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Note 3 - Loans

9 Months Ended

Sep. 30, 2021

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

Note 3. Loans

The Company groups loans held for investment into three segments (commercial loans, consumer real estate loans, and consumer and other loans) with each segment divided into various classes. Customer overdrafts reclassified as loans totaled $1.65 million as of September 30, 2021, and $1.13 million as of December 31, 2020. Deferred loan fees, net of loan costs, totaled $5.40 million as of September 30, 2021, and $5.58 million as of December 31, 2020. For information about off-balance sheet financing, see Note 14, “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 million and unamortized discount total related to loans acquired of $6.18 million. Accrued interest receivable (AIR) of $7.77 million is accounted for separately and reported in Interest Receivable on the Consolidated Balance Sheet.

The comparative periods in the table below reflect the loan portfolio prior to the adoption of ASU 2016-13. Prior periods were reported as shown in the below tables, with the acquired loans being net of unearned 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:

	*September 30, 2021*					*December 31, 2020*
(Amounts in thousands)	*Amount*		*Percent*			*Amount*		*Percent*
Loans held for investment
Commercial loans
Construction, development, and other land	$	56,466		2.62	%	$	44,674		2.04	%
Commercial and industrial		133,923		6.22	%		173,024		7.91	%
Multi-family residential		100,444		4.67	%		115,161		5.27	%
Single family non-owner occupied		196,946		9.15	%		187,783		8.59	%
Non-farm, non-residential		711,861		33.08	%		734,793		33.60	%
Agricultural		9,784		0.45	%		9,749		0.45	%
Farmland		17,614		0.82	%		19,761		0.90	%
Total commercial loans		1,227,038		57.01	%		1,284,945		58.76	%
Consumer real estate loans
Home equity lines		83,079		3.86	%		96,526		4.41	%
Single family owner occupied		684,930		31.83	%		661,054		30.24	%
Owner occupied construction		25,551		1.19	%		17,720		0.81	%
Total consumer real estate loans		793,560		36.88	%		775,300		35.46	%
Consumer and other loans
Consumer loans		126,578		5.88	%		120,373		5.50	%
Other		4,927		0.23	%		6,014		0.28	%
Total consumer and other loans		131,505		6.11	%		126,387		5.78	%
Total loans held for investment, net of unearned income	$	2,152,103		100.00	%	$	2,186,632		100.00	%

The Company began participating as a Small Business Administration Paycheck Protection Program lender during the second quarter of 2020. At September 30, 2021, the PPP loans had a current balance of $26.93 million, compared to $57.06 million at December 31, 2020, and were included in commercial and industrial loan balances. Deferred loan origination fees related to the PPP loans, net of deferred loan origination costs, totaled $4.34 million at September 30, 2021, and $2.3 million at December 31, 2020. During the third quarter of 2021, the Company recorded amortization of net deferred loan origination fees of $708 thousand on PPP loans and $2.24 million in amortization for the nine month period of 2021, compared with $287 thousand and $479 thousand for 2020 for the third quarter and nine-month period, respectively. 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.

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 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.

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

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

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

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

(1) Represents changes attributable to expected loss assumptions