 6,237 shares		0		6			117			0			0			123
Balance September 30, 2020	$	0	$	17,717		$	172,980		$	230,464		$	(1,244	)	$	419,917

Balance July, 1 2021	$	0	$	17,335		$	161,853		$	250,911		$	(2,565	)	$	427,534
Net income		0		0			0			12,608			0			12,608
Other comprehensive income		0		0			0			0			(88	)		(88	)
Common dividends declared -- $0.27 per share		0		0			0			(4,659	)		0			(4,659	)
Equity-based compensation expense		0		0			37			0			0			37
Common stock options exercised -- 9,371 shares		0		10			268			0			0			278
Issuance of common stock to 401(k) plan -- 3,967 shares		0		4			116			0			0			120
Repurchase of common shares -- 277,386 shares at $30.52 per share		0		(278	)		(8,188	)		0			0			(8,466	)
Balance September 30, 2021	$	0	$	17,071		$	154,086		$	258,860		$	(2,653	)	$	427,364

	*January 1, 2021*										*January 1, 2021*
	*As Reported*			*Pre-*			*Impact of*				*As Reported*			*Pre-*			*Impact of*
	*Under*			*ASU 2016-13*			*ASU 2016-13*				*Under*			*ASU 2016-13*			*ASU 2016-13*
	*ASU 2016-13*			*Adoption*			*Adoption*				*ASU 2016-13*			*Adoption*			*Adoption*


Assets:
Non-covered loans held for investment
Allowance for credit losses on debt securities
Investment securities - available for sale	$	83,358		$	83,358		$	0		A	$	83,358		$	83,358		$	-		A
Loans
Non-acquired loans and acquired performing loans		2,146,972			2,146,972			0				2,146,972			2,146,972			-
Acquired purchased deteriorated loans		45,535			39,660			5,875		B		45,535			39,660			5,875		B
Allowance for credit losses on loans		(39,289	)		(26,182	)		(13,107	)	C		(39,289	)		(26,182	)		(13,107	)	C
Deferred tax asset		19,306			17,493			1,813		D		19,306			17,493			1,813		D
Accrued interest receivable - loans		9,109			9,052			57		B		9,109			9,052			57		B

Liabilities
Allowance for credit losses on off-balance sheet
credit exposures		575			66			509		E
Allowance for credit losses on off-balance sheet credit exposures												575			66			509		E

Equity:
Retained earnings		231,714			237,585			(5,871	)	F		231,714			237,585			(5,871	)	F

A.	Per our analysis no ACL was necessary for investment securities available-for-sale.
B.	Accrued interest receivable from acquired credit impaired loans of $57 thousand was reclassed to other assets and was offset by the reclass of the grossed up credit discount on acquired credit impaired loans of $57 thousand that was moved to the ACL for the purchased credit deteriorated loans.
C.	Calculated adjustment to the ACL related to the adoption of ASU 2016-13. Includes additional reserve related to purchased deteriorated loans of $5.88 million.
D.	Effect of deferred tax assets related to the adjustment to the ACL form the adoption of ASU 2016-13 using a 23.37% tax rate.
E.	Adjustment to the reserve for unfunded commitments related to the adoption of ASU 2016-13.
F.	Net adjustment to retained earnings related to the adoption of ASU 2016-13.

	*September 30, 2021*									*September 30, 2022*
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*		*Amortized*		*Unrealized*		*Unrealized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*		*Cost*		*Gains*		*Losses*			*Value*
(Amounts in thousands)
U.S. Agency securities	$	491	$	0	$	(3	)	$	488	$	1,500	$	-	$	(12	)	$	1,488
U.S. Treasury Notes											160,935		-		(4,475	)		156,460
Municipal securities		31,866		240		0			32,106		23,523		9		(471	)		23,061
Corporate notes		4,883		0		(3	)		4,880		37,056		-		(2,537	)		34,519
Mortgage-backed Agency securities		39,808		743		(585	)		39,966
Agency mortgage-backed securities											98,389		1		(14,298	)		84,092
Total	$	77,048	$	983	$	(591	)	$	77,440	$	321,403	$	10	$	(21,793	)	$	299,620

	*December 31, 2020*									*December 31, 2021*
	*Amortized*		*Unrealized*		*Unrealized*			*Fair*		*Amortized*		*Unrealized*		*Unrealized*			*Fair*
	*Cost*		*Gains*		*Losses*			*Value*		*Cost*		*Gains*		*Losses*			*Value*
(Amounts in thousands)
U.S. Agency securities	$	555	$	0	$	(4	)	$	551	$	469	$	—	$	(3	)	$	466
Municipal securities		43,950		509		0			44,459		28,596		198		—			28,794
Mortgage-backed Agency securities		37,453		992		(97	)		38,348
Corporate notes											9,935		—		(16	)		9,919
Agency mortgage-backed securities											37,273		513		(673	)		37,113
Total	$	81,958	$	1,501	$	(101	)	$	83,358	$	76,273	$	711	$	(692	)	$	76,292

	*September 30, 2021*
	*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	$	0	$	0		$	480	$	(3	)	$	480	$	(3	)
Corporate notes		4,880		(3	)		0		0			4,880		(3	)
Mortgage-backed Agency securities		16,792		(493	)		2,017		(92	)		18,809		(585	)
Total	$	21,672	$	(496	)	$	2,497	$	(95	)	$	24,169	$	(591	)

	*December 31, 2020*
	*Recorded*		*Unpaid Principal*
(Amounts in thousands)	*Investment*		*Balance*
PCI Loans, by acquisition
Peoples	$	0	$	0
Waccamaw		0		0
Highlands		39,662		47,514
Other acquired		0		0
Total PCI Loans	$	39,662	$	47,514

	*Peoples*			*Waccamaw*			*Highlands*			*Total*
(Amounts in thousands)
Balance January 1, 2020	$	1,890		$	12,574		$	8,152		$	22,616
Accretion		0			0			(1,952	)		(1,952	)
Reclassifications (to) from nonaccretable difference⁽¹⁾		0			0			0			0
Other changes, net		(1,890	)		(12,574	)		0			(14,464	)
Balance September 30, 2020	$	0		$	0		$	6,200		$	6,200

	*September 30, 2021*												*September 30, 2022*
			*Special*												*Special*
(Amounts in thousands)	*Pass*		*Mention*		*Substandard*		*Doubtful*		*Loss*		*Total*		*Pass*		*Mention*		*Substandard*		*Doubtful*		*Loss*		*Total*
Commercial loans
Construction, development, and other land	$	54,228	$	1,151	$	1,087	$	0	$	0	$	56,466	$	107,937	$	757	$	410	$	-	$	-	$	109,104
Commercial and industrial		127,972		1,270		4,681		0		0		133,923		145,064		1,084		1,876		-		-		148,024
Multi-family residential		92,782		6,115		1,547		0		0		100,444		130,970		4,081		438		-		-		135,489
Single family non-owner occupied		182,006		4,931		9,999		10		0		196,946		185,415		2,358		8,360		-		-		196,133
Non-farm, non-residential		653,550		39,020		19,291		0		0		711,861		749,705		16,206		11,439		-		-		777,350
Agricultural		9,006		149		629		0		0		9,784		10,324		51		162		-		-		10,537
Farmland		13,032		1,069		3,513		0		0		17,614		9,909		589		1,629		-		-		12,127
Consumer real estate loans
Home equity lines		78,975		1,049		3,055		0		0		83,079		74,067		430		2,927		-		-		77,424
Single family owner occupied		650,705		2,535		31,690		0		0		684,930		697,976		2,022		26,782		-		-		726,780
Owner occupied construction		25,268		0		283		0		0		25,551		14,438		-		164		-		-		14,602
Consumer and other loans
Consumer loans		124,805		17		1,756		0		0		126,578		148,436		10		2,576		-		-		151,022
Other		4,927		0		0		0		0		4,927		4,141		-		-		-		-		4,141
Total loans	$	2,017,256	$	57,306	$	77,531	$	10	$	0	$	2,152,103	$	2,278,382	$	27,588	$	56,763	$	-	$	-	$	2,362,733

(Amounts in thousands)	*Term Loans Amortized Cost Basis by Origination Year*																Term Loans Amortized Cost Basis by Origination Year
Balance at September 30, 2021	*2021*		*2020*		*2019*		*2018*		*2017*		*Prior*		*Revolving*		*Total*
Construction, development
and other land
Balance at September 30, 2022																	2022		2021		2020		2019		2018		Prior		Revolving		Total
Construction, development and other land
Pass	$	28,542	$	9,501	$	3,687	$	3,908	$	1,564	$	6,672	$	354	$	54,228	$	39,902	$	45,588	$	8,631	$	3,144	$	2,724	$	7,594	$	354	$	107,937
Special Mention		0		245		0		136		684		50		36		1,151		-		156		-		-		102		463		36		757
Substandard		0		0		129		11		281		666		0		1,087		-		-		362		36		12		-		-		410
Doubtful		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Loss		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Total construction, development, and other land	$	28,542	$	9,746	$	3,816	$	4,055	$	2,529	$	7,388	$	390	$	56,466	$	39,902	$	45,744	$	8,993	$	3,180	$	2,838	$	8,057	$	390	$	109,104
Commercial and industrial
Pass	$	23,780	$	21,186	$	15,178	$	15,115	$	5,599	$	3,641	$	16,543	$	101,042	$	60,771	$	26,011	$	13,335	$	8,824	$	9,815	$	9,764	$	16,544	$	145,064
Special Mention		32		165		653		209		86		30		95		1,270		234		22		28		524		179		-		97		1,084
Substandard		187		196		833		390		1,242		1,316		517		4,681		147		122		122		425		212		330		518		1,876
Doubtful		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Loss		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Total commercial and industrial	$	23,999	$	21,547	$	16,664	$	15,714	$	6,927	$	4,987	$	17,155	$	106,993	$	61,152	$	26,155	$	13,485	$	9,773	$	10,206	$	10,094	$	17,159	$	148,024
Paycheck Protection Loans
Pass	$	22,680	$	4,250	$	0	$	0	$	0	$	0	$	0	$	26,930
Special Mention		0		0		0		0		0		0		0		0
Substandard		0		0		0		0		0		0		0		0
Doubtful		0		0		0		0		0		0		0		0
Loss		0		0		0		0		0		0		0		0
Total Paycheck Protection Loans	$	22,680	$	4,250	$	0	$	0	$	0	$	0	$	0	$	26,930
Multi-family residential
Pass	$	8,908	$	25,468	$	4,774	$	1,960	$	4,972	$	45,766	$	934	$	92,782	$	40,595	$	15,211	$	26,878	$	3,757	$	1,788	$	41,807	$	934	$	130,970
Special Mention		5		0		0		0		2,663		3,447		0		6,115		-		-		-		-		-		4,081		-		4,081
Substandard		0		0		0		0		680		867		0		1,547		-		-		-		-		-		438		-		438
Doubtful		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Loss		0		0		0		0		0		0		0		0		-		-		-		-		-		-	��	-		-
Total multi-family residential	$	8,913	$	25,468	$	4,774	$	1,960	$	8,315	$	50,080	$	934	$	100,444	$	40,595	$	15,211	$	26,878	$	3,757	$	1,788	$	46,326	$	934	$	135,489
Non-farm, non-residential
Pass	$	102,761	$	149,981	$	64,144	$	62,563	$	56,696	$	203,387	$	14,018	$	653,550	$	183,767	$	145,439	$	122,934	$	53,060	$	37,644	$	192,843	$	14,018	$	749,705
Special Mention		386		3,351		852		2,778		9,276		22,227		150		39,020		-		1,946		860		1,205		2,756		9,289		150		16,206
Substandard		1,115		689		2,989		2,856		4,804		6,611		227		19,291		-		1,130		682		2,762		714		5,924		227		11,439
Doubtful		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Loss		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Total non-farm, non-residential	$	104,262	$	154,021	$	67,985	$	68,197	$	70,776	$	232,225	$	14,395	$	711,861	$	183,767	$	148,515	$	124,476	$	57,027	$	41,114	$	208,056	$	14,395	$	777,350
Agricultural
Pass	$	4,326	$	1,825	$	1,152	$	612	$	379	$	278	$	434	$	9,006	$	4,071	$	3,447	$	1,158	$	469	$	364	$	382	$	433	$	10,324
Special Mention		44		29		26		8		32		10		0		149		-		35		16		-		-		-		-		51
Substandard		43		11		373		47		22		133		0		629		-		38		3		75		30		16		-		162
Doubtful		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Loss		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Total agricultural	$	4,413	$	1,865	$	1,551	$	667	$	433	$	421	$	434	$	9,784	$	4,071	$	3,520	$	1,177	$	544	$	394	$	398	$	433	$	10,537
Farmland
Pass	$	632	$	1,073	$	86	$	1,158	$	508	$	8,041	$	1,534	$	13,032	$	217	$	720	$	814	$	77	$	885	$	5,662	$	1,534	$	9,909
Special Mention		20		0		0		262		409		378		0		1,069		-		110		-		-		227		252		-		589
Substandard		0		10		970		155		265		2,113		0		3,513		-		-		13		-		256		1,360		-		1,629
Doubtful		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Loss		0		0		0		0		0		0		0		0		-		-		-		-		-		-		-		-
Total farmland	$	652	$	1,083	$	1,056	$	1,575	$	1,182	$	10,532	$	1,534	$	17,614	$	217	$	830	$	827	$	77	$	1,368	$	7,274	$	1,534	$	12,127

(Amounts in thousands)	Term Loans Amortized Cost Basis by Origination Year
Balance at December 31, 2021	2021		2020		2019		2018		2017		Prior		Revolving		Total
Home equity lines
Pass	$	115	$	59	$	-	$	25	$	2	$	2,168	$	73,890	$	76,259
Special Mention		-		-		-		-		-		-		426		426
Substandard		-		-		28		249		128		1,316		1,451		3,172
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Total home equity lines	$	115	$	59	$	28	$	274	$	130	$	3,484	$	75,767	$	79,857
Single family Mortgage
Pass	$	239,917	$	225,294	$	61,925	$	46,716	$	41,757	$	240,845	$	1,189	$	857,643
Special Mention		399		510		937		269		137		3,775		-		6,027
Substandard		1,213		799		1,475		1,668		1,878		31,929		-		38,962
Doubtful		-		-		-		-		-		10		-		10
Loss		-		-		-		-		-		-		-		-
Total single family owner and non-owner occupied	$	241,529	$	226,603	$	64,337	$	48,653	$	43,772	$	276,559	$	1,189	$	902,642
Owner occupied construction
Pass	$	9,689	$	4,729	$	178	$	22	$	428	$	1,583	$	-	$	16,629
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		281		-		281
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Total owner occupied construction	$	9,689	$	4,729	$	178	$	22	$	428	$	1,864	$	-	$	16,910
Consumer loans
Pass	$	65,018	$	31,065	$	16,548	$	4,980	$	2,306	$	10,040	$	2,225	$	132,182
Special Mention		-		-		16		-		-		-		-		16
Substandard		328		663		824		107		78		186		78		2,264
Doubtful		-		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-		-
Total consumer loans	$	65,346	$	31,728	$	17,388	$	5,087	$	2,384	$	10,226	$	2,303	$	134,462

	*December 31, 2020*
			*Unpaid*
	*Recorded*		*Principal*		*Related*
(Amounts in thousands)	*Investment*		*Balance*		*Allowance*
Impaired loans with no related allowance
Commercial loans
Construction, development, and other land	$	616	$	891	$	-
Commercial and industrial		2,341		2,392		-
Multi-family residential		946		1,593		-
Single family non-owner occupied		4,816		5,785		-
Non-farm, non-residential		8,238		9,467		-
Agricultural		218		226		-
Farmland		1,228		1,311		-
Consumer real estate loans
Home equity lines		1,604		1,772		-
Single family owner occupied		16,778		19,361		-
Owner occupied construction		216		216		-
Consumer and other loans
Consumer loans		818		833		-
Total impaired loans with no allowance		37,819		43,847		-

Impaired loans with a related allowance
Commercial loans
Commercial and industrial		0		0		0
Multi-family residential		0		0		0
Single family non-owner occupied		0		0		0
Non-farm, non-residential		1,068		1,121		319
Farmland		0		0		0
Consumer real estate loans
Home equity lines		0		0		0
Single family owner occupied		338		338		108
Consumer and other loans
Consumer loans		0		0		0
Total impaired loans with an allowance		1,406		1,459		427
Total impaired loans(1)	$	39,225	$	45,306	$	427

	*Three Months Ended September 30,*				*Nine Months Ended September 30,*
	*2020*				*2020*
			*Average*				*Average*
	*Interest Income*		*Recorded*		*Interest Income*		*Recorded*
(Amounts in thousands)	*Recognized*		*Investment*		*Recognized*		*Investment*
Impaired loans with no related allowance:
Commercial loans
Construction, development, and other land	$	6	$	882	$	21	$	1,021
Commercial and industrial		46		3,315		135		2,845
Multi-family residential		9		967		38		685
Single family non-owner occupied		54		5,090		126		4,798
Non-farm, non-residential		79		7,786		206		7,115
Agricultural		4		272		7		247
Farmland		12		1,526		48		1,640
Consumer real estate loans
Home equity lines		13		1,588		29		1,569
Single family owner occupied		120		16,328		410		17,044
Owner occupied construction		2		542		12		470
Consumer and other loans
Consumer loans		8		420		19		445
Total impaired loans with no related allowance		353		38,716		1,051		37,879

Impaired loans with a related allowance:
Commercial loans
Construction, development, and other land		0		0		0		0
Commercial and industrial		0		0		0		0
Multi-family residential		0		944		0		943
Single family non-owner occupied		0		0		0		0
Non-farm, non-residential		8		1,789		22		1,670
Farmland		0		0		0		0
Consumer real estate loans
Home equity lines		0		0		0		0
Single family owner occupied		3		1,423		27		1,480
Owner occupied construction		0		0		0		0
Total impaired loans with a related allowance		11		4,156		49		4,093
Total impaired loans	$	364	$	42,872	$	1,100	$	41,972

	*September 30, 2021*														*September 30, 2022*
													*Amortized Cost of*														*Amortized Cost of*
	*30 - 59 Days*		*60 - 89 Days*		*90+ Days*		*Total*		*Current*		*Total*		*> 90 Days Accruing*		*30 - 59 Days*		*60 - 89 Days*		*90+ Days*		*Total*		*Current*		*Total*		*> 90 Days Accruing*
(Amounts in thousands)	*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Loans*		*Loans*		*No Allowance*		*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Loans*		*Loans*		*No Allowance*

Commercial loans
Construction, development, and other land	$	80	$	9	$	381	$	470	$	55,996	$	56,466	$	0	$	40	$	8	$	25	$	73	$	109,031	$	109,104	$	-
Commercial and industrial		534		197		1,309		2,040		131,883		133,923		0		319		186		45		550		147,474		148,024		-
Multi-family residential		0		98		35		133		100,311		100,444		0		-		-		-		-		135,489		135,489		-
Single family non-owner occupied		454		354		1,234		2,042		194,904		196,946		0		398		239		335		972		195,161		196,133		-
Non-farm, non-residential		1,199		1,577		2,430		5,206		706,655		711,861		0		780		-		1,377		2,157		775,193		777,350		-
Agricultural		31		19		181		231		9,553		9,784		0		30		18		11		59		10,478		10,537		-
Farmland		0		7		222		229		17,385		17,614		0		-		-		133		133		11,994		12,127		-
Consumer real estate loans
Home equity lines		555		87		452		1,094		81,985		83,079		0		425		183		309		917		76,507		77,424		-
Single family owner occupied		4,137		1,584		3,694		9,415		675,515		684,930		0		4,686		2,057		3,454		10,197		716,583		726,780		-
Owner occupied construction		0		0		0		0		25,551		25,551		0		-		-		-		-		14,602		14,602		-
Consumer and other loans
Consumer loans		2,753		761		363		3,877		122,701		126,578		5		3,767		1,616		944		6,327		144,695		151,022		-
Other		0		0		0		0		4,927		4,927		0		-		-		-		-		4,141		4,141		-
Total loans	$	9,743	$	4,693	$	10,301	$	24,737	$	2,127,366	$	2,152,103	$	5	$	10,445	$	4,307	$	6,633	$	21,385	$	2,341,348	$	2,362,733	$	-

	December 31, 2021
													Amortized Cost of
	*30 - 59 Days*		*60 - 89 Days*		*90+ Days*		*Total*		*Current*		*Total*		*> 90 Days Accruing*
(Amounts in thousands)	*Past Due*		*Past Due*		*Past Due*		*Past Due*		*Loans*		*Loans*		*No Allowance*

Commercial loans
Construction, development, and other land	$	52	$	-	$	120	$	172	$	65,634	$	65,806	$	-
Commercial and industrial		325		35		1,394		1,754		131,876		133,630		-
Multi-family residential		97		-		-		97		100,305		100,402		-
Single family non-owner occupied		1,210		583		795		2,588		196,190		198,778		-
Non-farm, non-residential		1,002		441		2,333		3,776		703,730		707,506		-
Agricultural		73		7		101		181		9,160		9,341		-
Farmland		52		-		222		274		14,739		15,013		-
Consumer real estate loans
Home equity lines		275		388		333		996		78,861		79,857		-
Single family owner occupied		4,740		2,584		3,880		11,204		692,660		703,864		-
Owner occupied construction		139		-		-		139		16,771		16,910		-
Consumer and other loans
Consumer loans		3,469		1,182		1,049		5,700		124,094		129,794		-
Other		-		-		-		-		4,668		4,668		-
Total loans	$	11,434	$	5,220	$	10,227	$	26,881	$	2,138,688	$	2,165,569	$	-

	September 30, 2021		December 31, 2020		*September 30, 2022*		*December 31, 2021*
(Amounts in thousands)
OREO	$	1,240	$	2,083	$	559	$	1,015

OREO secured by residential real estate	$	540	$	769	$	231	$	337
Residential real estate loans in the foreclosure process⁽¹⁾	$	3,114	$	4,141	$	2,678	$	2,210

	*Three Months Ended September 30, 2021*												*Three Months Ended September 30, 2022*
				*Consumer Real*			*Consumer and*			*Total*						*Consumer Real*			*Consumer and*			*Total*
(Amounts in thousands)	*Commercial*			*Estate*			*Other*			*Allowance*			*Commercial*			*Estate*			*Other*			*Allowance*
Total allowance
Beginning balance	$	17,704		$	11,055		$	3,098		$	31,857		$	16,119		$	10,049		$	3,581		$	29,749
Provision for (recovery of) loan losses charged to operations		(1,504	)		(317	)		427			(1,394	)
(Recovery of) provision for credit losses charged to operations														(444	)		(1,391	)		2,520			685
Charge-offs		(407	)		(195	)		(653	)		(1,255	)		(89	)		(182	)		(1,887	)		(2,158	)
Recoveries		285			179			205			669			872			77			163			1,112
Net charge-offs		(122	)		(16	)		(448	)		(586	)
Net recoveries (charge-offs)														783			(105	)		(1,724	)		(1,046	)
Ending balance	$	16,078		$	10,722		$	3,077		$	29,877		$	16,458		$	8,553		$	4,377		$	29,388

	*Three Months Ended September 30, 2020*												*Three Months Ended September 30, 2021*
				*Consumer Real*			*Consumer and*			*Total*						*Consumer Real*			*Consumer and*			*Total*
(Amounts in thousands)	*Commercial*			*Estate*			*Other*			*Allowance*			*Commercial*			*Estate*			*Other*			*Allowance*
Total allowance
Beginning balance	$	13,909		$	7,294		$	2,555		$	23,758		$	17,704		$	11,055		$	3,098		$	31,857
Provision for loan losses charged to operations		1,972			1,975			756			4,703
(Recovery of) provision for credit losses charged to operations														(1,504	)		(317	)		427			(1,394	)
Charge-offs		(501	)		(188	)		(874	)		(1,563	)		(407	)		(195	)		(653	)		(1,255	)
Recoveries		169			38			172			379			285			179			205			669
Net charge-offs		(332	)		(150	)		(702	)		(1,184	)
Net (charge-offs) recoveries														(122	)		(16	)		(448	)		(586	)
Ending balance	$	15,549		$	9,119		$	2,609		$	27,277		$	16,078		$	10,722		$	3,077		$	29,877

	*Nine Months Ended September 30, 2021*												*Nine Months Ended September 30, 2022*
				*Consumer Real*			*Consumer and*			*Total*						*Consumer Real*			*Consumer and*			*Total*
(Amounts in thousands)	*Commercial*			*Estate*			*Other*			*Allowance*			*Commercial*			*Estate*			*Other*			*Allowance*
Total allowance
Beginning balance	$	14,661		$	8,951		$	2,570		$	26,182		$	14,775		$	9,972		$	3,111		$	27,858
Cumulative effect of adoption of ASU 2016-13		8,360			4,145			602			13,107
Provision for (recovery of) loan losses charged to operations		(6,286	)		(2,845	)		1,506			(7,625	)
(Recovery of) provision for credit losses charged to operations														(144	)		(1,584	)		4,884			3,156
Charge-offs		(2,366	)		(253	)		(2,268	)		(4,887	)		(497	)		(276	)		(4,156	)		(4,929	)
Recoveries		1,709			724			667			3,100			2,324			441			538			3,303
Net charge-offs		(657	)		471			(1,601	)		(1,787	)
Net recoveries (charge-offs)														1,827			165			(3,618	)		(1,626	)
Ending balance	$	16,078		$	10,722		$	3,077		$	29,877		$	16,458		$	8,553		$	4,377		$	29,388

	*Nine Months Ended September 30, 2020*												*Nine Months Ended September 30, 2021*
				*Consumer Real*			*Consumer and*			*Total*						*Consumer Real*			*Consumer and*			*Total*
(Amounts in thousands)	*Commercial*			*Estate*			*Other*			*Allowance*			*Commercial*			*Estate*			*Other*			*Allowance*
Total allowance
Beginning balance	$	10,235		$	6,325		$	1,865		$	18,425		$	14,661		$	8,951		$	2,570		$	26,182
Provision for loan losses charged to operations		6,577			2,899			2,558			12,034
Cumulative effect of adoption of ASU 2016-13														8,360			4,145			602			13,107
(Recovery of) provision for credit losses charged to operations														(6,286	)		(2,845	)		1,506			(7,625	)
Charge-offs		(1,647	)		(430	)		(2,352	)		(4,429	)		(2,366	)		(253	)		(2,268	)		(4,887	)
Recoveries		384			325			538			1,247			1,709			724			667			3,100
Net (charge-offs) recoveries		(1,263	)		(105	)		(1,814	)		(3,182	)		(657	)		471			(1,601	)		(1,787	)
Ending balance	$	15,549		$	9,119		$	2,609		$	27,277		$	16,078		$	10,722		$	3,077		$	29,877

	*December 31, 2020*
	*Loans Individually*		*Allowance for Loans*		*Loans Collectively*		*Allowance for Loans*
	*Evaluated for*		*Individually*		*Evaluated for*		*Collectively*
(Amounts in thousands)	*Impairment*		*Evaluated*		*Impairment*		*Evaluated*
Commercial loans
Construction, development, and other land	$	0	$	0	$	43,716	$	528
Commercial and industrial		724		0		171,486		1,024
Multi-family residential		695		0		112,852		1,417
Single family non-owner occupied		1,041		0		183,283		1,861
Non-farm, non-residential		3,916		319		714,160		9,097
Agricultural		0		0		9,728		218
Farmland		0		0		17,540		196
Total commercial loans		6,376		319		1,252,765		14,341
Consumer real estate loans
Home equity lines		0		0		95,765		799
Single family owner occupied		1,673		108		647,040		7,849
Owner occupied construction		0		0		17,567		195
Total consumer real estate loans		1,673		108		760,372		8,843
Consumer and other loans
Consumer loans		0		0		119,770		2,570
Other		0		0		6,014		0
Total consumer and other loans		0		0		125,784		2,570
Total loans, excluding PCI loans	$	8,049	$	427	$	2,138,921	$	25,754

	*December 31, 2020*
			*Allowance for Loan*
	*Recorded*		*Pools With*
(Amounts in thousands)	*Investment*		*Impairment*
Commercial loans
Highlands:
Construction & land development	$	958	$	0
Farmland and other agricultural		2,242		0
Multifamily		1,614		0
Commercial real estate		20,176		0
Commercial and industrial		814		0
Total commercial loans		25,804		0
Consumer real estate loans
Highlands:
1-4 family, junior and HELOCS		761		0
1-4 family, senior-consumer		12,494		0
Consumer		603		0
Total consumer real estate loans		13,858		0
Total PCI loans	$	39,662	$	0

Year	*September 30, 2021*			*September 30, 2022*
(Amounts in thousands)
2022	$	139
2023		119		$	119
2024		119			119
2025		104			104
2026 and thereafter		387
2026					101
2027 and thereafter					285
Total lease payments		868			728
Less: Interest		(68	)		(36	)
Present value of lease liabilities	$	800		$	692

	*September 30, 2021*						*December 31, 2020*
	*Notional or*		*Fair Value*				*Notional or*		*Fair Value*
	*Contractual*		*Derivative*		*Derivative*		*Contractual*		*Derivative*		*Derivative*
(Amounts in thousands)	*Amount*		*Assets*		*Liabilities*		*Amount*		*Assets*		*Liabilities*
Derivatives designated as hedges
Interest rate swaps	$	4,486	$	0	$	292	$	4,772	$	0	$	465
Derivatives not designated as hedges
Interest rate swaps	$	7,949		0	$	730	$	11,928		0	$	666
Total derivatives	$	12,435	$	0	$	1,022	$	16,700	$	0	$	1,131

	*Three Months Ended September 30, 2021*									*Three Months Ended September 30, 2022*
	*Unrealized Gains*									*Unrealized Gains*
	*(Losses) on Available-*									*(Losses) on Available-*
	*for-Sale Securities*			*Employee Benefit Plans*			*Total*			*for-Sale Securities*			*Employee Benefit Plans*			*Total*
(Amounts in thousands)
Beginning balance	$	474		$	(3,039	)	$	(2,565	)	$	(9,817	)	$	(1,843	)	$	(11,660	)
Other comprehensive loss before reclassifications		(164	)		(1	)		(165	)		(7,392	)		-			(7,392	)
Reclassified from AOCI		0			77			77			-			27			27
Other comprehensive loss income, net		(164	)		76			(88	)
Other comprehensive loss, net											(7,392	)		27			(7,365	)
Ending balance	$	310		$	(2,963	)	$	(2,653	)	$	(17,209	)	$	(1,816	)	$	(19,025	)

			*Discount Range*
	*Valuation*	*Unobservable*	*(Weighted Average)*
	*Technique*	*Input*	*September 30, ~~2021~~2022*

Collateral dependent assets with specific reserves	Discounted appraisals(1)	Appraisal adjustments(2)		0% to ~~30% (10%~~0% (0%)
OREO	Discounted appraisals(1)	Appraisal adjustments(2)		0%10% to ~~87% (29%~~95% (73%)

(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.

	*September 30, 2021*										*September 30, 2022*
	*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	$	635,007	$	635,007	$	635,007	$	0	$	0	$	229,095	$	229,095	$	229,095	$	-	$	-
Debt securities available for sale		77,440		77,440		0		77,440		0		299,620		299,620		-		299,620		-
Equity securities		55		55		0		55		0		55		55		-		55		-
Loans held for investment, net of allowance		2,122,226		2,086,930		0		0		2,086,930		2,333,345		2,198,020		-		-		2,198,020
Derivative financial assets												211		211		-		211		-
Interest receivable		8,146		8,146		0		8,146		0		8,345		8,345		-		8,345		-
Deferred compensation assets		4,901		4,901		4,901		0		0		4,822		4,822		4,822		-		-

Liabilities
Time deposits		371,589		370,567		0		370,567		0		304,739		304,232		-		304,232		-
Securities sold under agreements to repurchase		1,106		1,106		0		1,106		0		1,958		1,958		-		1,958		-
Interest payable		345		345		0		345		0		180		180		-		180		-
Derivative financial liabilities		1,022		1,022		0		1,022		0
Deferred compensation liabilities		4,901		4,901		4,901		0		0		4,822		4,822		4,822		-		-

(1)	Includes FHLB letters of credit
(2)	Included in Interest, taxes, and other liabilities on the Condensed Consolidated Balance Sheet