UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| Quarterly report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended | |
| Transition report pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____ to ____ | |
Commission
File Number:
| (Exact name of registrant as specified in its charter) | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Not Applicable
(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 exchange on which registered |
| The
|
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | |
| Smaller reporting company
| ||
| Emerging growth company
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On May 9, 2025, shares of the issuer’s common stock, par value $1.00 per share, were issued and outstanding.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST COMMUNITY CORPORATION
CONSOLIDATED BALANCE SHEETS
| March 31, | ||||||||
| (Dollars in thousands, except par values) | 2025 | December 31, | ||||||
| (Unaudited) | 2024 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | $ | ||||||
| Interest-bearing bank balances | ||||||||
| Investment securities available-for-sale | ||||||||
| Investment securities held-to-maturity, fair value of $ | ||||||||
| Other investments, at cost | ||||||||
| Loans held-for-sale | ||||||||
| Loans held-for-investment | ||||||||
| Less, allowance for credit losses – loans | ||||||||
| Net loans held-for-investment | ||||||||
| Property and equipment – net | ||||||||
| Lease right-of-use asset | ||||||||
| Bank owned life insurance | ||||||||
| Other real estate owned | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES | ||||||||
| Deposits: | ||||||||
| Non-interest bearing | $ | $ | ||||||
| Interest bearing | ||||||||
| Total deposits | ||||||||
| Securities sold under agreements to repurchase | ||||||||
| Junior subordinated debt | ||||||||
| Lease liability | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred stock, par value $ per share, shares authorized; issued and outstanding | ||||||||
| Common stock, par value $ per share; shares authorized; issued and outstanding at March 31, 2025 and at December 31, 2024 | ||||||||
| Nonvested restricted stock and stock units | ||||||||
| Additional paid in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
See Notes to Consolidated Financial Statements
1
FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| (Dollars in thousands, except per share amounts) | Three Months ended March 31, | |||||||
| 2025 | 2024 | |||||||
| Interest and dividend income: | ||||||||
| Loans, including fees | $ | $ | ||||||
| Investment securities – taxable | ||||||||
| Investment securities – non taxable | ||||||||
| Other short-term investments and certificates of deposit | ||||||||
| Total interest income | ||||||||
| Interest expense: | ||||||||
| Deposits | ||||||||
| Securities sold under agreement to repurchase | ||||||||
| Other borrowed money | ||||||||
| Total interest expense | ||||||||
| Net interest income | ||||||||
| Provision for credit losses | ||||||||
| Net interest income after provision for credit losses | ||||||||
| Non-interest income: | ||||||||
| Deposit service charges | ||||||||
| Mortgage banking income | ||||||||
| Investment advisory fees and non-deposit commissions | ||||||||
| Other | ||||||||
| Total non-interest income | ||||||||
| Non-interest expense: | ||||||||
| Salaries and employee benefits | ||||||||
| Occupancy | ||||||||
| Equipment | ||||||||
| Marketing and public relations | ||||||||
| FDIC insurance assessments | ||||||||
| Other real estate expense, net | ||||||||
| Amortization of intangibles | ||||||||
| Other | ||||||||
| Total non-interest expense | ||||||||
| Net income before tax | ||||||||
| Income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Basic earnings per common share | $ | $ | ||||||
| Diluted earnings per common share | $ | $ | ||||||
See Notes to Consolidated Financial Statements
2
FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three months ended March 31, | ||||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive income: | ||||||||
| Unrealized gain during the period on available-for-sale securities, net of tax expense of $ | ||||||||
| Reclassification adjustment for amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity, net of tax expense of $ | ||||||||
| Other comprehensive income | ||||||||
| Comprehensive income | $ | $ | ||||||
See Notes to Consolidated Financial Statements
3
FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
| Accumulated | ||||||||||||||||||||||||||||
| Common | Additional | Nonvested | Other | |||||||||||||||||||||||||
| (Dollars in thousands) | Shares | Common | Paid-in | Restricted | Retained | Comprehensive | ||||||||||||||||||||||
| Issued | Stock | Capital | Stock | Earnings | Loss | Total | ||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||
| Other comprehensive income net of tax expense of $ | — | |||||||||||||||||||||||||||
| Issuance of common stock-share based compensation | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of restricted stock | ( | ) | ||||||||||||||||||||||||||
| Grant restricted stock units | — | |||||||||||||||||||||||||||
| Amortization of compensation on restricted stock | — | |||||||||||||||||||||||||||
| Shares forfeited | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends: Common ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Dividend reinvestment plan | ||||||||||||||||||||||||||||
| Balance, March 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Balance, December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | — | |||||||||||||||||||||||||||
| Other comprehensive income net of tax expense of $ | — | |||||||||||||||||||||||||||
| Issuance of common stock-share based compensation | ( | ) | ||||||||||||||||||||||||||
| Issuance of restricted stock | ( | ) | ||||||||||||||||||||||||||
| Grant restricted stock units | — | |||||||||||||||||||||||||||
| Amortization of compensation on restricted stock | — | |||||||||||||||||||||||||||
| Shares forfeited | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Dividends: Common ($ per share) | — | ( | ) | ( | ) | |||||||||||||||||||||||
| Dividend reinvestment plan | ||||||||||||||||||||||||||||
| Balance, March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
See Notes to Consolidated Financial Statements
4
FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three months ended March 31, | ||||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | ||||||||
| Net premium amortization on investment securities available-for-sale | ( | ) | ( | ) | ||||
| Net premium amortization on investment securities held-to-maturity | ( | ) | ( | ) | ||||
| Provision for credit losses | ||||||||
| Origination of loans held-for-sale | ( | ) | ( | ) | ||||
| Sale of loans held-for-sale | ||||||||
| Gain on sale of loans held-for-sale | ( | ) | ( | ) | ||||
| Amortization of intangibles | ||||||||
| Gain on fair value of equity securities | ( | ) | ( | ) | ||||
| Increase (decrease) in other assets | ( | ) | ||||||
| (Decrease) increase in other liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of investment securities available-for-sale | ( | ) | ||||||
| Purchase of other investment securities | ( | ) | ||||||
| Maturity/call of investment securities available-for-sale | ||||||||
| Maturity/call of investment securities held-to-maturity | ||||||||
| Proceeds from sale of other investment securities | ||||||||
| Increase in loans | ( | ) | ( | ) | ||||
| Proceeds from sale of other real estate owned | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Increase in deposit accounts | ||||||||
| Decrease in securities sold under agreements to repurchase | ||||||||
| Repayment of advances from the Federal Home Loan Bank | ( | ) | ||||||
| Shares retired / forfeited | ( | ) | ( | ) | ||||
| Dividends paid: Common Stock | ( | ) | ( | ) | ||||
| Restricted Stock Units Granted | ||||||||
| Cost of issuance of common stock-deferred compensation | ( | ) | ||||||
| Change in non-vested restricted stock | ||||||||
| Dividend reinvestment plan | ||||||||
| Net cash provided by financing activities | ||||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ( | ) | ||||
| Non-cash investing and financing activities: | ||||||||
| Unrealized gain on available-for-sale securities, net of tax | $ | $ | ||||||
| Amortization of unrealized losses on securities from transfer of available-for-sale securities to held-to-maturity, net of tax | $ | $ | ||||||
See Notes to Consolidated Financial Statements
5
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Nature of Business and Basis of Presentation
Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated balance sheets, and the consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows of First Community Corporation (the “Company”) and its wholly owned subsidiary, First Community Bank (the “Bank”) (collectively, the “Company”) present fairly in all material respects the Company’s financial position at March 31, 2025 and December 31, 2024, and the Company’s results of operations for the three months ended March 31, 2025 and 2024, and cash flows for the three months ended March 31, 2025 and 2024. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.
In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Quarterly Reports on Form 10-Q. The information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 should be referred to in connection with these unaudited interim financial statements.
Recently Issued Accounting Pronouncements
The following is a summary of recent authoritative pronouncements:
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This amendment is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments require disclosure of incremental segment information on an annual and interim basis for all public entities. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, and interim periods with fiscal years beginning after December 15, 2024. The Company adopted this amendment effective January 1, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This amendment is intended to enhance the transparency and decision usefulness of income tax disclosures by requiring public business entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. The amendments are effective for the Company for annual periods beginning after December 15, 2024. Early adoption is permitted.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during the period, excluding non-vested restricted shares. Dilutive earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during the period plus the maximum dilutive effect on common stock issuable upon exercise of stock options or vesting of restricted stock units. Stock options and unvested restricted stock units are considered common stock equivalents and are only included in the calculation of dilutive earnings per common share if the effect is dilutive.
6
| Three months | ||||||||
| Ended March 31, | ||||||||
| (In thousands except average market price and per share data) | 2025 | 2024 | ||||||
| Numerator (Net income available to common shareholders) | $ | $ | ||||||
| Denominator | ||||||||
| Weighted average common shares outstanding for: | ||||||||
| Basic shares | ||||||||
| Dilutive securities: | ||||||||
| Deferred compensation shares | ||||||||
| Diluted common shares outstanding | ||||||||
| Earnings per common share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | ||||||||
| The average market price used in calculating assumed number of shares | $ | $ | ||||||
Note 3 - Investment Securities
The amortized cost and estimated fair values of investment securities are summarized below. As of March 31, 2025 and December 31, 2024, there was no allowance for credit losses on available-for-sale securities.
AVAILABLE-FOR-SALE:
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| (Dollars in thousands) | Cost | Gains | Losses | Fair Value | ||||||||||||
| March 31, 2025 | ||||||||||||||||
| US Treasury securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Government Sponsored Enterprises | ( | ) | ||||||||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||
| Small Business Administration pools | ( | ) | ||||||||||||||
| Corporate and other securities | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| Gross | Gross | |||||||||||||||
| Amortized | Unrealized | Unrealized | ||||||||||||||
| (Dollars in thousands) | Cost | Gains | Losses | Fair Value | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| US Treasury securities | $ | $ | $ | ( | ) | $ | ||||||||||
| Government Sponsored Enterprises | ( | ) | ||||||||||||||
| Mortgage-backed securities | ( | ) | ||||||||||||||
| Small Business Administration pools | ( | ) | ||||||||||||||
| Corporate and other securities | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
7
HELD-TO-MATURITY:
| (Dollars in thousands) | Amortized Cost Net of Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| March 31, 2025 | ||||||||||||||||
| Mortgage-backed securities | $ | $ | $ | ( | ) | $ | ||||||||||
| State and local government | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
| (Dollars in thousands) | Amortized Cost Net of Allowance for Credit Loss | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
| December 31, 2024 | ||||||||||||||||
| Mortgage-backed securities | $ | ( | ) | $ | ||||||||||||
| State and local government | ( | ) | ||||||||||||||
| Total | $ | ( | ) | $ | ||||||||||||
There were no gross realized gains or gross realized losses from the sale of available-for-sale investment securities during the three months ended March 31, 2025 and 2024.
For available-for-sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, or more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings.
If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit loss are recorded as provision for (or release of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At March 31, 2025 and December 31, 2024, there was no allowance for credit loss related to the available-for-sale securities portfolio.
The following tables show gross unrealized losses and fair values of available-for-sale securities for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position, as of March 31, 2025.
8
| March 31, 2025 | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||
| Available-for-sale securities: | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
| (Dollars in thousands) | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Government Sponsored Enterprises | ||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||
| Small Business Administration pools | ||||||||||||||||||||||||
| Corporate and other securities | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table shows gross unrealized losses by fair values of available-for-sale securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position as of December 31, 2024.
| December 31, 2024 | Less than 12 months | 12 months or more | Total | |||||||||||||||||||||
| Available-for-sale securities: | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | ||||||||||||||||||
| (Dollars in thousands) | Value | Loss | Value | Loss | Value | Loss | ||||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Government Sponsored Enterprises | ||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||
| Small Business Administration pools | ||||||||||||||||||||||||
| Corporate and other securities | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
The following table shows a roll forward of the allowance for credit losses on held to maturity securities for the three months ended March 31, 2025 and 2024.
| Three Months | ||||
| Ended | ||||
| (Dollars in thousands) | March 31, 2025 | |||
| Allowance for Credit Losses on Held-to-Maturity Securities: | ||||
| State and local government | ||||
| Beginning balance, December 31, 2024 | $ | |||
| Provision for credit losses | ||||
| Ending balance, March 31, 2025 | $ | |||
| Three Months | ||||
| Ended | ||||
| (Dollars in thousands) | March 31, 2024 | |||
| Allowance for Credit Losses on Held-to-Maturity Securities: | ||||
| State and local government | ||||
| Beginning balance, December 31, 2023 | $ | |||
| Release of credit losses | ( | ) | ||
| Ending balance, March 31, 2024 | $ | |||
At March 31, 2025, the Company had no securities held-to-maturity that were past due 30 days or more as to principal or interest payments. The Company had no securities held-to-maturity classified as non-accrual at March 31, 2025.
Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. The held-to-maturity portfolio consists of mortgage-backed and municipal securities. Securities are generally rated BBB- or higher. Securities are analyzed individually to establish an allowance for credit losses on held-to-maturity securities.
9
The estimate of expected credit losses is primarily based on the ratings assigned to the securities by debt rating agencies and the average of the annual historical loss rates associated with those ratings. The Company then multiplies those loss rates, as adjusted for any modifications to reflect current conditions and reasonable and supportable forecasts as considered necessary, by the remaining lives of each individual security to arrive at a lifetime expected loss amount. Management classifies the held-to-maturity portfolio into the following major security types: mortgage-backed securities or state and local governments.
All the mortgage-backed securities (“MBS”) held by the Company are issued by government-sponsored corporations. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies and have a long history of no credit losses. As a result, no allowance for credit losses was recorded on held-to-maturity MBS as of March 31, 2025 and December 31, 2024. The state and local governments securities held by the Company are highly rated by major rating agencies.
The Company monitors the credit quality of the debt securities held to maturity through the use of credit ratings (Moody’s) on a quarterly basis. In the event that Moody’s does not provide a rating, the comparable S&P rating is used and converted to a Moody’s rating. The following table summarizes the amortized cost of debt securities held to maturity at March 31, 2025 and December 31, 2024, aggregated by credit quality indicators.
| As of | As of | |||||||
| (Dollars in thousands) | March 31, 2025 | December 31, 2024 | ||||||
| Rating: | ||||||||
| Aaa | $ | $ | ||||||
| Aa1/Aa2/Aa3 | ||||||||
| A1/A2 | ||||||||
| Less: Allowance for Credit Losses on Held-to-Maturity Securities | ||||||||
| Total | $ | $ | ||||||
The following tables shows the amortized cost and fair value of investment securities at March 31, 2025 by expected maturity. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay the obligations with or without prepayment penalties. Mortgage-backed securities are included in the year corresponding with the remaining expected life.
| Available-for-sale | ||||||||
| March 31, 2025 | Amortized | Fair | ||||||
| (Dollars in thousands) | Cost | Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Total | $ | $ | ||||||
| Held-To-Maturity | ||||||||
| March 31, 2025 | Amortized | Fair | ||||||
| (Dollars in thousands) | Cost | Value | ||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through ten years | ||||||||
| Due after ten years | ||||||||
| Allowance for Credit Losses on Held-to-Maturity Securities | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
10
Note 4 - Loans
The following table summarizes
the composition of our loan portfolio. Total loans are recorded net of deferred loan fees and costs, which totaled $
| March 31, | December 31, | |||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Commercial | $ | $ | ||||||
| Real estate: | ||||||||
| Construction | ||||||||
| Mortgage-residential | ||||||||
| Mortgage-commercial | ||||||||
| Consumer: | ||||||||
| Home equity | ||||||||
| Other | ||||||||
| Total loans, net of deferred loan fees and costs | $ | $ | ||||||
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. Loans not meeting the criteria below that are analyzed individually as part of the analysis are considered as pass rated loans. The Company uses the following definitions for risk ratings:
Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.
Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
11
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of March 31, 2025:
| Term Loans by year of Origination | ||||||||||||||||||||||||||||||||||||
| ($ in thousands) | 2021 | 2022 | 2023 | 2024 | 2025 | Prior | Revolving | Revolving Converted to Term | Total | |||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Real estate construction | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Total real estate construction | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Real estate mortgage-residential | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total real estate mortgage-residential | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Real estate mortgage-commercial | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total real estate mortgage-commercial | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Consumer - home equity | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total consumer - home equity | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Consumer - other | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total consumer - other | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
12
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024:
| Term Loans by year of Origination | ||||||||||||||||||||||||||||||||||||
| ($ in thousands) | 2020 | 2021 | 2022 | 2023 | 2024 | Prior | Revolving | Revolving Converted to Term | Total | |||||||||||||||||||||||||||
| Commercial | ||||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total commercial | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Real estate construction | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Total real estate construction | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Real estate mortgage-residential | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total real estate mortgage-residential | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Real estate mortgage-commercial | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total real estate mortgage-commercial | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Consumer - home equity | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total consumer - home equity | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
| Consumer - other | ||||||||||||||||||||||||||||||||||||
| Pass | ||||||||||||||||||||||||||||||||||||
| Special mention | ||||||||||||||||||||||||||||||||||||
| Substandard | ||||||||||||||||||||||||||||||||||||
| Total consumer - other | ||||||||||||||||||||||||||||||||||||
| Current period gross write-offs | ||||||||||||||||||||||||||||||||||||
13
The detailed activity in the allowance for credit losses and the recorded investment in loans receivable for the three months ended March 31, 2025 is shown below:
| ($ in thousands) | Commercial | Real Estate Construction | Real Estate Mortgage Residential | Real Estate Mortgage Commercial | Consumer Home Equity | Consumer Other | Total Loans | |||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ||||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Provision for credit losses | ||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| ($ in thousands) | Commercial | Real Estate Construction | Real Estate Mortgage Residential | Real Estate Mortgage Commercial | Consumer Home Equity | Consumer Other | Total Loans | |||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Charge-offs | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Recoveries | ||||||||||||||||||||||||||||
| Provision for (release of) credit losses | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
There were no loans modified for borrowers experiencing financial difficulty during the three months ended March 31, 2025. There were no loans modified for borrowers experiencing financial difficulty during the three months ended March 31, 2024.
The following table shows the amortized cost basis as of March 31, 2025 of the loans modified for borrowers experiencing financial difficulty segregated by loan category and describes the financial effect of the modification made for a borrower experiencing financial difficulty.
| March 31, 2025 | ||||||||||
| (Dollars in thousands) | Amortized cost basis | % of Total Loan Type | Financial effect | |||||||
| Real Estate Mortgage Residential | % | Deferred monthly payments that are added to the end of the original loan term | ||||||||
| Real Estate Mortgage Residential | % | Deferred interest payments added to principal balance, re-amortized loan | ||||||||
| Total Loans | $ | $ | % | |||||||
14
The following table depicts the performance of loans that have been modified in the last 12 months.
| (Dollars in thousands) | 30-89 Days | Greater than 90 Days | ||||||||||
| March 31, 2025 | Current | Past Due | Past Due | |||||||||
| Real Estate Mortgage Residential | $ | $ | $ | |||||||||
| Total Loans | $ | $ | $ | |||||||||
The following tables are by loan category and present loans past due and on non-accrual status as of March 31, 2025 and December 31, 2024.
| Greater than | ||||||||||||||||||||||||||||
| (Dollars in thousands) | 30-59 Days | 60-89 Days | 90 Days and | Total | ||||||||||||||||||||||||
| March 31, 2025 | Past Due | Past Due | Accruing | Non-accrual | Past Due | Current | Total Loans | |||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||
| Mortgage-residential | ||||||||||||||||||||||||||||
| Mortgage-commercial | ||||||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Greater than | ||||||||||||||||||||||||||||
| (Dollars in thousands) | 30-59 Days | 60-89 Days | 90 Days and | Total | ||||||||||||||||||||||||
| December 31, 2024 | Past Due | Past Due | Accruing | Non-accrual | Past Due | Current | Total Loans | |||||||||||||||||||||
| Commercial | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Real estate: | ||||||||||||||||||||||||||||
| Construction | ||||||||||||||||||||||||||||
| Mortgage-residential | ||||||||||||||||||||||||||||
| Mortgage-commercial | ||||||||||||||||||||||||||||
| Consumer: | ||||||||||||||||||||||||||||
| Home equity | ||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
15
The following table is a summary of the Company’s non-accrual loans by major categories for the periods indicated.
| March 31, 2025 | ||||||||||||
| (Dollars in thousands) | Non-accrual Loans with No Allowance | Non-accrual Loans with an Allowance | Total Non-accrual Loans | |||||||||
| Commercial | $ | $ | $ | |||||||||
| Real estate: | ||||||||||||
| Construction | ||||||||||||
| Mortgage-residential | ||||||||||||
| Mortgage-commercial | ||||||||||||
| Consumer: | ||||||||||||
| Home equity | ||||||||||||
| Other | ||||||||||||
| Total | $ | $ | $ | |||||||||
| December 31, 2024 | ||||||||||||
| (Dollars in thousands) | Non-accrual Loans with No Allowance | Non-accrual Loans with an Allowance | Total Non-accrual Loans | |||||||||
| Commercial | $ | $ | $ | |||||||||
| Real estate: | ||||||||||||
| Construction | ||||||||||||
| Mortgage-residential | ||||||||||||
| Mortgage-commercial | ||||||||||||
| Consumer: | ||||||||||||
| Home equity | ||||||||||||
| Other | ||||||||||||
| Total | $ | $ | $ | |||||||||
The Company recognized $11,400 of interest income on non-accrual loans during the three months ended March 31, 2025, and the Company recognized $10,100 of interest income on non-accrual loans during the three months ended March 31, 2024.
For the three months ended March 31, 2025 and March 31, 2024 less than $1,000 of accrued interest was written off by reversing interest income.
There were no collateral dependent loans that were individually evaluated at March 31, 2025 and December 31, 2024.
Unfunded Commitments
The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be cancelled at any time). The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments is separately classified on the balance sheet within Other Liabilities and was $456,000 and $409,000 at March 31, 2025 and December 31, 2024, respectively.
16
The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2025 and March 31, 2024.
| (Dollars in thousands) | Total Allowance for Credit Losses - Unfunded Commitments | |||
| Balance, December 31, 2024 | $ | |||
| Release of allowance for unfunded commitments | ( | ) | ||
| Balance, March 31, 2025 | $ | |||
| (Dollars in thousands) | Total Allowance for Credit Losses - Unfunded Commitments | |||
| Balance, December 31, 2023 | $ | |||
| Release of allowance for unfunded commitments | ( | ) | ||
| Balance, March 31, 2024 | $ | |||
Note 5 - Fair Value Measurement
US GAAP defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. It also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
| Level l | Quoted prices in active markets for identical assets or liabilities. |
| Level 2 | Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Fair value estimates, methods, and assumptions are set forth below.
Cash and short term investments-The carrying amount of these financial instruments (cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under agreements to resell) approximates fair value. All mature within 90 days and do not present unanticipated credit concerns and are classified as Level 1.
Investment Securities-Measurement is on a recurring basis based upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in active over-the-counter markets. Level 2 securities include mortgage-backed securities issued both by government sponsored enterprises and private label mortgage-backed securities. Generally, these fair values are priced from established pricing models. Level 3 securities include corporate debt obligations and asset–backed securities that are less liquid or for which there is an inactive market.
17
Other investments, at cost-The carrying value of other investments, such as FHLB stock, approximates fair value based on redemption provisions.
Loans Held for Sale-The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with an investor, are carried in the Company’s loans held for sale portfolio. These loans are fixed rate residential loans that have been originated in the Company’s name and have closed. Virtually all of these loans have commitments to be purchased by investors at a locked in price with the investors on the same day that the loan was locked in with the Company’s customers. Therefore, these loans present very little market risk for the Company and are classified as Level 2. The carrying amount of these loans approximates fair value.
Loans-The valuation of loans receivable is estimated using the exit price notion which incorporates factors, such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, individually evaluated loans and all other loans. The results are then adjusted to account for credit risk as described above.
Other Real Estate Owned (“OREO”)-OREO is carried at the lower of carrying value or fair value on a non-recurring basis. Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 3 measurement.
Derivative Financial Instruments-Fair value is estimated using discounted cash flow models where future floating cash flows are projected and discounted back. Derivative financial instruments are classified as Level 2.
Accrued Interest Receivable-The fair value approximates the carrying value and is classified as Level 1.
Deposits-The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities. Deposits are classified as Level 2.
Federal Home Loan Bank Advances-Fair value is estimated based on discounted cash flows using current market rates for borrowings with similar terms and are classified as Level 2.
Short Term Borrowings-The carrying value of short term borrowings (securities sold under agreements to repurchase and demand notes to the Treasury) approximates fair value. These are classified as Level 2.
Junior Subordinated Debentures-The fair values of junior subordinated debentures are estimated by using discounted cash flow analyses based on incremental borrowing rates for similar types of instruments. These are classified as Level 2.
Accrued Interest Payable-The fair value approximates the carrying value and is classified as Level 1.
Commitments to Extend Credit-The fair value of these commitments is immaterial because their underlying interest rates approximate market.
18
The carrying amount and estimated fair value by classification level of the Company’s financial instruments as of March 31, 2025 and December 31, 2024 are as follows:
| March 31, 2025 | ||||||||||||||||||||
| Carrying | Fair Value | |||||||||||||||||||
| (Dollars in thousands) | Amount | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial Assets: | ||||||||||||||||||||
| Cash and short term investments | $ | $ | $ | $ | $ | |||||||||||||||
| Available-for-sale securities | ||||||||||||||||||||
| Held-to-maturity securities, net of allowance for credit losses | ||||||||||||||||||||
| Other investments, at cost | ||||||||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Net loans receivable | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-interest bearing demand | $ | $ | $ | $ | $ | |||||||||||||||
| Interest bearing demand deposits and money market accounts | ||||||||||||||||||||
| Savings | ||||||||||||||||||||
| Time deposits | ||||||||||||||||||||
| Total deposits | ||||||||||||||||||||
| Federal Home Loan Bank Advances | ||||||||||||||||||||
| Short term borrowings | ||||||||||||||||||||
| Junior subordinated debentures | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Carrying | Fair Value | |||||||||||||||||||
| (Dollars in thousands) | Amount | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||
| Financial Assets: | ||||||||||||||||||||
| Cash and short term investments | $ | $ | $ | $ | $ | |||||||||||||||
| Available-for-sale securities | ||||||||||||||||||||
| Held-to-maturity securities | ||||||||||||||||||||
| Other investments, at cost | ||||||||||||||||||||
| Loans held for sale | ||||||||||||||||||||
| Derivative financial instruments | ||||||||||||||||||||
| Net loans receivable | ||||||||||||||||||||
| Accrued interest receivable | ||||||||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Non-interest bearing demand | $ | $ | $ | $ | $ | |||||||||||||||
| Interest bearing demand deposits and money market accounts | ||||||||||||||||||||
| Savings | ||||||||||||||||||||
| Time deposits | ||||||||||||||||||||
| Total deposits | ||||||||||||||||||||
| Federal Home Loan Bank Advances | ||||||||||||||||||||
| Short term borrowings | ||||||||||||||||||||
| Junior subordinated debentures | ||||||||||||||||||||
| Accrued interest payable | ||||||||||||||||||||
19
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of March 31, 2025 and December 31, 2024 that are measured on a recurring basis. There were no liabilities carried at fair value as of March 31, 2025 and December 31, 2024 that are measured on a recurring basis.
| (Dollars in thousands) | March 31, 2025 | |||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Available- for-sale securities | ||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | ||||||||||||
| Government Sponsored Enterprises | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Small Business Administration pools | ||||||||||||||||
| Corporate and other securities | ||||||||||||||||
| Total Available-for-sale securities | ||||||||||||||||
| Derivative financial instruments | ||||||||||||||||
| Loans held for sale | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (Dollars in thousands) | December 31, 2024 | |||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Available- for-sale securities | ||||||||||||||||
| US Treasury securities | $ | $ | $ | $ | ||||||||||||
| Government Sponsored Enterprises | ||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||
| Small Business Administration pools | ||||||||||||||||
| Corporate and other securities | ||||||||||||||||
| Total Available-for-sale securities | ||||||||||||||||
| Derivative financial instruments | ||||||||||||||||
| Loans held for sale | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
20
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of March 31, 2025 and December 31, 2024 that are measured on a non-recurring basis. There were no Level 3 financial instruments as of March 31, 2025 and December 31, 2024 measured on a recurring basis.
| (Dollars in thousands) | March 31, 2025 | |||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Other real estate owned: | ||||||||||||||||
| Construction | $ | $ | $ | $ | ||||||||||||
| Mortgage-commercial | ||||||||||||||||
| Total other real estate owned | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| (Dollars in thousands) | December 31, 2024 | |||||||||||||||
| Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
| Other real estate owned: | ||||||||||||||||
| Construction | $ | $ | $ | $ | ||||||||||||
| Mortgage-commercial | ||||||||||||||||
| Total other real estate owned | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company has a large percentage of loans with real estate serving as collateral. Loans to borrowers which are experiencing financial difficulty are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. Third party appraisals are generally obtained when management determines that the borrower is experiencing financial difficulty or at the time it is transferred to OREO. This internal process consists of evaluating the underlying collateral to independently obtained comparable properties. With respect to less complex or smaller credits, an internal evaluation may be performed. Generally, the independent and internal evaluations are updated annually. Factors considered in determining the fair value include, among others, geographic sales trends, the value of comparable surrounding properties and the condition of the property.
21
For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:
| (Dollars in thousands) | Fair
Value as of March 31, 2025 |
Valuation Technique | Significant
Observable Inputs |
Significant Unobservable Inputs | ||||||
| OREO | $ | Appraisal Value/Comparison Sales/Other estimates | Appraisals and/or sales of comparable properties | Appraisals
discounted | ||||||
| (Dollars in thousands) | Fair
Value as of December 31, 2024 |
Valuation Technique | Significant
Observable Inputs |
Significant Unobservable Inputs | ||||||
| OREO | $ | Appraisal Value/Comparison Sales/Other estimates | Appraisals and/or sales of comparable properties | Appraisals
discounted | ||||||
Note 6 - Deposits
The Company’s total deposits are comprised of the following at the dates indicated:
| March 31, | December 31, | |||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Non-interest bearing demand deposits | $ | $ | ||||||
| Interest bearing demand deposits and money market accounts | ||||||||
| Savings | ||||||||
| Time deposits of $250,000 or less | ||||||||
| Time deposits greater than $250,000 | ||||||||
| Total deposits | $ | $ | ||||||
Time deposits of $250,000 or less
include $
Note 7 - Reportable Segments
The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning by the Bank President and CEO, who is the Chief Operating Decision Maker. (CODM). The CODM regularly reviews the performance of the Company’s four reportable segments, which are detailed below:
| · | Commercial and Retail Banking: The Company’s primary business is to provide deposit and lending products and services to its commercial and retail customers. | |
| · | Mortgage Banking: This segment provides mortgage origination services for loans that will be sold to investors in the secondary market, consumer mortgage loans that will be held-for-investment, and consumer residential construction loans. The Company allocates a provision for credit loss, cost of funds, and other operating costs to this segment. | |
| · | Investment advisory and non-deposit: This segment provides investment advisory services and non-deposit products. | |
| · | Corporate: This segment includes the parent company financial information, including interest on parent company debt and dividend income received from the Bank. |
22
The following tables present selected financial information for the Company’s reportable business segments for the three months ended March 31, 2025 and March 31, 2024.
| (Dollars in thousands) | Commercial | Investment | ||||||||||||||||||||||
| Three months ended March 31, 2025 | and Retail | Mortgage | Advisory and | |||||||||||||||||||||
| Banking | Banking | Non-Deposit | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| Dividend and Interest Income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Net interest income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Provision for (release of) credit losses | ( | ) | ||||||||||||||||||||||
| Noninterest income | ||||||||||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||||||||||
| Other noninterest expense | ||||||||||||||||||||||||
| Total noninterest expense | ||||||||||||||||||||||||
| Net income before taxes | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Income tax provision (benefit) | ( | ) | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| (Dollars in thousands) | Commercial | Investment | ||||||||||||||||||||||
| Three months ended March 31, 2024 | and Retail | Mortgage | Advisory and | |||||||||||||||||||||
| Banking | Banking | Non-Deposit | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| Dividend and Interest Income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Interest expense | ||||||||||||||||||||||||
| Net interest income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| (Release of) provision for credit losses | ( | ) | ||||||||||||||||||||||
| Noninterest income | ||||||||||||||||||||||||
| Salaries and employee benefits | ||||||||||||||||||||||||
| Other noninterest expense | ||||||||||||||||||||||||
| Total noninterest expense | ||||||||||||||||||||||||
| Net income before taxes | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Income tax provision (benefit) | ( | ) | ||||||||||||||||||||||
| Net income | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
The table below presents total assets for the Company’s reportable business segments as of March 31, 2025 and December 31, 2024.
| Commercial | Investment | |||||||||||||||||||||||
| (Dollars in thousands) | and Retail | Mortgage | Advisory and | |||||||||||||||||||||
| Banking | Banking | Non-Deposit | Corporate | Eliminations | Consolidated | |||||||||||||||||||
| Total Assets as of March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
| Total Assets as of December 31, 2024 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||
23
Note 8 - Derivative Financial Instruments
Effective May 5, 2023, the Company entered into a pay-fixed/receive-floating interest rate swap (the “Pay-Fixed Swap Agreement”) for a notional amount of $150.0 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate loans included in the closed loan portfolio. This fair value hedge converts the hedged loans from a fixed rate to a synthetic floating SOFR rate. The Pay-Fixed Swap Agreement will mature on May 5, 2026 and will pay a fixed coupon rate of 3.58% while receiving the overnight SOFR rate.
The interest rate swap had a notional
amount of $
Note 9 - Leases
The Company has operating leases on three of its facilities at March 31, 2025 and December 31, 2024. All leases commenced prior to 2024. The three leases have maturities ranging from May 2027 to December 2038, some of which include extensions of multiple two-year terms. The following tables present information about the Company’s leases:
| (Dollars in thousands) | March 31, 2025 | December 31, 2024 | ||||||
| Right-of-use assets | $ | $ | ||||||
| Lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term | 11.08 years | 11.21 years | ||||||
| Weighted average discount rate | % | % | ||||||
| Three Months Ended March 31, | ||||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Operating lease cost | $ | $ | ||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
The following table shows future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2025.
| (Dollars in thousands) | ||||
| Year | Operating Leases | |||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total undiscounted lease payments | $ | |||
| Less effect of discounting | ( |
) | ||
| Present value of estimated lease payments (lease liability) | $ | |||
24
Note 10 - Accumulated Other Comprehensive Loss
The following table presents the changes in each component or accumulated other comprehensive loss net of tax, for the three months ended March 31, 2025 and 2024.
| March 31, 2025 (Dollars in thousands) | Securities Available for Sale | Securities Held to Maturity | Accumulated Other Comprehensive Loss | |||||||||
| Balance at December 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive income | ||||||||||||
| Amortization of unrealized loss on securities transferred to held-to-maturity | ||||||||||||
| Net other comprehensive income during period | ||||||||||||
| Balance at March 31, 2025 | ( | ) | ( | ) | ( | ) | ||||||
| March 31, 2024 (Dollars in thousands) | Securities Available for Sale | Securities Held to Maturity | Accumulated Other Comprehensive Loss | |||||||||
| Balance at December 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||
| Other comprehensive income | ||||||||||||
| Amortization of unrealized loss on securities transferred to held-to-maturity | ||||||||||||
| Net other comprehensive income during period | ||||||||||||
| Balance at March 31, 2024 | ( | ) | ( | ) | ( | ) | ||||||
Note 11 - Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
Management has reviewed events occurring through the date the financial statements were available to be issued and no other subsequent events occurred requiring accrual or that require disclosure and have not been disclosed in the footnotes to the Company’s unaudited consolidated financial statements as of March 31, 2025.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report, including information included or incorporated by reference in this report, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “approximately,” “is likely,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitation, those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 14, 2025 and the following:
| · | credit losses as a result of, among other potential factors, declining real estate values, increasing interest rates, increasing unemployment, or changes in customer payment behavior or other factors; |
| · | the amount of our loan portfolio collateralized by real estate and weaknesses in the real estate market; |
| · | restrictions or conditions imposed by our regulators on our operations; |
| · | the adequacy of the level of our allowance for credit losses and the amount of credit loss provisions required in future periods; |
| · | examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, write-down assets, or take other actions; |
| · | risks associated with actual or potential information gatherings, investigations or legal proceedings by customers, regulatory agencies or others; |
| · | reduced earnings due to higher credit impairment charges resulting from additional decline in the value of our securities portfolio, specifically as a result of increasing default rates, and loss severities on the underlying real estate collateral; |
| · | increases in competitive pressure in the banking and financial services industries; |
| · | changes in the interest rate environment, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets, and that could reduce anticipated or actual margins; temporarily reduce the market value of our available-for-sale investment securities and temporarily reduce accumulated other comprehensive income or increase accumulated other comprehensive loss, which temporarily could reduce shareholders’ equity; |
| · | enterprise risk management may not be effective in mitigating risk and reducing the potential for losses; |
| · | changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry, including as a result of the presidential administration and congressional elections; |
| · | general economic conditions resulting in, among other things, a deterioration in credit quality; |
| · | changes occurring in business conditions and inflation, including the impact of inflation on us, including a decrease in demand for new mortgage loan and commercial real estate loan originations and refinancings, an increase in competition for deposits, and an increase in non-interest expense, which may have an adverse impact on our financial performance; |
| · | changes in access to funding or increased regulatory requirements with regard to funding, which could impair our liquidity; |
| · | FDIC assessment which has increased, and may continue to increase, our cost of doing business; |
| · | cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events; |
| · | changes in deposit flows, which may be negatively affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, and returns available to customers on alternative investments; |
| · | changes in technology, including the increasing use of artificial intelligence; |
26
| · | our current and future products, services, applications and functionality and plans to promote them; |
| · | changes in monetary and tax policies, including potential changes in tax laws and regulations; | |
| · | changes in accounting standards, policies, estimates and practices as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board; |
| · | our assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results; | |
| · | the rate of delinquencies and amounts of loans charged-off; | |
| · | the rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio; | |
| · | our ability to maintain appropriate levels of capital, including levels of capital required under the capital rules implementing Basel III; | |
| · | our ability to successfully execute our business strategy; |
| · | our ability to attract and retain key personnel; | |
| · | our ability to retain our existing customers, including our deposit relationships; |
| · | our use of brokered deposits may be an unstable and/or an expensive deposit source to fund earning asset growth; | |
| · | our ability to obtain brokered deposits as an additional funding source could be limited; | |
| · | adverse changes in asset quality and resulting credit risk-related losses and expenses; | |
| · | the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, such as the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs, and disruptions caused by widespread cybersecurity incidents; |
| · | disruptions due to flooding, severe weather or other natural disasters; and |
| · | other risks and uncertainties described under “Risk Factors” below. |
Because of these and other risks and uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements. For additional information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024. In addition, our past results of operations do not necessarily indicate our future results. Therefore, we caution you not to place undue reliance on our forward-looking information and statements.
All forward-looking statements in this report are based on information available to us as of the date of this report. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that these expectations will be achieved. We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.
27
Overview
The following discussion describes our results of operations for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 and analyzes our financial condition as of March 31, 2025 as compared to December 31, 2024. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary sources of funds for making these loans and investments are our deposits and borrowings, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. There are risks inherent in all loans, so we maintain an allowance for credit losses to absorb our estimate of expected credit losses on existing loans that may become uncollectible. We establish and maintain this allowance by recording a provision for or release of credit losses against our earnings. In the following section, we have included a detailed discussion of this process.
In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this non-interest income, as well as our non-interest expense, in the following discussion.
The following discussion and analysis identifies significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” or similar references mean First Community Corporation and its subsidiaries. References to the “Bank” mean First Community Bank.
Industry Trends
Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve have major effects upon the levels of bank loans, investments, deposits and borrowings through its open market operations in United States government securities and through its regulation of the discount rate on borrowings of member banks and the reserve requirements against member banks’ deposits. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies. The target rate range of federal funds was 5.25% - 5.50% from July 26, 2023 to September 17, 2024. On September 18, 2024, the FOMC reduced the target range of federal funds by 0.50% to 4.75% - 5.00%. There were two additional 25 basis point cuts to the target rate range of federal funds during the fourth quarter of 2024, lowering the target rate range to 4.25% - 4.50% at March 31, 2025, compared to 5.25% - 5.50% at March 31, 2024. Changes in market interest rates can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity. Furthermore, changes in market interest rates can have a significant impact on the level of mortgage originations and related mortgage banking income.
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Critical Accounting Estimates
We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the notes to our unaudited consolidated financial statements as of March 31, 2025 and our notes included in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the SEC on March 14, 2025.
Certain accounting policies inherently involve a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. We consider these accounting policies and estimates to be critical accounting policies. We have identified the determination of the allowance for credit losses, income taxes and deferred tax assets and liabilities, goodwill and other intangible assets, and derivative instruments to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, management has reviewed and approved these critical accounting policies and estimates and has discussed these policies with our Audit and Compliance Committee. A brief discussion of each of these areas appears in our Annual Report on Form 10-K for the year ended December 31, 2024.
There have been no significant changes to our critical accounting estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Comparison of Results of Operations for Three Months Ended March 31, 2025 to the Three Months Ended March 31, 2024
Net Income
Our net income for the three months ended March 31, 2025 increased $1.4 million to $4.0 million, or $0.51 diluted earnings per common share, as compared to $2.6 million, or $0.34 diluted earnings per common share, for the three months ended March 31, 2024. The $1.4 million increase in net income between the two periods is primarily due to a $2.3 million increase in net interest income and a $798,000 increase in total non-interest income, partially offset by a $308,000 increase in provision for credit losses, a $949,000 increase in total non-interest expense and a $454,000 increase in income tax expense.
| · | The $2.3 million increase in net interest income results from a $126.0 million increase in average earning assets and a 0.34% increase in net interest margin between the two periods. | |
| · | The $437,000 provision for credit losses during the three months ended March 31, 2025 was primarily due to a $473,000 increase in the allowance for credit losses – loans, partially offset by a decline of $25,000 in the allowance for credit losses - unfunded commitments. The increase in the allowance for credit losses – loans was primarily due to a $31.4 million increase in loans held-for-sale and a one basis point increase in our qualitative factors during the three months ended March 31, 2025. | |
| · | The $129,000 provision for credit losses during the three months ended March 31, 2024 is primarily related to a $23.3 million increase in loans held-for-investment, which was partially offset by a $17.9 million decrease in unfunded commitments net of unconditionally cancellable commitments.
| |
| · | The $798,000 increase in non-interest income was primarily related to increases of $334,000 in mortgage banking income, $448,000 in investment advisory fees and non-deposit commissions, and $54,000 in other non-interest income, partially offset by a decrease of $38,000 in deposit service charges. | |
| · | The $949,000 increase in non-interest expense is primarily due to increases of $556,000 in salaries and employee benefits, $60,000 in equipment, $22,000 in FDIC insurance assessments, and $376,000 in other non-interest expense, partially offset by decreases of $13,000 in occupancy and $52,000 in marketing and public relations. | |
| · | Our effective tax rate was 22.85% during the three months ended March 31, 2025 compared to 21.94% during the three months ended March 31, 2024. |
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Net Interest Income
Net interest income is our primary source of revenue. Net interest income is the difference between income earned on assets and interest paid on deposits and borrowings used to support such assets. Net interest income is determined by the rates earned on our interest-earning assets and the rates paid on our interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, and the degree of mismatch and the maturity and repricing characteristics of our interest-earning assets and interest-bearing liabilities.
Net interest income increased $2.3 million, or 19.2%, to $14.4 million for the three months ended March 31, 2025 from $12.1 million for the three months ended March 31, 2024. Our net interest margin improved 34 basis points to 3.12% during the three months ended March 31, 2025 compared to 2.78% during the three months ended March 31, 2024. Our net interest margin, on a taxable equivalent basis, was 3.13% for the three months ended March 31, 2025 compared to 2.79% for the three months ended March 31, 2024. Average earning assets were $1.9 billion for the three months ended March 31, 2025 and $1.7 billion in the same period of 2024.
| · | The $2.3 million increase in net interest income results from a $126.0 million increase in average earning assets and a 0.34% increase in net interest margin between the two periods. | |
| · | The increase in average earning assets was primarily due to increases of $90.0 million in loans and $43.3 million in interest bearing deposits in other banks, partially offset by a decrease of $7.2 million in total securities. | |
| · | The increase in our earning asset yield was due to a change in the mix of our earning assets from lower yielding securities to higher yielding loans and short-term investments, which resulted in a higher percentage of earning assets in higher yielding loans and short-term investments and due to an increase in the yield on our loans. |
| · | Investment securities represented 26.3% of average total earning assets for the three months ended March 31, 2025 compared to 28.6% during the same period in 2024. This decline was primarily due to normal investment roll-off being re-invested in higher-yielding loans rather than securities. | |
| · | Short-term investments represented 7.5% of average total earning assets for the three months ended March 31, 2025 compared to 5.6% during the same period in 2024. | |
| · | Loans represented 66.2% of average total earning assets for the three months ended March 31, 2025 compared to 65.8% during the same period in 2024. | |
| · | During the third and fourth quarter of 2024, market interest rates decreased as the Federal Reserve cut the target rate range by 1.00%. The target rate range of federal funds was 4.25% - 4.50% at March 31, 2025 compared to 5.25% - 5.50% at March 31, 2024. | |
| · | Effective May 5, 2023, we entered into Pay-Fixed Swap Agreement for a notional amount of $150.0 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate loans included in the closed loan portfolio. This fair value hedge converts the hedged loans from a fixed rate to a synthetic floating SOFR rate. The Pay-Fixed Swap Agreement will mature on May 5, 2026 and we will pay a fixed coupon rate of 3.58% while receiving the overnight SOFR rate. This interest rate swap positively impacted interest on loans by $288,000 during the three months ended March 31, 2025, compared to a positive impact of interest on loans of $649,000 during the three months ended March 31, 2024. Loan yields and net interest margin both benefited during the three months ended March 31, 2025 with an increase of 10 basis points and six basis points, respectively. Loan yields and net interest margin both benefited during the three months ended March 31, 2024 with an increase of 23 basis points and 15 basis points, respectively. |
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Average loans increased $90.0 million, or 7.8%, to $1.2 billion for the three months ended March 31, 2025 from $1.1 billion for the same period in 2024. Our loan (including loans held-for-sale) to deposit ratio on average during the three months ended March 31, 2025 was 74.2%, as compared to 75.5% during same period in 2024. The yield on loans increased 27 basis points to 5.71% during the three months ended March 31, 2025 from 5.44% during the same period in 2024 due to an increase in market interest rates.
Average securities for the three months ended March 31, 2025 decreased $7.2 million, or 1.4%, to $492.2 million from $499.4 million during the same period in 2024. Short-term investments and CDs increased $43.3 million to $140.6 million during the three months ended March 31, 2025 from $97.4 million during the same period in 2024. The increase in short-term investments was due to our decision to hold excess liquidity in interest bearing deposits at the Federal Reserve Bank. The yield on our securities portfolio declined to 3.42% for the three months ended March 31, 2025 from 3.66% for the same period in 2024. The yield on our short-term investments declined to 4.29% for the three months ended March 31, 2025 from 4.79%.
The yields on earning assets for the three months ended March 31, 2025 and 2024 were 5.00% and 4.90%, respectively.
The cost of interest-bearing liabilities was 2.58% during the three months ended March 31, 2025 compared to 2.88% during the same period in 2024. The cost of deposits, including demand deposits, was 1.85% during the three months ended March 31, 2025 compared to 1.90% during the same period in 2024. The cost of funds, including demand deposits, was 1.94% during the three months ended March 31, 2025 compared to 2.16% during the same period in 2024. We continue to focus on growing our pure deposits (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, and IRAs) plus customer cash management repurchase agreements as these accounts tend to be low-cost funding and assist us in controlling our overall cost of funds. Average pure deposits plus customer cash management repurchase agreements increased $143.4 million or 10.6% to $1.5 billion during the three months ended March 31, 2025 from $1.4 billion during the same period in 2024. During the three months ended March 31, 2025, pure deposits plus customer cash management repurchase agreements averaged 83.0% of total deposits plus customer cash management repurchase agreements as compared to 84.0% during the same period of 2024. This reduction is related to a higher rate of growth in our certificates of deposit compared to pure deposits due to the higher interest rate environment. The growth in certificates of deposit is related to customer certificates of deposit partially offset by a reduction in brokered certificates of deposit. As of March 31, 2025, we had $10.4 million in brokered certificates of deposit with an initial terms of 18 months. We had $10.4 million and $60.6 million in brokered certificates of deposit at December 31, 2024 and at March 31, 2024, respectively.
Average Balances, Income Expenses and Rates. The following table depicts, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.
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FIRST COMMUNITY CORPORATION
Yields on
Average Earning Assets and
Rates on Average Interest-Bearing Liabilities
| Three months ended March 31, 2025 | Three months ended March 31, 2024 | |||||||||||||||||||||||
| Average | Interest | Yield/ | Average | Interest | Yield/ | |||||||||||||||||||
| Balance | Earned/Paid | Rate | Balance | Earned/Paid | Rate | |||||||||||||||||||
| Assets | ||||||||||||||||||||||||
| Earning assets | ||||||||||||||||||||||||
| Loans(1) | $ | 1,239,225 | $ | 17,444 | 5.71 | % | $ | 1,149,263 | $ | 15,550 | 5.44 | % | ||||||||||||
| Non-taxable securities | 46,986 | 342 | 2.95 | % | 49,256 | 357 | 2.92 | % | ||||||||||||||||
| Taxable securities | 445,204 | 3,808 | 3.47 | % | 450,112 | 4,189 | 3.74 | % | ||||||||||||||||
| Int bearing deposits in other banks | 140,548 | 1,487 | 4.29 | % | 97,290 | 1,159 | 4.79 | % | ||||||||||||||||
| Fed funds sold | 63 | 1 | 6.44 | % | 62 | 1 | 6.49 | % | ||||||||||||||||
| Total earning assets | $ | 1,872,026 | $ | 23,082 | 5.00 | % | $ | 1,745,983 | $ | 21,256 | 4.90 | % | ||||||||||||
| Cash and due from banks | 24,632 | 24,383 | ||||||||||||||||||||||
| Premises and equipment | 29,874 | 30,472 | ||||||||||||||||||||||
| Goodwill and other intangibles | 15,063 | 15,221 | ||||||||||||||||||||||
| Other assets | 53,138 | 54,044 | ||||||||||||||||||||||
| Allowance for credit losses - investments | (23 | ) | (30 | ) | ||||||||||||||||||||
| Allowance for credit losses - loans | (13,217 | ) | (12,357 | ) | ||||||||||||||||||||
| Total assets | $ | 1,981,493 | $ | 1,857,716 | ||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||||
| Interest-bearing transaction accounts | $ | 331,897 | $ | 965 | 1.18 | % | $ | 290,765 | $ | 678 | 0.94 | % | ||||||||||||
| Money market accounts | 440,282 | 3,319 | 3.06 | % | 407,177 | 3,385 | 3.34 | % | ||||||||||||||||
| Savings deposits | 113,070 | 79 | 0.28 | % | 116,379 | 114 | 0.39 | % | ||||||||||||||||
| Time deposits | 333,615 | 3,246 | 3.95 | % | 283,933 | 3,026 | 4.29 | % | ||||||||||||||||
| Fed funds purchased | 2 | — | 0.00 | % | 2 | — | 0.00 | % | ||||||||||||||||
| Securities sold under agreements to repurchase | 130,779 | 814 | 2.52 | % | 87,056 | 609 | 2.81 | % | ||||||||||||||||
| FHLB advances | — | — | NA | % | 83,736 | 1,059 | 5.09 | % | ||||||||||||||||
| Other long-term debt | 14,964 | 269 | 7.29 | % | 14,964 | 308 | 8.28 | % | ||||||||||||||||
| Total interest-bearing liabilities | $ | 1,364,609 | $ | 8,692 | 2.58 | % | $ | 1,284,012 | $ | 9,179 | 2.88 | % | ||||||||||||
| Demand deposits | 450,554 | 423,145 | ||||||||||||||||||||||
| Allowance for credit losses - unfunded commitments | 480 | 596 | ||||||||||||||||||||||
| Other liabilities | 19,113 | 17,983 | ||||||||||||||||||||||
| Shareholders’ equity | 146,737 | 131,980 | ||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 1,981,493 | $ | 1,857,716 | ||||||||||||||||||||
| Cost of deposits, including demand deposits | 1.85 | % | 1.90 | % | ||||||||||||||||||||
| Cost of funds, including demand deposits | 1.94 | % | 2.16 | % | ||||||||||||||||||||
| Net interest spread | 2.42 | % | 2.02 | % | ||||||||||||||||||||
| Net interest income/margin | $ | 14,390 | 3.12 | % | $ | 12,077 | 2.78 | % | ||||||||||||||||
| Net interest income/margin (tax equivalent)(2) | $ | 14,441 | 3.13 | % | $ | 12,117 | 2.79 | % | ||||||||||||||||
| (1) | All loans and deposits are domestic. Average loan balances include non-accrual loans and loans held-for-sale. |
| (2) | Based on a 21.0% marginal tax rate. |
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The table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the Company on such assets and liabilities.
| Three Months Ended March 31, | ||||||||||||
| 2025 versus 2024 | ||||||||||||
| Increase (Decrease) Due to Changes in(1) | ||||||||||||
| Volume | Rate | Total | ||||||||||
| (in thousands) | ||||||||||||
| Interest income: | ||||||||||||
| Loans | $ | 1,250 | $ | 644 | $ | 1,894 | ||||||
| Non-taxable securities | (17 | ) | 2 | (15 | ) | |||||||
| Taxable securities | (45 | ) | (336 | ) | (381 | ) | ||||||
| Interest bearing deposits in other banks | 469 | (141 | ) | 328 | ||||||||
| Total interest income | $ | 1,657 | $ | 169 | $ | 1,826 | ||||||
| Interest expense: | ||||||||||||
| Interest-bearing transaction accounts | $ | 105 | $ | 182 | $ | 287 | ||||||
| Money market accounts | 263 | (329 | ) | (66 | ) | |||||||
| Savings deposits | (3 | ) | (32 | ) | (35 | ) | ||||||
| Time deposits | 499 | (279 | ) | 220 | ||||||||
| Securities sold under agreements to repurchase | 278 | (73 | ) | 205 | ||||||||
| FHLB advances | (1,059 | ) | — | (1,059 | ) | |||||||
| Other long-term debt | — | (39 | ) | (39 | ) | |||||||
| Total interest expense | $ | 83 | $ | (570 | ) | $ | (487 | ) | ||||
| Net interest income | $ | 1,574 | $ | 739 | $ | 2,313 | ||||||
| (1) | The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each. |
Non-interest Income and Non-interest Expense
Non-interest income during the three months ended March 31, 2025 increased $798,000 to $4.0 million from $3.2 million during the same period in 2024. The $798,000 increase in non-interest income was primarily related to increases of $334,000 in mortgage banking income, $448,000 in investment advisory fees and non-deposit commissions, and $54,000 in other non-interest income, partially offset by a decrease of $38,000 in deposit service charges.
33
Mortgage banking income increased $334,000 to $759,000 during the three months ended March 31, 2025 from $425,000 during the same period in 2024. Total production in the mortgage line of business in the three months ended March 31, 2025 was $43.9 million, which was comprised of $25.8 million in secondary market loans, $4.0 million in adjustable rate mortgages (ARMs), and $14.1 million in commitments for new construction residential real estate loans. Fee revenue from the mortgage line of business was $759,000 for the three months ended March 31, 2025, which includes $755,000 associated with the secondary market loans with a gain-on-sale margin of 2.93%. This compares to production year-over-year of $36.6 million which was comprised of $13.1 million in secondary market loans, $9.7 million in ARMs, and $13.9 million in commitments for new construction residential real estate loans during the three months ended March 31, 2024. Fee revenue from the mortgage line of business was $425,000, which includes $418,000 associated with the secondary market loans with a gain-on-sale margin of 3.20% during the three months ended March 31, 2024.
Investment advisory fees rose $448,000 to $1.8 million during the three months ended March 31, 2025 from $1.4 million during the same period in 2024. Total assets under management decreased to $892.8 million at March 31, 2025 compared to $926.0 million at December 31, 2024 and increased compared to $832.9 million at March 31, 2024. The decline between December 31, 2024 and March 31, 2025 was driven by broad declines in the US stock market during the first quarter of 2025. Our net new assets under management were $21.5 million during the three months ended March 31, 2025. Furthermore, our investment performance for the three months ended March 31, 2025 was -5.9% compared to -4.6% for the S&P 500; and our investment performance for the 12-month period ended March 31, 2025 was 2.1% compared to 6.8% for the S&P 500. Our customers’ assets under management are allocated across a range of asset classes, including equities, bonds, and cash.
Other non-interest income increased $54,000 to $1.2 million during the three months ended March 31, 2025 from $1.1 million during the same period in 2024. The $54,000 increase was primarily due to increases in ATM debit card income of $36,000 and rental income of $22,000.
The following table shows the components of non-interest income for the three-month periods ended March 31, 2025 and March 31, 2024.
| (Dollars in thousands) | Three months ended March 31, | |||||||
| 2025 | 2024 | |||||||
| Deposit service charges | $ | 221 | $ | 259 | ||||
| Mortgage banking income | 759 | 425 | ||||||
| Investment advisory fees and non-deposit commissions | 1,806 | 1,358 | ||||||
| ATM debit card income | 695 | 659 | ||||||
| Bank owned life insurance | 202 | 195 | ||||||
| Rental income | 116 | 94 | ||||||
| Other service fees including safe deposit box fees | 62 | 60 | ||||||
| Wire transfer fees | 35 | 30 | ||||||
| Other | 86 | 104 | ||||||
| Total | $ | 3,982 | $ | 3,184 | ||||
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Non-interest expense increased $949,000 during the three months ended March 31, 2025 to $12.8 million compared to $11.8 million during the same period in 2024. The $949,000 increase in non-interest expense is primarily due to increases of $556,000 in salaries and employee benefits, $60,000 in equipment, $22,000 in FDIC insurance assessments, and $376,000 in other non-interest expense, partially offset by decreases of $13,000 in occupancy expense and $52,000 in marketing and public relations expense.
| · | Salary and benefits expense increased $556,000 to $7.7 million during the three months ended March 31, 2025 from $7.1 million during the same period in 2024. This increase is primarily a result of normal salary adjustments, higher mortgage banking and financial planning and investment advisory commissions, and increased incentive accruals driven by stronger performance. We had 265 full-time employees and 17 part-time employees at March 31, 2025 compared to 263 full-time employees and 16 part-time employees at March 31, 2024. | |
| · | Occupancy expense decreased $13,000 to $777,000 during the three months ended March 31, 2025 from $790,000 during the same period in 2024 primarily due to a decline in lease costs and janitorial services partially offset by higher building and yard maintenance. | |
| · | FDIC assessments increased $22,000 to $300,000 during the three months ended March 31, 2025 compared to $278,000 during the same period in 2024 due to an increase in our FDIC assessment rate and our assets. | |
| · | Equipment expense increased $60,000 to $390,000 during the three months ended March 31, 2025 from $330,000 during the same period in 2024 primarily due to higher equipment maintenance and repair costs. | |
| · | Marketing and public relations costs declined $52,000 to $514,000 during the three months ended March 31, 2025 from $566,000 during the same period in 2024 primarily due to the timing of planned media production and campaigns. Marketing expenses, while planned and budgeted on an annual basis, can vary significantly between quarters depending on the needs of the company. | |
| · | Other non-interest expense increased $376,000 to $3.1 million during the three months ended March 31, 2025 from $2.7 million during the same period in 2024. |
| - | Core banking and electronic processing and services increased $108,000 to $756,000 from $648,000 primarily due to higher customer activity and enhanced technology. | |
| - | ATM/debit card processing increased $32,000 to $327,000 from $295,000 primarily due to higher customer activity and enhanced technology. | |
| - | Software subscriptions and services increased $53,000 to $348,000 from $295,000 primarily due to new subscriptions and services and higher renewal prices. | |
| - | Telephone expense declined $39,000 to $109,000 from $148,000 due to a change in our telecommunications vendor, which resulted in us paying two vendors for a portion of 2024. | |
| - | Legal and professional fees increased $108,000 to $465,000 from $357,000 due to higher audit and legal expenses. | |
| - | Shareholder expense increased $47,000 to $99,000 from $52,000 primarily due to additional holding company costs. |
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The following table shows the components of non-interest expense for the three-month periods ended March 31, 2025 and March 31, 2024.
| (Dollars in thousands) | Three months ended March 31, | |||||||
| 2025 | 2024 | |||||||
| Salaries and employee benefits | $ | 7,657 | $ | 7,101 | ||||
| Occupancy | 777 | 790 | ||||||
| Equipment | 390 | 330 | ||||||
| Marketing and public relations | 514 | 566 | ||||||
| FDIC insurance assessments | 300 | 278 | ||||||
| Other real estate expense | 12 | 12 | ||||||
| Amortization of intangibles | 39 | 39 | ||||||
| Core banking and electronic processing and services* | 756 | 669 | ||||||
| ATM/debit card processing | 327 | 295 | ||||||
| Software subscriptions and services | 348 | 295 | ||||||
| Supplies | 28 | 39 | ||||||
| Telephone | 109 | 148 | ||||||
| Courier | 88 | 74 | ||||||
| Correspondent services | 72 | 85 | ||||||
| Insurance | 108 | 99 | ||||||
| Debit card and fraud losses | 76 | 69 | ||||||
| Investment advisory services | 99 | 94 | ||||||
| Loan processing and closing costs | 59 | 63 | ||||||
| Director fees | 152 | 137 | ||||||
| Legal and professional fees | 465 | 357 | ||||||
| Shareholder expense | 99 | 52 | ||||||
| Other | 279 | 213 | ||||||
| Total | $ | 12,754 | $ | 11,805 | ||||
| * | Core banking and electronic processing and services includes core processing, bill payment, online banking, remote deposit capture, wire processing services and postage costs for mailing customer notices and statements. |
Income Tax Expense
We incurred income tax expense of $1.2 million and $730,000 for the three months ended March 31, 2025 and 2024, respectively. Our effective tax rate was 22.85% and 21.94% for the three months ended March 31, 2025 and 2024, respectively.
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Provision and Allowance for Credit Losses and Credit Metrics
Provision and Allowance for Credit Losses
The total allowance for credit losses (ACL) is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments. The ACL for loans is further composed of the allowance for individually assessed loans, the allowance for collectively assessed expected losses, the allowance for collectively assessed qualitative adjustments, and the allowance for collectively assessed additional allowance. The allowance for collectively assessed qualitative adjustments is calculated using a set of qualitative factors, which at March 31, 2025 and December 31, 2024 included the following factors:
| Qualitative Factors | ||||||||||||
| (in basis points) | March 31, | December 31, | March 31, | |||||||||
| 2025 | 2024 | 2024 | ||||||||||
| Changes in lending policies and procedures | 3 | 3 | 3 | |||||||||
| Changes in staff, markets, and products | 5 | 5 | 5 | |||||||||
| Change in total of 30-89 days past due and other loans especially mentioned | 1 | 1 | 1 | |||||||||
| Changes in the loan review system | 2 | 2 | 2 | |||||||||
| Change in collateral value for non-collateral dependent loans | 9 | 9 | 9 | |||||||||
| Changes in concentration of credits | 11 | 11 | 11 | |||||||||
| Changes in the legal or regulatory requirements and competition | 10 | 10 | 10 | |||||||||
| Data limitations | 6 | 10 | 10 | |||||||||
| Model imprecision | 14 | 14 | 14 | |||||||||
| Reasonable and supportable forecast alternative scenarios | 20 | 15 | 17 | |||||||||
| Total Basis Points | 81 | 80 | 82 | |||||||||
The above qualitative factors, combined with the allowance for individually assessed loans, the allowance for collectively assessed expected losses, and the collectively assessed additional allowance, are used to calculate the total allowance for credit losses on loans. The following table summarizes the activity related to our allowance for credit losses for loans:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Beginning balance of allowance | $ | 13,135 | $ | 12,267 | ||||
| Loans charged-off: | ||||||||
| Commercial | — | 24 | ||||||
| Real Estate Mortgage – Commercial | — | — | ||||||
| Consumer - Other | 9 | 25 | ||||||
| Total loans charged-off | 9 | 49 | ||||||
| Recoveries: | ||||||||
| Commercial | 7 | 1 | ||||||
| Real Estate Mortgage – Residential | — | 19 | ||||||
| Real Estate Mortgage – Commercial | 5 | 3 | ||||||
| Real Estate – Construction | 1 | — | ||||||
| Consumer – Home Equity | 2 | 2 | ||||||
| Consumer – Other | 5 | 2 | ||||||
| Total recoveries | 20 | 27 | ||||||
| Net loan recoveries (charge-offs) | 11 | (22 | ) | |||||
| Provision for credit losses - loans | 462 | 214 | ||||||
| Balance at period end | $ | 13,608 | $ | 12,459 | ||||
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The following allocation of the allowance to specific components is not necessarily indicative of future losses or future allocations. The entire allowance is available to absorb losses in the portfolio:
Composition of the Allowance for Credit Losses - Loans
| March 31, 2025 | December 31, 2024 | |||||||||||||||
| % of Allowance in | % of Allowance in | |||||||||||||||
| (Dollars in thousands) | Amount | Category | Amount | Category | ||||||||||||
| Commercial | $ | 1,051 | 7.7 | % | $ | 994 | 7.6 | % | ||||||||
| Real Estate – Construction | 1,744 | 12.8 | % | 1,675 | 12.8 | % | ||||||||||
| Real Estate Mortgage: | ||||||||||||||||
| Residential | 1,681 | 12.4 | % | 1,639 | 12.5 | % | ||||||||||
| Commercial | 8,192 | 60.2 | % | 7,974 | 60.6 | % | ||||||||||
| Consumer: | ||||||||||||||||
| Home Equity | 602 | 4.4 | % | 568 | 4.3 | % | ||||||||||
| Other | 338 | 2.5 | % | 285 | 2.2 | % | ||||||||||
| Total | $ | 13,608 | 100.0 | % | $ | 13,135 | 100.0 | % | ||||||||
Credit Metrics
We have a significant portion of our loan portfolio with real estate as the underlying collateral. As of March 31, 2025 and December 31, 2024, approximately 91.2% and 91.4%, respectively, of the loan portfolio had real estate collateral. When loans, whether commercial or personal, are granted, they are based on the borrower’s ability to generate repayment cash flows from income sources sufficient to service the debt. Real estate is generally taken to reinforce the likelihood of the ultimate repayment and as a secondary source of repayment. We work closely with all our borrowers that experience cash flow or other economic problems, and we believe that we have the appropriate processes in place to monitor and identify problem credits. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for credit losses as estimated at any point in time or that provisions for credit losses will not be significant to a particular accounting period. The allowance for credit losses is also subject to examination and testing for adequacy by regulatory agencies, which may consider such factors as the methodology used to determine adequacy for credit losses and the size of the allowance relative to that of peer institutions. Such regulatory agencies could require us to adjust our allowance for credit losses based on information available to them at the time of their examination.
Accrual of interest is discontinued on loans when management believes, after considering economic and business conditions and collection efforts that a borrower’s financial condition is such that the collection of interest is doubtful. A delinquent loan is generally placed in non-accrual status when it becomes 90 days or more past due. At the time a loan is placed in non-accrual status, all interest, which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.
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The non-performing asset ratio was 0.03% of total assets with the nominal level of $658,000 in non-performing assets at March 31, 2025 compared to 0.04% and $810,000 at December 31, 2024. Non-accrual loans decreased to $215,000 at March 31, 2025 from $219,000 at December 31, 2024. We had three accruing loans past due 90 days or more totaling $6,000 at March 31, 2025 compared to $48,000 at December 31, 2024. Loans past due 30 days or more represented 0.14% of the loan portfolio at March 31, 2025 compared to 0.05% at December 31, 2024. The ratio of classified loans plus OREO and repossessed assets declined to 0.98% of total bank regulatory risk-based capital at March 31, 2025 from 1.06% at December 31, 2024. During the three months ended March 31, 2025, we experienced net loan recoveries of $14,000 (charge-offs of $0 less recoveries of $14,000) and net overdraft charge-offs of $3,000 (charge-offs of $9,000 and recoveries of $6,000). In comparison, we experienced net loan recoveries of $1,000 and net overdraft charge-offs of $23,000 during the three months ended March 31, 2024.
There were five loans totaling $221,000 (0.02% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at March 31, 2025. Two of these loans were on non-accrual status. The largest loan of the two is $213,000 and is secured by real estate. The balance of the remaining loan on non-accrual status is $2,000. This loan is secured by a second mortgage lien. We had three loans that were accruing loans past due 90 days or more at March 31, 2025. At both March 31, 2025 and December 31, 2024, we considered loan relationships exceeding $500,000 and on non-accrual status as individually assessed loans for the allowance for credit losses. At both March 31, 2025 and December 31, 2024, we had no individually assessed loans. The specific allowance for individually assessed loans is based on the fair value of collateral method or present value of expected cash flows method. For collateral dependent loans, the fair value of collateral method is used and the fair value is determined by an independent appraisal less estimated selling costs. There was no specific allowance for credit losses on our individually assessed loans at March 31, 2025 and December 31, 2024. At March 31, 2025, we had $1.7 million in loans that were delinquent 30 days to 89 days representing 0.14% of total loans compared to $554,000 or 0.05% of total loans at December 31, 2024.
The following table summarizes the activity related to our allowance for credit losses for the periods indicated:
Allowance for Credit Losses - Loans
| Three Months Ended | ||||||||
| March 31, | ||||||||
| (Dollars in thousands) | 2025 | 2024 | ||||||
| Average loans outstanding (excluding loans held-for-sale) | $ | 1,232,712 | $ | 1,146,054 | ||||
| Loans outstanding at period end (excluding loans held-for-sale) | $ | 1,251,980 | $ | 1,157,305 | ||||
| Non-performing assets: | ||||||||
| Non-accrual loans | $ | 215 | $ | 56 | ||||
| Loans 90 days past due still accruing | 6 | 157 | ||||||
| Foreclosed real estate | 437 | 622 | ||||||
| Total non-performing assets | $ | 658 | $ | 835 | ||||
| Net charge-offs to average loans (annualized) | 0.00 | % | 0.01 | % | ||||
| Allowance as percent of total loans | 1.09 | % | 1.08 | % | ||||
| Non-performing assets as % of total assets | 0.03 | % | 0.04 | % | ||||
| Allowance as % of non-performing loans | 6,157.47 | % | 5,849.30 | % | ||||
| Non-accrual loans as % of total loans | 0.02 | % | 0.00 | % | ||||
| Allowance as % of non-accrual loans | 6,329.30 | % | 22,248.21 | % | ||||
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The following table details net charge-offs to average loans outstanding by loan category for the periods indicated.
| Three Months Ended March 31, | ||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||
| (Dollars in thousands) | Net Charge- Offs (Recoveries) | Average Loans HFI(1) | Net Charge-Off (Recovery) Ratio | Net Charge- Offs (Recoveries) | Average Loans HFI(1) | Net Charge-Off (Recovery) Ratio | ||||||||||||||||||
| Commercial | $ | (7 | ) | $ | 87,712 | (0.01 | )% | $ | 23 | $ | 78,415 | 0.03 | % | |||||||||||
| Real estate: | ||||||||||||||||||||||||
| Construction | (1 | ) | 147,659 | 0.00 | % | — | 122,620 | 0.00 | % | |||||||||||||||
| Mortgage-residential | — | 122,779 | 0.00 | % | (19 | ) | 98,349 | (0.02 | )% | |||||||||||||||
| Mortgage-commercial | (5 | ) | 812,253 | 0.00 | % | (3 | ) | 797,145 | 0.00 | % | ||||||||||||||
| Consumer: | ||||||||||||||||||||||||
| Home Equity | (2 | ) | 42,385 | (0.01 | )% | (2 | ) | 33,680 | (0.01 | )% | ||||||||||||||
| Other | 4 | 19,924 | 0.02 | % | 23 | 15,845 | 0.14 | % | ||||||||||||||||
| Total: | $ | (11 | ) | $ | 1,232,712 | 0.00 | % | $ | 22 | $ | 1,146,054 | 0.00 | % | |||||||||||
| (1) | Average loans exclude loans held for sale |
Financial Position
Assets increased $81.4 million, or 4.2% (16.8% annualized), to $2.0 billion at March 31, 2025 from $2.0 billion at December 31, 2024. The increase in assets was primarily due to increases in interest-bearing bank balances of $49.8 million, investment securities available-for-sale of $7.4 million and loans held-for-investment of $31.4 million, partially offset by decreases in investment securities held-to-maturity of $3.6 million and loans held-for-sale of $2.6 million.
Loans and loans held-for-sale
Loans held-for-sale decreased to $7.1 million at March 31, 2025 from $9.7 million at December 31, 2024. Loans (excluding loans held-for-sale) increased $31.4 million, or 2.6% (10.4% annualized), to $1.3 billion at March 31, 2025 from $1.2 billion at December 31, 2024. Total loan production, excluding mortgage secondary market and new construction residential real estate, was $57.6 million during the three months ended March 31, 2025 compared to $37.5 million during the same period in 2024. Advances from unfunded commercial construction loans available for draws were $9.0 million during the three months ended March 31, 2025. Payoffs and paydowns totaled $18.6 million during the three months ended March 31, 2025 compared to $26.5 million during the same period in 2024.
Total mortgage production during the three months ended March 31, 2025 was $43.9 million, $25.8 million of the production was originated to be sold in the secondary market, $4.0 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $14.1 million of the loan production was commitments for new construction residential real estate loans. Total mortgage production during the three months ended March 31, 2024 was $36.6 million, $13.1 million of the production was originated to be sold in the secondary market, $9.7 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $13.9 million of the loan production was commitments for new construction residential real estate loans. As these ARM and new construction residential real estate loans are being held on our balance sheet as loans held-for-investment, the result is additive to loan growth and interest income but results in less gain on sale fee income, which is reported in noninterest income as mortgage banking income. The increase in mortgage production was primarily due to higher secondary market loan production.
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The loan-to-deposit ratio (including loans held-for-sale) at March 31, 2025 and December 31, 2024 was 73.0% and 73.4%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at March 31, 2025 and December 31, 2024 was 72.6% and 72.8%, respectively.
One of our goals as a community bank has been, and continues to be, to grow our assets through quality loan growth by providing credit to small and mid-size businesses and individuals within the markets we serve. We remain committed to meeting the credit needs of our local markets. Based on our loan portfolio as of March 31, 2025, the non-owner occupied commercial real estate loans and the construction and land development loans were approximately 308% and 80% of total risk-based capital, respectively. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 51% from March 31, 2022 to March 31, 2025. We have expertise and a long history in originating and managing commercial real estate loans. We have a strong credit underwriting process, which includes management and board oversight. We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within our loan portfolio monthly.
The following table shows the composition of the loan portfolio by category at the dates indicated:
| March 31, 2025 | December 31, 2024 | |||||||||||||||
| (Dollars in thousands) | Amount | Percent | Amount | Percent | ||||||||||||
| Commercial | $ | 89,505 | 7.1 | % | $ | 86,616 | 7.1 | % | ||||||||
| Real estate: | ||||||||||||||||
| Construction | 150,270 | 12.0 | % | 152,155 | 12.5 | % | ||||||||||
| Mortgage – residential | 123,636 | 10.0 | % | 124,751 | 10.2 | % | ||||||||||
| Mortgage – commercial | 823,111 | 65.7 | % | 796,411 | 65.2 | % | ||||||||||
| Consumer: | ||||||||||||||||
| Home Equity | 44,896 | 3.6 | % | 42,304 | 3.5 | % | ||||||||||
| Other | 20,562 | 1.6 | % | 18,305 | 1.5 | % | ||||||||||
| Total gross loans | 1,251,980 | 100.0 | % | 1,220,542 | 100.0 | % | ||||||||||
| Allowance for credit losses | (13,608 | ) | (13,135 | ) | ||||||||||||
| Total net loans | $ | 1,238,372 | $ | 1,207,407 | ||||||||||||
In the context of this discussion, a real estate mortgage loan is defined as any loan, other than loans for construction purposes and advances on home equity lines of credit, secured by real estate, regardless of the purpose of the loan. Advances on home equity lines of credit are included in consumer loans. We follow the common practice of financial institutions in our market areas of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan components. We generally limit the loan-to-value ratio to 80%.
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As a community bank focused on local businesses, professionals, organizations, and individuals, the Bank has no individual or industry concentrations. In order to provide additional clarity to our commercial real estate exposure, the information below includes only non-owner occupied loans, grouped by collateral type. As of March 31, 2025:
| (In thousands) | Outstanding | % of Loan Portfolio | Average Loan Size | Weighted Avg LTV of Top 10 Loans | ||||||||||||
| Retail | $ | 89,998 | 7.2 | % | $ | 1,000 | 53 | % | ||||||||
| Warehouse & Industrial | $ | 86,937 | 6.9 | % | $ | 861 | 53 | % | ||||||||
| Office | $ | 72,590 | 5.8 | % | $ | 719 | 58 | % | ||||||||
| Hotel | $ | 63,597 | 5.1 | % | $ | 3,741 | 56 | % | ||||||||
In the office exposure noted above, there are only four loans where the collateral is an office building in excess of 50,000 square feet of rentable space. These four loans represent $10.8 million in outstanding loans and have a weighted average loan-to-value of 35%.
Below is the comparable detailed information for non-owner occupied loans by collateral type as of December 31, 2024:
| (In thousands) | Outstanding | % of Loan Portfolio | Average Loan Size | Weighted Avg LTV of Top 10 Loans | ||||||||||||
| Retail | $ | 91,024 | 7.5 | % | $ | 979 | 52 | % | ||||||||
| Warehouse & Industrial | $ | 76,994 | 6.3 | % | $ | 794 | 59 | % | ||||||||
| Office | $ | 73,424 | 6.0 | % | $ | 727 | 59 | % | ||||||||
| Hotel | $ | 60,443 | 5.0 | % | $ | 3,555 | 57 | % | ||||||||
In the office exposure noted above, there are only four loans where the collateral is an office building in excess of 50,000 square feet of rentable space. These four loans represent $13.4 million in loan outstandings and have a weighted average loan-to-value of 48%.
The repayment of loans in the loan portfolio as they mature is a source of liquidity. The following table sets forth the loans maturing within specified intervals at March 31, 2025.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
| March 31, 2025 | ||||||||||||||||||||
| (In thousands) | One Year or Less | Over One Year Through Five Years | Over Five Years Through Fifteen Years | Over Fifteen Years | Total | |||||||||||||||
| Commercial | $ | 13,912 | $ | 51,445 | $ | 24,148 | $ | — | $ | 85,505 | ||||||||||
| Real estate: | ||||||||||||||||||||
| Construction | 40,348 | 84,388 | 25,534 | — | 150,270 | |||||||||||||||
| Mortgage—residential | 3,181 | 14,023 | 3,451 | 102,981 | 123,636 | |||||||||||||||
| Mortgage—commercial | 84,743 | 572,960 | 164,152 | 1,256 | 823,111 | |||||||||||||||
| Consumer: | ||||||||||||||||||||
| Home equity | 2,044 | 6,724 | 36,128 | — | 44,896 | |||||||||||||||
| Other | 3,525 | 15,962 | 699 | 376 | 20,562 | |||||||||||||||
| Total | $ | 147,753 | $ | 745,502 | $ | 254,112 | $ | 104,613 | $ | 1,251,980 | ||||||||||
Loans maturing after one year with:
| Variable Rate | $ | 169,815 | ||
| Fixed Rate | 934,412 | |||
| $ | 1,104,227 |
The information presented in the above table is based on the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity.
42
Investment Securities
Investment securities increased $4.0 million to $495.6 million, net of allowance for credit losses on investments of $24,000, at March 31, 2025 from $491.7 million, net of allowance for credit losses on investments of $23,000, at December 31, 2024. The increase was driven by purchases of treasury securities in the available-for-sale portfolio, partially offset by normal principal cash flows.
On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS). These securities were transferred at fair value at the time of the transfer, which became the new cost basis for the securities held to maturity. The pretax unrealized net holding loss on the available-for-sale securities on the date of transfer totaled approximately $16.7 million and continued to be reported as a component of accumulated other comprehensive loss. This net unrealized loss is being amortized to interest income over the remaining life of the securities as a yield adjustment. There were no gains or losses recognized as a result of this transfer. The remaining pretax unrealized net holding loss on these investments was $11.9 million ($9.4 million net of tax) at March 31, 2025.
Our HTM investments totaled $205.8 million and represented approximately 42% of our total investments at March 31, 2025. Our AFS investments totaled $286.9 million or approximately 57% of our total investments at March 31, 2025. Our investments at cost totaled $2.9 million or approximately 1% of our total investments at March 31, 2025. The unrealized losses on our investment securities are related to an increase in market interest rates, which has a temporary negative impact on the fair value of our investment securities portfolio and on accumulated other comprehensive loss, which is included in shareholders’ equity.
At March 31, 2025, the estimated weighted average life of our total investment portfolio was 5.5 years, the modified duration was 4.2, the effective duration was 3.2, and the weighted average tax equivalent book yield was 3.64%.
Other short-term investments increased $49.8 million to $173.2 million at March 31, 2025 from $123.5 million at December 31, 2024 due to our decision to temporarily hold excess liquidity in interest-bearing bank deposits at the Federal Reserve Bank. This additional liquidity will be used to fund loan growth and/or reduce borrowings and brokered certificates of deposit.
The following table shows, at amortized cost, the expected maturities and weighted average yield, which is calculated using amortized cost as the weight and tax-equivalent book yield, of securities held at March 31, 2025:
| (Dollars in thousands) | Within One Year | Over One Year and less than Five Years | Over Five Years and less than Ten Years | Over Ten Years | ||||||||||||||||||||||||||||
| Available-for-Sale: | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||
| US Treasury securities | $ | 9,833 | 4.34 | % | $ | 997 | 0.74 | % | 14,832 | 1.24 | % | $ | — | — | ||||||||||||||||||
| Government Sponsored Enterprises | — | — | — | — | 2,500 | 2.00 | % | — | — | |||||||||||||||||||||||
| Small Business Administration pools | 229 | 2.82 | % | 2,830 | 5.38 | % | 3,898 | 4.10 | % | 4,634 | 5.85 | % | ||||||||||||||||||||
| Mortgage-backed securities | 245 | 2.54 | % | 9,931 | 3.18 | % | 3,831 | 3.66 | % | 241,654 | 4.08 | % | ||||||||||||||||||||
| Corporate and other securities | — | — | 1,991 | 6.84 | % | 6,754 | 3.70 | % | 14 | — | ||||||||||||||||||||||
| Total investment securities available-for-sale | $ | 10,307 | 4.27 | % | $ | 15,749 | 3.88 | % | $ | 31,813 | 2.46 | % | $ | 246,302 | 4.11 | % | ||||||||||||||||
| (Dollars in thousands) | Within One Year | Over One Year and less than Five Years | Over Five Years and less than Ten Years | Over Ten Years | ||||||||||||||||||||||||||||
| Held-to-Maturity: | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield | ||||||||||||||||||||||||
| Mortgage-backed securities | 8,674 | 3.02 | % | 28,776 | 3.20 | % | 17,719 | 3.31 | % | 47,744 | 3.25 | % | ||||||||||||||||||||
| State and local government | 2,024 | 2.32 | % | 24,196 | 3.39 | % | 44,510 | 3.37 | % | 32,176 | 3.36 | % | ||||||||||||||||||||
| Total investment securities held-to-maturity | $ | 10,698 | 2.89 | % | $ | 52,972 | 3.29 | % | $ | 62,229 | 3.35 | % | $ | 79,920 | 3.30 | % | ||||||||||||||||
43
Deposits
Deposits increased $49.8 million, or 3.0% (12.1% annualized), to $1.7 billion at March 31, 2025 compared to $1.7 billion at December 31, 2024. Our pure deposits, which are defined as total deposits less certificates of deposits, increased $38.6 million, or 2.8% (11.4% annualized), to $1.41 billion at March 31, 2025 from $1.38 billion at December 31, 2024. We continue to focus on growing our pure deposits in order to better manage our overall cost of funds. Certificates of deposits increased $11.2 million to $311.5 million at March 31, 2025 from $300.2 million at December 31, 2024.
We began issuing brokered certificates of deposit during the third quarter of 2023 to supplement our funding mix. As of March 31, 2025, we had $10.4 million in brokered certificates of deposit. This brokered certificate of deposit had an initial term of 18 months and matures in July 2025. We had $10.4 million and $60.5 million in brokered certificates of deposit at December 31, 2024 and at March 31, 2024, respectively.
Total uninsured deposits were $575.2 million and $542.9 million at March 31, 2025 and December 31, 2024, respectively. Included in uninsured deposits at March 31, 2025 and December 31, 2024 were $95.5 million and $105.8 million of deposits of states or political subdivisions in the U.S., which are secured or collateralized, respectively. Total uninsured deposits, excluding these deposits that are secured or collateralized, totaled $479.7 million, or 27.8%, of total deposits at March 31, 2025 and $437.1 million, or 26.1%, of total deposits at December 31, 2024. The average balance of all customer deposit accounts at March 31, 2025 was $31,262. The average balance for consumer accounts was $16,416 and the average balance for non-consumer accounts was $67,993.
The following table sets forth the deposits by category:
| March 31, | December 31, | |||||||||||||||
| 2025 | 2024 | |||||||||||||||
| % of | % of | |||||||||||||||
| (Dollars in thousands) | Amount | Deposits | Amount | Deposits | ||||||||||||
| Demand deposit accounts | $ | 468,874 | 27.2 | % | $ | 462,717 | 27.6 | % | ||||||||
| Interest bearing checking accounts | 345,663 | 20.0 | % | 338,511 | 20.2 | % | ||||||||||
| Money market accounts | 458,650 | 26.6 | % | 432,084 | 25.8 | % | ||||||||||
| Savings accounts | 112,708 | 6.5 | % | 113,928 | 6.8 | % | ||||||||||
| Time deposits less than or equal to $250,000 | 246,416 | 14.3 | % | 239,643 | 14.3 | % | ||||||||||
| Time deposits greater than $250,000 | 93,407 | 5.4 | % | 89,018 | 5.3 | % | ||||||||||
| Total | $ | 1,725,718 | 100.0 | % | $ | 1,675,901 | 100.0 | % | ||||||||
The uninsured amount of time deposits in the table above at March 31, 2025 and December 31, 2024 was $42.7 million and $40.8 million, respectively.
44
Maturities of Certificates of Deposit and Other Time Deposit with balances greater than $250,000
The tables below show at March 31, 2025 and December 31, 2024, maturities of certificates and other time deposits greater than $250,000.
| March 31, 2025 | ||||||||||||||||||||
| Within Three | After Three Through | After Six Through | After Twelve | |||||||||||||||||
| (Dollars in thousands) | Months | Six Months | Twelve Months | Months | Total | |||||||||||||||
| Certificates and time deposits greater than $250,000 | $ | 46,139 | $ | 22,399 | $ | 23,617 | $ | 1,252 | $ | 93,407 | ||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Within Three | After Three Through | After Six Through | After Twelve | |||||||||||||||||
| (Dollars in thousands) | Months | Six Months | Twelve Months | Months | Total | |||||||||||||||
| Certificates and time deposits greater than $250,000 | $ | 28,430 | $ | 37,680 | $ | 21,656 | $ | 1,252 | $ | 89,018 | ||||||||||
Borrowed funds. Borrowed funds consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances and long-term debt. Our long-term debt is a result of issuing $15.0 million in trust preferred securities. Short-term borrowings in the form of securities sold under agreements to repurchase averaged $130.8 million, $83.9 million, and $87.1 million during the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively. The average rates paid during these periods were 2.52%, 2.71%, and 2.81%, respectively. The balances of securities sold under agreements to repurchase were $129.8 million, $103.1 million, and $81.8 million at March 31, 2025, December 31, 2024, and March 31, 2024, respectively. The repurchase agreements all mature within one to four days and are generally originated with customers that have other relationships with us and tend to provide a stable and predictable source of funding. Federal funds purchased averaged $2,000, zero, and $2,000 during the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively. The average rates paid during these periods were 0.00%, 0.00%, and 0.00%, respectively. Federal funds purchased were zero at March 31, 2025, December 2024, and March 31, 2024. As a member of the FHLB, the Bank has access to advances from the FHLB for various terms and amounts. FHLB advances averaged zero, $30.3 million, and $83.7 million during the three months ended March 31, 2025, December 31, 2024, and March 31, 2024, respectively. The average rates paid during these periods were zero, 5.15%, and 5.09%, respectively. The balances of FHLB advances were zero, zero, and $60.0 million at March 31, 2025, December 31, 2024, and March 31, 2024, respectively.
45
We issued $15.5 million in trust preferred securities on September 16, 2004. During the fourth quarter of 2015, we redeemed $500,000 of these securities. Until the cessation of LIBOR on September 30, 2023, the securities accrued and paid distributions quarterly at a rate of three month LIBOR plus 257 basis points, thereafter, such distributions to be paid quarterly transitioned to an adjusted Secured Overnight Financing Rate (SOFR) index in accordance with the Federal Reserve’s final rule implementing the Adjustable Interest Rate Act. The remaining debt may be redeemed in full anytime with notice and matures on September 16, 2034. Trust preferred securities averaged $15.0 million during the three months ended March 31, 2025, December 31, 2024, and March 31, 2024. The average rates during these periods were 7.29%, 7.71%, and 8.28%, respectively. The balances of trust preferred securities were $15.0 million as of March 31, 2025, December 31, 2024, and March 31, 2024.
Total shareholders’ equity increased $5.5 million, or 3.8%, to $150.0 million at March 31, 2025 from $144.5 million at December 31, 2024. Shareholders’ equity was 7.4% of total assets at March 31, 2025 and 7.4% at December 31, 2024. The $5.5 million increase in shareholders’ equity was due to a $2.9 million increase in retention of earnings resulting from $4.0 million in net income less $1.1 million in dividends, a $34,000 increase due to employee and director stock awards, a $96,000 increase due to dividend reinvestment plan (DRIP) purchases, and a $2.5 million improvement in accumulated other comprehensive loss. The improvement in other accumulated other comprehensive loss for the period was due to improvements in the accumulated other comprehensive loss on available-for-sale securities, net of tax expense, of $2.2 million and the reclassification adjustment for amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity, net of tax expense, of $330,000.
On May 14, 2024, we announced that our Board of Directors approved a plan to utilize up to $7.1 million of capital to repurchase shares of our common stock (the “2024 Repurchase Plan”), which represented approximately 5.3% of total shareholders’ equity at the time of the announcement. No repurchases have been made under the 2024 Repurchase Plan. The 2024 Repurchase Plan expires at the market close on May 13, 2025.
Market Risk Management
Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. The risk of loss can be measured in either diminished current market values or reduced current and potential net income. Our primary market risk is interest rate risk. We have established an Asset/Liability Committee of the board of directors (the “ALCO”), which has members from our board of directors and management to monitor and manage interest rate risk. Our ALCO:
| · | monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program; | |
| · | reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and confirmed that any residual risk is acceptable; | |
| · | monitors and manages the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on our net interest income; and | |
| · | has established policies, policy guidelines, and strategies with respect to interest rate risk exposure and liquidity. |
Further, our ALCO and board of directors explicitly review our ALCO policies at least annually and review our ALCO assumptions and policy limits quarterly.
46
We employ a monitoring technique to measure our interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Simulation modeling is performed to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income. We model the impact on net interest income for several different changes in the yield curve. We model the impact on net interest income in an increasing and decreasing rate environment of 100, 200, 300, and 400 basis points. We also periodically stress certain assumptions such as loan prepayment rates, deposit decay rates and interest rate betas to evaluate our overall sensitivity to changes in interest rates. Policies have been established in an effort to maintain the maximum anticipated negative impact of these modeled changes in net interest income at no more than 10%, 15%, 20%, and 20%, respectively, in a 100, 200, 300, and 400 basis point change in interest rates over the first 12-month period subsequent to interest rate changes. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, by adjusting the interest rate during the life of an asset or liability, or by the use of derivatives such as interest rate swaps and other hedging instruments. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. Neither the “gap” analysis or asset/liability modeling are precise indicators of our interest sensitivity position due to the many factors that affect net interest income including, the timing, magnitude, and frequency of interest rate changes as well as changes in the volume and mix of earning assets and interest-bearing liabilities.
Based on the many factors and assumptions used in simulating the effect of changes in interest rates, the following table estimates the hypothetical percentage change in net interest income at March 31, 2025 and at December 31, 2024 over the subsequent 12 months. We were liability sensitive at March 31, 2025 and at December 31, 2024. Previously in 2023, we increased our non-maturity deposit interest rate betas in increasing rate environments, which increased our liability sensitivity. This was partially offset by the previously mentioned $150.0 million Pay-Fixed Swap Agreement that we entered into effective May 5, 2023. Furthermore, we reduced the average life on our non-maturity deposits at June 30, 2024. As a result, our modeling, at March 31, 2025, reflects a decrease in net interest income in a rising interest rate environment during the first 12-month period subsequent to interest rate changes. The negative impact of rising rates on net interest income is slightly more liability sensitive during the second 12- month period subsequent to interest rate changes. In a declining interest rate environment, the model reflects increases in net interest income during both the first 12-month period and the second 12-month period subsequent to interest rate changes. The increase and decrease of 100, 200, 300, and 400 basis points, respectively, reflected in the table below assume a simultaneous and parallel change in interest rates along the entire yield curve.
47
Net Interest Income Sensitivity
| Change in short-term interest rates | Hypothetical percentage change in net interest income |
|||||||
| March
31, 2025 |
December
31, 2024 |
|||||||
| +400bp | -16.18 | % | -13.27 | % | ||||
| +300bp | -11.27 | % | -9.20 | % | ||||
| +200bp | -6.50 | % | -5.23 | % | ||||
| +100bp | -2.84 | % | -2.18 | % | ||||
| Flat | — | — | ||||||
| -100bp | +2.89 | % | +2.12 | % | ||||
| -200bp | +5.42 | % | +3.77 | % | ||||
| -300bp | +5.96 | % | +3.04 | % | ||||
| -400bp | +5.73 | % | +0.76 | % | ||||
During the second 12-month period after 100 basis point, 200 basis point, 300 basis point, and 400 basis point simultaneous and parallel increases in interest rates along the entire yield curve, our net interest income is projected to decline 1.98%, 4.83%, 8.79%, and 12.96%, respectively, at March 31, 2025, and 2.04%, 4.96%, 8.75%, and 12.70%, respectively, at December 31, 2024. During the second 12-month period after 100 basis point, 200 basis point, 300 basis point, and 400 basis point simultaneous and parallel reduction in interest rates along the entire yield curve, our net interest income is projected to increase 2.05%, 3.39%, 2.40%, and 0.11%, respectively, at March 31, 2025, and to increase 1.80%, 2.91%, and 1.46%, and decline 1.75%, respectively, at December 31, 2024.
We perform a valuation analysis projecting future cash flows from assets and liabilities to determine the Present Value of Equity (“PVE”) over a range of changes in market interest rates. The sensitivity of PVE to changes in interest rates is a measure of the sensitivity of earnings over a longer time horizon. Policies have been established in an effort to maintain the maximum anticipated negative impact of these modeled changes in PVE at no more than 15%, 20%, 25%, and 25%, respectively, in a 100, 200, 300, and 400 basis point change in market interest rates. Based on PVE, we were primarily asset sensitive at March 31, 2025 and at December 31, 2024. However, our PVE increases slightly in the up 100, up 200, and up 300 basis point scenario and declines 1.49% in the up 400 basis point scenario at March 31, 2025. Our PVE increases slightly in the up 100, up 200 basis point scenarios and in the up 300 and up 400 basis point scenarios, the PVE declines 1.47% and 3.72%, respectively, at December 31, 2024.
48
Present Value of Equity Sensitivity
| Change in present value of equity | Hypothetical percentage change in PVE |
|||||||
| March
31, 2025 |
December
31, 2024 |
|||||||
| +400bp | -1.49 | % | +1.49 | % | ||||
| +300bp | +0.45 | % | +0.44 | % | ||||
| +200bp | +1.75 | % | +1.54 | % | ||||
| +100bp | +1.80 | % | +1.59 | % | ||||
| Flat | — | — | ||||||
| -100bp | -3.29 | % | -3.91 | % | ||||
| -200bp | -9.02 | % | -10.63 | % | ||||
| -300bp | -17.71 | % | -23.39 | % | ||||
| -400bp | -30.46 | % | -47.74 | % | ||||
Liquidity and Capital Resources
Liquidity management involves monitoring sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity represents our ability to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control. Asset liquidity is provided by cash and assets which are readily marketable, or which can be pledged or will mature in the near future. Liability liquidity is provided by access to core funding sources, principally the ability to generate customer deposits in our market area. In addition, liability liquidity is provided through the ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks, to borrow on a secured basis through the Federal Reserve Discount Window, and to borrow on a secured basis through securities sold under agreements to repurchase. Furthermore, the Bank is a member of the FHLB and has the ability to obtain advances for various periods of time. These advances are secured by eligible securities pledged by the Bank or assignment of eligible loans within the Bank’s portfolio.
From time to time, we issue brokered certificates of deposit to supplement our funding mix. As of March 31, 2025 and December 31, 2024, we had $10.4 million in brokered certificates of deposit. This brokered certificate of deposit had an initial term of 18 months and matures in July 2025. We believe that we have ample liquidity to meet the needs of our customers through our low-cost deposits, the ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks, the ability to borrow on a secured basis through the Federal Reserve Discount Window, and the ability to obtain advances secured by certain securities and loans from the FHLB.
We generally maintain a high level of liquidity and adequate capital, which along with continued retained earnings, we believe will be sufficient to fund the operations of the Bank for at least the next 12 months. Furthermore, we believe that we will have access to adequate liquidity and capital to support the long-term operations of the Bank.
The Bank maintains federal funds purchased lines in the total amount of $77.5 million with three financial institutions and $10.0 million through the Federal Reserve Discount Window. We utilized none of our federal funds purchased lines at March 31, 2025 and December 31, 2024. The FHLB of Atlanta has approved a line of credit of up to 25.00% of the Bank’s total assets, which, when utilized, is collateralized by a pledge against specific investment securities and/or eligible loans. We had no FHLB advances at March 31, 2025 and at December 31, 2024. At March 31, 2025, we had remaining credit availability under this facility in excess of $489.3 million, subject to collateral requirements. Combined, we have total remaining credit availability, subject to collateral requirements, in excess of $576.8 million as compared to uninsured deposits excluding deposits of states or political subdivisions in the U.S., which are secured or collateralized, of $479.7 million as previously noted.
49
Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At March 31, 2025, we had issued commitments to extend unused credit of $180.3 million, including $64.0 million in unused home equity lines of credit, through various types of lending arrangements. At December 31, 2024, we had issued commitments to extend unused credit of $180.2 million, including $63.6 million in unused home equity lines of credit, through various types of lending arrangements. We evaluate each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes.
We regularly review our liquidity position and have implemented internal policies establishing guidelines for sources of asset-based liquidity and evaluate and monitor the total amount of purchased funds used to support the balance sheet and funding from non-core sources.
Regulatory capital rules known as the Basel III rules or Basel III, impose minimum capital requirements for bank holding companies and banks. Basel III was released in the form of enforceable regulations by each of the applicable federal bank regulatory agencies. Basel III is applicable to all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies.” A small bank holding company is generally a qualifying bank holding company or savings and loan holding company with less than $3.0 billion in consolidated assets. More stringent requirements are imposed on “advanced approaches” banking organizations-generally those organizations with $250 billion or more in total consolidated assets or $10.0 billion or more in total foreign exposures.
Based on the foregoing, as a small bank holding company, we are generally not subject to the capital requirements at the holding company level unless otherwise advised by the Federal Reserve; however, our Bank remains subject to the capital requirements. Accordingly, the Bank is required to maintain the following capital levels:
| · | a Common Equity Tier 1 risk-based capital ratio of 4.5%; | |
| · | a Tier 1 risk-based capital ratio of 6%; | |
| · | a total risk-based capital ratio of 8%; and | |
| · | a leverage ratio of 4%. | |
Basel III also established a “capital conservation buffer” above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital, which was phased in over several years. The fully phased-in capital conservation buffer of 2.5%, which became effective on January 1, 2019, resulted in the following effective minimum capital ratios for the Bank beginning in 2019: (i) a Common Equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under Basel III, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Under Basel III, Tier 1 capital includes two components: Common Equity Tier 1 capital and additional Tier 1 capital. The highest form of capital, Common Equity Tier 1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, otherwise referred to as AOCI, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital generally includes the allowance for credit losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying Tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution. AOCI is presumptively included in Common Equity Tier 1 capital and often would operate to reduce this category of capital. When implemented, Basel III provided a one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of a large part of this treatment of AOCI. We made this opt-out election and, as a result, retained our pre-existing treatment for AOCI.
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On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to (i) address the upcoming implementation of a new credit impairment model, the CECL model; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2023 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing. As part of its response to the impact of the COVID-19 pandemic, in the first quarter of 2020, U.S. federal regulatory authorities issued an interim final rule that provided banking organizations that adopted the CECL during the 2020 calendar year with the option to delay for two years the estimated impact of CECL on regulatory capital relative to regulatory capital determined under the prior incurred loss methodology, followed by a three-year transition period to phase out the aggregate amount of the capital benefit provided during the initial two-year delay (i.e., a five-year transition in total). In connection with our adoption of CECL on January 1, 2023, we did not elect to utilize the three-year phase-in period for the day-one adverse regulatory capital effects or the five-year CECL transition.
In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10.0 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less than $10.0 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets, and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below. We do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future.
As outlined above, we are generally not subject to the Federal Reserve capital requirements unless advised otherwise because we qualify as a small bank holding company. Our Bank remains subject to capital requirements including a minimum leverage ratio and a minimum ratio of “qualifying capital” to risk weighted assets. As of March 31, 2025, the Bank met all capital adequacy requirements under the rules on a fully phased-in basis.
| (Dollars in thousands) | Prompt Corrective Action (PCA) Requirements | Excess Capital $s of PCA Requirements | ||||||||||||||||||
| Capital Ratios | Actual | Well Capitalized | Adequately Capitalized | Well Capitalized | Adequately Capitalized | |||||||||||||||
| March 31, 2025 | ||||||||||||||||||||
| Leverage Ratio | 8.45 | % | 5.00 | % | 4.00 | % | $ | 68,465 | $ | 88,307 | ||||||||||
| Common Equity Tier 1 Capital Ratio | 12.90 | % | 6.50 | % | 4.50 | % | 83,208 | 109,197 | ||||||||||||
| Tier 1 Capital Ratio | 12.90 | % | 8.00 | % | 6.00 | % | 63,716 | 89,705 | ||||||||||||
| Total Capital Ratio | 13.99 | % | 10.00 | % | 8.00 | % | 51,813 | 77,802 | ||||||||||||
| December 31, 2024 | ||||||||||||||||||||
| Leverage Ratio | 8.40 | % | 5.00 | % | 4.00 | % | $ | 66,555 | $ | 86,123 | ||||||||||
| Common Equity Tier 1 Capital Ratio | 12.87 | % | 6.50 | % | 4.50 | % | 81,356 | 106,907 | ||||||||||||
| Tier 1 Capital Ratio | 12.87 | % | 8.00 | % | 6.00 | % | 62,193 | 87,744 | ||||||||||||
| Total Capital Ratio | 13.94 | % | 10.00 | % | 8.00 | % | 50,279 | 75,830 | ||||||||||||
Under the Basel III rules, we anticipate that the Bank will remain a well capitalized institution for at least the next 12 months. Furthermore, based on our strong capital, conservative underwriting, and internal stress testing, we believe that we will have access to adequate capital to support the long-term operations of the Bank. However, the Bank’s reported and regulatory capital ratios could be adversely impacted by future credit losses related to an economic recession.
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As a bank holding company, our ability to declare and pay dividends is dependent on certain federal and state regulatory considerations, including the guidelines of the Federal Reserve. The Federal Reserve has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the Federal Reserve’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary bank(s) by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. In addition, under the prompt corrective action regulations, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect our ability to pay dividends or otherwise engage in capital distributions. Our Board of Directors approved a cash dividend for the first quarter of 2025 of $0.15 per common share. This dividend is payable on May 20, 2025 to shareholders of record of our common stock as of May 6, 2025.
As we are a legal entity separate and distinct from the Bank and do not conduct stand-alone operations, our ability to pay dividends depends on the ability of the Bank to pay dividends to us, which is also subject to regulatory restrictions. As a South Carolina-chartered bank, the Bank is subject to limitations on the amount of dividends that it is permitted to pay. Unless otherwise instructed by the South Carolina Board of Financial Institutions, the Bank is generally permitted under South Carolina State banking regulations to pay cash dividends of up to 100% of net income in any calendar year without obtaining the prior approval of the South Carolina Board of Financial Institutions. The FDIC also has the authority under federal law to enjoin a bank from engaging in what in its opinion constitutes an unsafe or unsound practice in conducting its business, including the payment of a dividend under certain circumstances.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II -
OTHER INFORMATION
Item 1. Legal Proceedings.
We are a party to claims and lawsuits arising in the course of normal business activities. Management is not aware of any material pending legal proceedings against us which we believe, if determined adversely, would have a material adverse impact on our financial position, results of operations or cash flows.
Item 1A. Risk Factors.
Investing in our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, the cautionary statements under “Cautionary Statement Regarding Forward-Looking Statements” in Part I, Item 2 of this Quarterly Report on Form 10-Q, and other risks and matters described elsewhere in this Quarterly Report and in our other filings with the SEC.
There have been no material changes to the risk factors previously disclosed in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
| (a) | Under the Company’s Non-Employee Director Deferred Compensation Plan, as amended and restated effective as of January 1, 2021, during the three months ended March 31, 2025, we credited an aggregate of 4,006 deferred stock units, respectively, to accounts for directors who elected to defer monthly fees. These deferred stock units include dividend equivalents in the form of additional stock units. The deferred stock units were issued pursuant to an exemption from registration under the Securities Act of 1933 in reliance upon Section 4(a)(2) of the Securities Act of 1933. | |
| (b) | Not Applicable. | |
| (c) | No share repurchases were made during the three months ended March 31, 2025, and 12,684 shares were withheld to satisfy tax withholding obligations applicable to the vesting of restricted stock for the three months ended March 31, 2025. On May 14, 2024, the Company announced that its Board of Directors approved the 2024 Repurchase Plan to utilize up to $7.1 million of capital to repurchase the Company’s common stock. The 2024 Repurchase Plan expires at the market close on May 13, 2025. | |
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
Trading Plans
During the three months ended March 31, 2025, no director or “officer” of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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Item 6. Exhibits.
| Exhibit | Description | |
| 3.1 | Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on June 27, 2011). | |
| 3.2 | Articles of Amendment (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 23, 2019). | |
| 3.3 |
| |
| 10.1 | Employment Agreement by and between Sarah T. Donley and First Community Corporation dated January 1, 2025 (incorporated by reference to Exhibit 10.26 to the Company’s Form 10-K filed on March 14, 2025. | |
| 31.1 | Rule 13a-14(a) Certification of the Principal Executive Officer. | |
| 31.2 | Rule 13a-14(a) Certification of the Principal Financial Officer. | |
| 32 | Section 1350 Certifications. | |
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2025, formatted in iXBRL (inline eXtensible Business Reporting Language); (i) Consolidated Balance Sheets at March 31, 2025 and December 31, 2024, (ii) Consolidated Statements of Income for the three months ended March 31, 2025 and 2024, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2025 and 2024 (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2025 and 2024, (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024, and (vi) Notes to Consolidated Financial Statements. | |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL document). |
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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.
| FIRST COMMUNITY CORPORATION | ||
| (REGISTRANT) | ||
| Date: May 9, 2025 | By: | /s/ Michael C. Crapps |
| Michael C. Crapps | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 9, 2025 | By: | /s/ D. Shawn Jordan |
| D. Shawn Jordan | ||
| Executive Vice President and Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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