UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
Commission File Number: 000-28344
5455 Sunset Boulevard, Lexington, South Carolina 29072
(Address of principal executive offices) (Zip Code)
(803) 951-2265
(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:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On August 8, 2025, 7,685,754 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
See Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
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 June 30, 2025 and December 31, 2024, and the Company’s results of operations for the three and six months ended June 30, 2025 and 2024, and cash flows for the six months ended June 30, 2025 and 2024. The results of operations for the three and six months ended June 30, 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.
Note 2 - Earnings Per Common Share
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.
The following reconciles the numerator and denominator of the basic and diluted earnings per common share computation:
Schedule of Earning Per Common Share
Note 3 - Investment Securities
The amortized cost and estimated fair values of investment securities are summarized below.
AVAILABLE-FOR-SALE:
Schedule of Amortized Cost and Estimated Fair Values of Investment Securities Available-For-Sale
HELD-TO-MATURITY:
Schedule of Amortized Cost and Estimated Fair Values of Investment Securities Held-To-Maturity
There were no gross realized gains or gross realized losses from the sale of available-for-sale investment securities during the three and six months ended June 30, 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 June 30, 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 June 30, 2025.
Schedule of gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position.
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.
The following table shows a roll forward of the allowance for credit losses on held to maturity securities for the three and six months ended June 30, 2025 and 2024.
Schedule of allowance for credit losses on held to maturity securities
At June 30, 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 June 30, 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.
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 June 30, 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 June 30, 2025 and December 31, 2024, aggregated by credit quality indicators.
Schedule of amortized cost of debt securities held to maturity aggregated by credit quality indicators.
The following tables shows the amortized cost and fair value of investment securities at June 30, 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.
Schedule of Amortized Cost and Fair Value of Investment Securities
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 $2.2 millionand $2.1 million as of June 30, 2025 and December 31, 2024, respectively.
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.
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of June 30, 2025:
Schedule of loan category and loan by risk categories
The following table presents the Company’s recorded investment in loans by credit quality indicators by year of origination as of December 31, 2024:
The detailed activity in the allowance for credit losses and the recorded investment in loans receivable for the three and six months ended June 30, 2025 and June 30, 2024 is shown below:
Schedule of Allowance for Credit Losses
There were two loans modified for borrowers experiencing financial difficulty during the six months ended June 30, 2025 and the same period ended June 30, 2024.
The following table shows the amortized cost basis as of June 30, 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.
Schedule of Amortized Cost of Loans, by Loan Category, Modified for Borrowers with Financial Difficulty
The following table depicts the performance of loans that have been modified in the last 12 months.
The following tables are by loan category and present loans past due and on non-accrual status as of June 30, 2025 and December 31, 2024.
Schedule of Loan Category and Aging Analysis of Loans
The following table is a summary of the Company’s non-accrual loans by major categories for the periods indicated.
Schedule of Nonaccrual Loans
The Company recognized $6,000 and $17,400 of interest income on non-accrual loans during the three and six months ended June 30, 2025, and the Company recognized $22,500 and $32,600 of interest income on non-accrual loans during the three and six months ended June 30, 2024.
During the three and six months ended June 30, 2025, less than $1,000 and less than $1,000 of accrued interest was written off by reversing interest income, respectively. During the three and six months ended June 30, 2024, less than $1,000 and $1,200 of accrued interest was written off by reversing interest income, respectively.
There were no collateral dependent loans that were individually evaluated at June 30, 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 $490,000 and $480,000 at June 30, 2025 and December 31, 2024, respectively.
The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three and six months ended June 30, 2025 and June 30, 2024.
Schedule of Unfunded Commitments
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:
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.
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.
The carrying amount and estimated fair value by classification level of the Company’s financial instruments as of June 30, 2025 and December 31, 2024 are as follows:
Schedule of Fair Value, by Balance Sheet Grouping
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of June 30, 2025 and December 31, 2024 that are measured on a recurring basis.
Schedule of Fair Value, Assets Measured on Recurring Basis
The following table summarizes quantitative disclosures about the fair value for each category of liabilities carried at fair value as of June 30, 2025 that are measured on a recurring basis. There were no liabilities carried at fair value as of December 31, 2024 that are measured on a recurring basis.
Schedule of Fair Value, Liabilities Measured on Recurring Basis
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of June 30, 2025 and December 31, 2024 that are measured on a non-recurring basis. There were no Level 3 financial instruments as of June 30, 2025 and December 31, 2024 measured on a recurring basis.
Schedule of Fair Value, Assets Measured on Non-Recurring Basis
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. There were no such loans at June 30, 2025 and December 31, 2024. 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.
For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of June 30, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:
Schedule of Fair Value Measurement Inputs and Valuation Techniques
Note 6 - Deposits
The Company’s total deposits are comprised of the following at the dates indicated:
Schedule of Deposits
Time deposits of $250,000 or less include $10.4 million and $10.4 million in brokered deposits as of June 30, 2025 and December 31, 2024, respectively.
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:
The following tables present selected financial information for the Company’s reportable business segments for the three and six months ended June 30, 2025 and June 30, 2024.
Schedule of Company’s Reportable Segment
The table below presents total assets for the Company’s reportable business segments as of June 30, 2025 and December 31, 2024.
Note 8 - Derivative Financial Instruments
Effective May 5, 2023, the Company entered into a pay-fixed/receive-floating interest rate swap (the “Loan 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 held for investment. This fair value hedge converts the hedged loans from a fixed rate to a synthetic floating SOFR rate. The Loan 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 fair value of this hedge is recorded in either other assets or in other liabilities depending on the position of the hedge with the offset recorded in loans.
Effective April 28, 2025, the Company entered into a pay-fixed/receive-floating interest rate swap (the “Investment Pay-Fixed Swap Agreement”) for a notional amount of $19.8 million that was designated as a fair value hedge to hedge the risk of changes in the fair value of securities held in the investment portfolio. This fair value hedge converts the hedged securities from a fixed rate to a USD-SOFR-OIS Compound. The Investment Pay-Fixed Swap Agreement will mature on April 28, 2038 and will pay a fixed coupon rate of 3.67% while receiving USD-SOFR-OIS Compound. The fair value of this hedge is recorded in either other assets or in other liabilities depending on the position of the hedge with the offset recorded in investments.
For both swaps, all changes in fair value are recorded in net interest income.
The interest rate swaps had a total notional amount of $169.8 million and $150.0 million at June 30, 2025 and December 31, 2024, respectively. The interest rate swaps had a positive fair value of $280 thousand and $896 thousand at June 30, 2025 and December 31, 2024, respectively.
Note 9 - Leases
The Company has operating leases on three of its facilities at June 30, 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:
Schedule of Lease Information
The following table shows future undiscounted lease payments for operating leases with initial terms of one year or more as of June 30, 2025.
Schedule of Future Undiscounted Operating Lease Payments
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 six months ended June 30, 2025 and 2024.
Schedule of Accumulated Other Comprehensive Loss
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.
On July 13, 2025, the Company and Signature Bank of Georgia, a Georgia state-chartered bank (“Signature Bank”), entered into an Agreement and Plan of Merger (the “merger agreement”), which provides that, subject to the terms and conditions set forth therein, Signature Bank will merge with and into First Community Bank, with First Community Bank continuing as the surviving entity following the merger.
At the effective time of the merger, each share of Signature Bank common stock will be converted into the right to receive 0.6410 shares of the Company’s common stock. Holders of Signature Bank common stock will receive a cash payment in lieu of any fractional shares. At the effective time of the merger, each outstanding stock option to acquire Signature Bank common stock, whether or not vested, will be converted into the right to receive a cash payment. The amount payable will equal the number of shares of Signature Bank common stock subject to the option multiplied by the excess, if any, of the fair market value per share of Signature Bank common stock (based on the value of the merger consideration) over the option’s exercise price. If the exercise price equals or exceeds the fair market value, a nominal payment of $0.01 per share will be made. All payments will be subject to applicable tax withholdings.
At June 30, 2025, Signature Bank had approximately $266.0million in total assets, $205.9million in total loans, and $206.0million in total deposits. The closing of the transactions contemplated by the merger agreement is subject to the satisfaction of customary closing conditions, including regulatory approvals and the approvals of the shareholders of the Company and Signature Bank. The pro forma company is projected to have approximately $2.3 billion in total assets, $1.5 billion in total loans, and $2.0 billion in total deposits.
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 June 30, 2025.
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:
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.
Overview
The following discussion describes our results of operations for the three and six months ended June 30, 2025 as compared to the three and six months ended June 30, 2024 and analyzes our financial condition as of June 30, 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. In September 2024, the Federal Reserve began lowering interest rates in response to easing inflation and slowing growth. While lower rates can support loan demand, they may also compress net interest margins. The Federal Reserve is also continuing balance sheet reduction, contributing to some funding and market volatility. It is not possible to predict the nature or impact of future changes in monetary and fiscal policies. 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.
Recent Tax Legislation. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA extends or makes permanent a number of provisions originally enacted in the 2017 Tax Cuts and Jobs Act and introduces new items affecting both individuals and businesses. Topic 740, Income Taxes, of the FASB Accounting Standards Codification requires the effects of newly enacted tax law to be recognized in the period of enactment. Because enactment occurred after the quarter-end date of June 30, 2025, we are evaluating OBBBA’s impact on our deferred tax assets and liabilities, effective tax rate, and tax-related processes (e.g., payroll reporting for qualifying wage items). Based on preliminary analysis, we do not currently expect the OBBBA to have a material impact on our 2025 estimated annual effective tax rate or on our consolidated financial statements, but our evaluation is ongoing.
Proposed Merger with Signature Bank of Georgia
On July 13, 2025, we entered into merger agreement with Signature Bank, which provides that, subject to the terms and conditions set forth in the merger agreement, Signature Bank will merge with and into First Community Bank, with First Community Bank continuing as the surviving entity following the merger.
Upon consummation of the merger, each share of Signature Bank common stock will be converted into the right to receive 0.6410 shares of our common stock. Holders of Signature Bank common stock will receive a cash payment in lieu of any fractional shares. At the effective time of the merger, each outstanding stock option to acquire Signature Bank common stock, whether or not vested, will be converted into the right to receive a cash payment. The amount payable will equal the number of shares of Signature Bank common stock subject to the option multiplied by the excess, if any, of the fair market value per share of Signature Bank common stock (based on the value of the merger consideration) over the option’s exercise price. If the exercise price equals or exceeds the fair market value, a nominal payment of $0.01 per share will be made.
At June 30, 2025, Signature Bank had approximately $266.0 million in total assets, $205.9 million in total loans, and $206.0 million in total deposits. The closing of the transactions contemplated by the merger is subject to the satisfaction of customary closing conditions, including regulatory approvals and the approvals of our shareholders and Signature Bank’ shareholders. The combined bank is projected to have approximately $2.3 billion in total assets, $1.5 billion in total loans, and $2.0 billion in total deposits.
Additional details regarding the pending merger and related risks will be provided in our registration statement on Form S-4 to be filed with the SEC.
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 June 30, 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 the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024
Net Income
Our net income for the three months ended June 30, 2025 increased $1.9 million to $5.2 million, or $0.67 diluted earnings per common share, as compared to $3.3 million, or $0.42 diluted earnings per common share, for the three months ended June 30, 2024. The $1.9 million increase in net income between the two periods is primarily due to a $2.6 million increase in net interest income, a $691,000 decline in provision for credit losses, and a $564,000 increase in total non-interest income, partially offset by a $1.2 million increase in total non-interest expense and a $724,000 increase in income tax expense.
The $237,000 release of allowance for credit losses during the three months ended June 30, 2025 was primarily due to a $268,000 decline in the allowance for credit losses – loans, partially offset by an increase of $35,000 in the allowance for credit losses – unfunded commitments. The decline in the allowance for credit losses – loans was primarily due to a three basis point decrease in our qualitative factors as of June 30, 2025. The three basis point decrease in our qualitative factors resulted from an increase of one basis point in our qualitative factor for change in total of 30-89 days past due and other loans especially mentioned, a four basis point decline in our qualitative factor for data limitations, and a one basis point increase in our qualitative factor for reasonable and supportable forecast alternative scenarios.
The $454,000 provision for credit losses during the three months ended June 30, 2024 consists of $328,000 related to growth in the loan portfolio ($31.9 million increase in loans held-for-investment, which was partially offset by a $7.3 million decrease in unfunded commitments net of unconditionally cancellable commitments) and the remainder primarily due to a slight extension in the average life of the loan portfolio due to lower loan prepayments.
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 $2.6 million, or 20.7%, to $15.3 million for the three months ended June 30, 2025 from $12.7 million for the three months ended June 30, 2024. Our net interest margin improved 0.27% to 3.19% during the three months ended June 30, 2025 compared to 2.92% during the three months ended June 30, 2024. Our net interest margin, on a taxable equivalent basis, was 3.21% for the three months ended June 30, 2025 compared to 2.93% for the three months ended June 30, 2024. Average earning assets were $1.9 billion for the three months ended June 30, 2025 and $1.7 billion in the same period of 2024.
Average loans increased $84.7 million, or 7.2%, to $1.3 billion for the three months ended June 30, 2025 from $1.2 billion for the same period in 2024. Our loan (including loans held-for-sale) to deposit ratio on average during the three months ended June 30, 2025 was 72.7%, as compared to 75.1% during same period in 2024. The yield on loans increased 0.17% to 5.77% during the three months ended June 30, 2025 from 5.60% during the same period in 2024 due to higher rates on new and renewed loans during the period compared to interest rates on loans maturing during the period.
Average securities for the three months ended June 30, 2025 increased $14.3 million, or 2.9%, to $505.5 million from $491.2 million during the same period in 2024. Short-term investments and CDs increased $75.9 million to $155.9 million during the three months ended June 30, 2025 from $80.0 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 3.43% for the three months ended June 30, 2025 from 3.66% for the same period in 2024. The yield on our short-term investments declined to 4.32% for the three months ended June 30, 2025 from 5.32%.
The yields on earning assets for the three months ended June 30, 2025 and 2024 were 5.04% and 5.04%, respectively.
The cost of interest-bearing liabilities was 2.56% during the three months ended June 30, 2025 compared to 2.94% during the same period in 2024. The cost of deposits, including demand deposits, was 1.82% during the three months ended June 30, 2025 compared to 1.98% during the same period in 2024. The cost of funds, including demand deposits, was 1.91% during the three months ended June 30, 2025 compared to 2.17% 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 $173.9 million, or 12.8%, to $1.5 billion during the three months ended June 30, 2025 from $1.4 billion during the same period in 2024. During the three months ended June 30, 2025, pure deposits plus customer cash management repurchase agreements averaged 82.9% of total deposits plus customer cash management repurchase agreements as compared to 82.9% during the same period of 2024. As of June 30, 2025, we had $10.4 million in brokered certificates of deposit with an initial term of 18 months and maturity of July 31, 2025. We had $10.4 million and $42.9 million in brokered certificates of deposit at December 31, 2024 and at June 30, 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.
Yields on Average Earning Assets andRates on Average Interest-Bearing Liabilities
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.
Non-interest Income and Non-interest Expense
Non-interest income during the three months ended June 30, 2025 increased $564,000 to $4.2 million from $3.6 million during the same period in 2024. The $564,000 increase in non-interest income was primarily related to increases of $220,000 in mortgage banking income, $243,000 in investment advisory fees and non-deposit commissions, and $127,000 in gain on sale of other real estate owned.
Mortgage banking income increased $220,000 to $879,000 during the three months ended June 30, 2025 from $659,000 during the same period in 2024. Total production in the mortgage line of business in the three months ended June 30, 2025 was $62.9 million, which was comprised of $31.9 million in secondary market loans, $5.7 million in adjustable rate mortgages (ARMs), and $25.3 million in commitments for new construction residential real estate loans. Fee revenue from the mortgage line of business was $879,000 for the three months ended June 30, 2025, which includes $873,000 associated with the secondary market loans with a gain-on-sale margin of 2.74%. This compares to production year-over-year of $49.0 million which was comprised of $22.7 million in secondary market loans, $14.6 million in ARMs, and $11.7 million in commitments for new construction residential real estate loans during the three months ended June 30, 2024. Fee revenue from the mortgage line of business was $659,000, which includes $655,000 associated with the secondary market loans with a gain-on-sale margin of 2.89% during the three months ended June 30, 2024.
Investment advisory fees rose $243,000 to $1.8 million during the three months ended June 30, 2025 from $1.5 million during the same period in 2024. Total assets under management increased to $1.0 billion at June 30, 2025 compared to $926.0 million at December 31, 2024 and increased compared to $865.6 million at June 30, 2024. Our net new assets under management were $20.7 million during the three months ended June 30, 2025. Furthermore, our investment performance for the three months ended June 30, 2025 was 10.9% compared to 10.6% for the S&P 500. Our customers’ assets under management are allocated across a range of asset classes, including equities, bonds, and cash.
Gain on sale of other real estate owned was $127,000 during the three months ended June 30, 2025, compared to zero during the three months ended June 30, 2024.
Other non-interest income decreased $15,000 to $1.2 million during the three months ended June 30, 2025 from $1.2 million during the same period in 2024. The $15,000 decrease was primarily due to a decrease of $95,000 in other non-recurring income, partially offset by an increase of $50,000 in ATM debit card income. Non-recurring income of $95,000 during the six months ended June 30, 2024 is related to a gain on insurance proceeds of $101,000 partially offset by a loss on disposition of assets on the closing of our downtown Augusta, Georgia banking office of $6,000.
The following table shows the components of non-interest income for the three-month periods ended June 30, 2025 and June 30, 2024.
Non-interest expense increased $1.2 million during the three months ended June 30, 2025 to $13.1 million compared to $11.8 million during the same period in 2024. The increase in non-interest expense is primarily due to increases of $757,000 in salaries and employee benefits, $73,000 in equipment, and $434,000 in other non-interest expense, partially offset by decreases of $50,000 in marketing and public relations expense and $28,000 in FDIC insurance assessment expense.
The following table shows the components of non-interest expense for the three-month periods ended June 30, 2025 and June 30, 2024.
Income Tax Expense
We incurred income tax expense of $1.5 million and $774,000 for the three months ended June 30, 2025 and 2024, respectively. Our effective tax rate was 22.4% and 19.2% for the three months ended June 30, 2025 and 2024, respectively. The increase in the effective tax rate was due to a non-recurring adjustment of $249,000 during the three months ended June 30, 2024.
Comparison of Results of Operations for the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024
Our net income for the six months ended June 30, 2025 increased $3.3 million to $9.2 million, or $1.18 diluted earnings per common share, from $5.9 million, or $0.76 diluted earnings per common share for the six months ended June 30, 2024. The increase in net income between the two periods is primarily due to an increase of $4.9 million in net interest income, a decline of $383,000 in provision for credit losses, and an increase of $1.4 million in total non-interest income, partially offset by an increase of $2.2 million in total non-interest expense and an increase of $1.2 million in income tax expense.
The $200,000 provision for credit losses during the six months ended June 30, 2025 is primarily related to a $39.5 million increase in loans held-for-investment, and a $13.5 million increase in unfunded commitments net of unconditionally cancellable commitments partially offset by two basis points of reduction in our qualitative factors. The two basis points of reduction in our qualitative factors results from an additional basis point in our qualitative factor for change in total of 30-89 days past due and other loans especially mentioned, a four basis point reduction in our qualitative factor for data limitations, and an additional basis point for our reasonable and supportable forecast qualitative factor.
The $538,000 provision for credit losses during the six months ended June 30, 2024 is primarily related to a $55.2 million increase in loans held-for-investment, a slight extension in the average life of the loan portfolio due to lower loan prepayments, and $27,000 in net charge-offs.
Net interest income increased $4.9 million to $29.7 million for the six months ended June 30, 2025 from $24.8 million for the six months ended June 30, 2024. Our net interest margin increased by 0.31% to 3.16% during the six months ended June 30, 2025 from 2.85% during the six months ended June 30, 2024. Our net interest margin, on a taxable equivalent basis, was 3.17% for the six months ended June 30, 2025 compared to 2.86% for the six months ended June 30, 2024. Average earning assets increased $150.6 million, or 8.6%, to $1.9 billion for the six months ended June 30, 2025 compared to $1.7 billion in the same period of 2024.
During the second quarter of 2025, the company purchased four fixed rate agency mortgage-backed security (MBS) bonds totaling $20.0 million with a purchase yield of 4.78% and entered into a $19.8 million amortizing notional amount pay-fixed/receive-floating interest rate swap, which was designated as a fair value hedge. This transaction was part of a hedging strategy which converts these fixed rate agency MBS bonds to synthetic floaters. The company pays a fixed rate of 3.67% and receives overnight SOFR.
Average loans increased $87.4 million, or 7.5%, to $1.3 billion for the six months ended June 30, 2025 from $1.2 billion for the same period in 2024. Our loan (including loans held-for-sale) to deposit ratio on average during the six months ended June 30, 2025 was 73.4%, as compared to 75.3% during the same period in 2024. Our average growth in loans during the six months ended June 30, 2025 from the same period in 2024 of $87.4 million was exceeded our increase in deposits of $157.9 million during the same period. The yield on loans increased 0.22% to 5.74% during the six months ended June 30, 2025 from 5.52% during the same period in 2024 due to higher new and renewed loan rates compared to rates on loans maturing during the period.
Average securities for the six months ended June 30, 2025 increased $3.6 million, or 0.7%, to $498.9 million from $495.3 million during the same period in 2024. The increase in securities was due to the purchase of $20 million dollars in securities as part of the previously discussed investment hedge, partially offset by normal principal cash flows from the securities portfolio. Short-term investments increased $59.6 million to $148.3 million during the six months ended June 30, 2025 from $88.7 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 six months ended June 30, 2025 from 3.66% for the same period in 2024. The yield on our short-term investments decreased to 4.31% for the six months ended June 30, 2025 from 5.03% for the same period in 2024 due to lower market interest rates.
The yields on earning assets for the six months ended June 30, 2025 and 2024 were 5.02% and 4.97%, respectively.
The cost of interest-bearing liabilities was 2.57% during the six months ended June 30, 2025 compared to 2.91% during the same period in 2024. The cost of deposits, including demand deposits, was 1.84% during the six months ended June 30, 2025 compared to 1.94% during the same period in 2024. The cost of funds, including demand deposits, was 1.92% during the six months ended June 30, 2025 compared to 2.17% 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. During the six months ended June 30, 2025, pure deposits plus customer cash management repurchase agreements averaged 83.0% of total deposits plus customer cash management repurchase agreements as compared to 83.5% 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 and strong loan growth. The growth in certificates of deposit is related to customer certificates of deposit. We began issuing brokered certificates of deposit during the third quarter of 2024 to supplement our funding mix. As of June 30, 2025, we had $10.4 million in brokered certificates of deposit with initial terms of 18 months and maturity of July 31, 2025. We had $10.4 million and $42.9 million in brokered certificates of deposit at December 31, 2024 and at June 30, 2024, respectively.
Yields on Average Earning Assets andInterest-Bearing Liabilities
Non-interest income during the six months ended June 30, 2025 increased $1.4 million to $8.2 million from $6.8 million during the same period in 2024. The increase in non-interest income was primarily related to increases in mortgage banking income, investment advisory fees and non-deposit commissions, ATM debit card income, rental income, and gain on sale of other real estate owned, partially offset by declines in deposit service charges.
Deposit service charges declined $49,000 to $445,000 during the six months ended June 30, 2025 from $494,000 during the same period in 2024 due to lower NSF/OD fees.
Mortgage banking income increased by $554,000 to $1.6 million during the six months ended June 30, 2025 from $1.1 million during the same period in 2024. Secondary mortgage production during the six months ended June 30, 2025 was $57.7 million compared to $35.7 million during the same period in 2024 while the gain on sale margin declined to 2.83% during the six months ended June 30, 2025 from 3.00% during the same period in 2024.
Investment advisory fees and non-deposit commissions increased $691,000 to $3.6 million during the six months ended June 30, 2025 from $2.9 million during the same period in 2024. Total assets under management increased to $1.0 billion at June 30, 2025 compared to $926.0 million at December 31, 2024 and $865.6 million at June 30, 2024. Our net new assets were $42.2 million during the six months ended June 30, 2025. Furthermore, our investment performance for the six-month period from December 31, 2024 to June 30, 2025 was 4.6% compared to 5.5% for the S&P 500. Our customers’ assets under management are allocated across a range of asset classes, including equities, bonds, and cash.
Gain on sale of other real estate owned increased $127,000 to $127,000 during the six months ended June 30, 2025 from zero during the same period in 2024 due to a sale of other real estate owned during the six months ended June 30, 2025.
The following table shows the components of non-interest income for the six-month periods ended June 30, 2025 and June 30, 2024.
Non-interest expense increased $2.2 million during the six months ended June 30, 2025 to $25.8 million compared to $23.6 million during the same period in 2024. This increase is primarily due to an increase of $1.3 million in salaries and employee benefits, an increase of $133,000 in equipment, and an increase of $809,000 in other non-interest expense, partially offset by a decrease of $102,000 in marketing and public relations expense.
The following table shows the components of non-interest expense for the six-month periods ended June 30, 2025 and June 30, 2024.
We incurred income tax expense of $2.7 million and $1.5 million for the six months ended June 30, 2025 and 2024, respectively. Our effective tax rate was 22.60% and 20.42% for the six months ended June 30, 2025 and 2024, respectively. The increase in the effective tax rate was primarily due to a $149,000 non-recurring reduction to income tax expense during the six months ended June 30, 2024.
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, shown below:
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:
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
Credit Metrics
We have a significant portion of our loan portfolio with real estate as the underlying collateral. As of June 30, 2025 and December 31, 2024, approximately 91.3% 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.
The non-performing asset ratio was 0.02% of total assets with the nominal level of $469,000 in non-performing assets at June 30, 2025 compared to 0.04% and $810,000 at December 31, 2024. Non-accrual loans decreased to $210,000 at June 30, 2025 from $219,000 at December 31, 2024. We had two accruing loans past due 90 days or more totaling $66,000 at June 30, 2025 compared to $48,000 at December 31, 2024. Loans past due 30 days or more represented 0.02% of the loan portfolio at June 30, 2025 compared to 0.05% at December 31, 2024. The ratio of classified loans plus OREO and repossessed assets declined to 0.82% of total bank regulatory risk-based capital at June 30, 2025 from 1.06% at December 31, 2024.
During the six months ended June 30, 2025, we experienced net loan recoveries of $19,000 (charge-offs of $3,000 less recoveries of $22,000) and net overdraft charge-offs of $18,000 (charge-offs of $28,000 and recoveries of $10,000). In comparison, we experienced net loan recoveries of $2,000 and net overdraft charge-offs of $30,000 during the six months ended June 30, 2024.
There were four loans totaling $276,000 (0.02% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at June 30, 2025. Two of these loans were on non-accrual status. The largest loan of the two is $208,000 and is secured by real estate. The balance of the remaining loan on non-accrual status is $1,000. This loan is secured by a second mortgage lien. We had two loans that were accruing loans past due 90 days or more at June 30, 2025. At both June 30, 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 June 30, 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 June 30, 2025 and December 31, 2024. At June 30, 2025, we had $220,000 in loans that were delinquent 30 days to 89 days representing 0.02% 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:
The following table details net charge-offs to average loans outstanding by loan category for the periods indicated.
Financial Position
Assets increased $88.2 million, or 4.5% (9.1% annualized), to $2.0 billion at June 30, 2025 from $2.0 billion at December 31, 2024. The increase in assets was primarily due to increases in cash and due from banks of $5.8 million, interest-bearing bank balances of $27.9 million, investment securities available-for-sale of $23.0 million and loans held-for-investment of $39.5 million, partially offset by a decrease in investment securities held-to-maturity of $7.7 million.
Loans and loans held-for-sale
Loans held-for-sale increased to $10.8 million at June 30, 2025 from $9.7 million at December 31, 2024. Loans (excluding loans held-for-sale) increased $39.5 million, or 3.2% (6.5% annualized), to $1.3 billion at June 30, 2025 from $1.2 billion at December 31, 2024. Total loan production, excluding mortgage secondary market and new construction residential real estate, was $109.5 million during the six months ended June 30, 2025 compared to $94.6 million during the same period in 2024. Advances from unfunded commercial construction loans available for draws were $23.8 million during the six months ended June 30, 2025. Payoffs and paydowns totaled $60.7 million during the six months ended June 30, 2025 compared to $48.3 million during the same period in 2024.
Total mortgage production during the six months ended June 30, 2025 was $106.7 million, $57.7 million of the production was originated to be sold in the secondary market, $9.6 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $39.4 million of the loan production was commitments for new construction residential real estate loans. Total mortgage production during the six months ended June 30, 2024 was $85.6 million, $35.7 million of the production was originated to be sold in the secondary market, $24.3 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $25.6 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 and increased commitments for new residential real estate construction, partially offset by lower ARM loans for our loans held for investment portfolio.
The loan-to-deposit ratio (including loans held-for-sale) at June 30, 2025 and December 31, 2024 was 72.5% and 74.5%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at June 30, 2025 and December 31, 2024 was 71.8% and 74.1%, 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 June 30, 2025, the non-owner occupied commercial real estate loans and the construction and land development loans were approximately 306% and 77% of total risk-based capital, respectively. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 45% from June 30, 2022 to June 30, 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:
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%.
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 June 30, 2025.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
Loans maturing after one year with:
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.
Investment Securities
Investment securities increased $15.6 million to $507.3 million, net of allowance for credit losses on investments of $19,000, at June 30, 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 mortgage-backed 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 $11.4 million ($9.0 million net of tax) at June 30, 2025.
Our HTM investments totaled $201.7 million and represented approximately 40% of our total investments at June 30, 2025. Our AFS investments totaled $302.6 million or approximately 59% of our total investments at June 30, 2025. Our investments at cost totaled $2.9 million or approximately 1% of our total investments at June 30, 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 June 30, 2025, the estimated weighted average life of our total investment portfolio was 5.4 years, the modified duration was 4.2, the effective duration was 3.3, and the weighted average tax equivalent book yield was 3.69%.
Other short-term investments increased $27.9 million to $151.3 million at June 30, 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 June 30, 2025:
Deposits
Deposits increased $78.1 million, or 4.7% (9.4% annualized), to $1.8 billion at June 30, 2025 compared to $1.7 billion at December 31, 2024. Our pure deposits, which are defined as total deposits less certificates of deposits, increased $61.6 million, or 4.5% (9.0% annualized), to $1.44 billion at June 30, 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 $16.6 million to $316.8 million at June 30, 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 June 30, 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 $42.9 million in brokered certificates of deposit at December 31, 2024 and at June 30, 2024, respectively.
Total uninsured deposits were $570.5 million and $542.9 million at June 30, 2025 and December 31, 2024, respectively. Included in uninsured deposits at June 30, 2025 and December 31, 2024 were $87.9 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 $482.6 million, or 27.5%, of total deposits at June 30, 2025 and $437.1 million, or 26.1%, of total deposits at December 31, 2024. The average balance of all customer deposit accounts at June 30, 2025 was $31,119. The average balance for consumer accounts was $16,138 and the average balance for non-consumer accounts was $70,257.
The following table sets forth the deposits by category:
The uninsured amount of time deposits in the table above at June 30, 2025 and December 31, 2024 was $42.4 million and $40.8 million, respectively.
The tables below show at June 30, 2025 and December 31, 2024, maturities of certificates and other time deposits greater than $250,000.
Borrowed Funds, Trust Preferred Securities, and Shareholders’ Equity
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 $110.2 million, $83.9 million, and $68.6 million during the three months ended June 30, 2025, December 31, 2024, and June 30, 2024, respectively. The average rates paid during these periods were 2.48%, 2.71%, and 2.91 %, respectively. The balances of securities sold under agreements to repurchase were $103.6 million, $103.1 million, and $59.3 million at June 30, 2025, December 31, 2024, and June 30, 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 zero, zero, and $6,000 during the three months ended June 30, 2025, December 31, 2024, and June 30, 2024, respectively. The average rates paid during these periods were 0.00%, 0.00%, and 0.00%, respectively. Federal funds purchased were zero at June 30, 2025, December 2024, and June 30, 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 $55.6 million during the three months ended June 30, 2025, December 31, 2024, and June 30, 2024, respectively. The average rates paid during these periods were zero, 5.15%, and 5.15%, respectively. The balances of FHLB advances were zero, zero, and $50.0 million at June 30, 2025, December 31, 2024, and June 30, 2024, respectively.
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. The remaining debt may be redeemed in full anytime with notice and matures on September 16, 2034. The securities accrue and pay distributions quarterly at a rate determined by an adjusted Secured Overnight Financing Rate (SOFR). Trust preferred securities averaged $15.0 million during the three months ended June 30, 2025, December 31, 2024, and June 30, 2024. The average rates during these periods were 7.21%, 7.71%, and 8.28%, respectively. The balances of trust preferred securities were $15.0 million as of June 30, 2025, December 31, 2024, and June 30, 2024.
Total shareholders’ equity increased $11.0 million, or 7.6%, to $155.5 million at June 30, 2025 from $144.5 million at December 31, 2024. Shareholders’ equity was 7.6% of total assets at June 30, 2025 and 7.4% at December 31, 2024. The $11.0 million increase in shareholders’ equity was due to a $6.9 million increase in retention of earnings resulting from $9.2 million in net income less $2.3 million in dividends, a $331,000 increase due to employee and director stock awards, a $192,000 increase due to dividend reinvestment plan (DRIP) purchases, and a $3.6 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 $3.0 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 $662,000, partially offset by unrealized loss on investment hedge of $76,000.
On May 9, 2025, we announced that our Board of Directors approved a plan to utilize up to $7.5 million of capital to repurchase shares of our common stock (the “2025 Repurchase Plan”), which represented approximately 5.0% of total shareholders’ equity at the time of the announcement. No repurchases have been made under the 2025 Repurchase Plan. The 2025 Repurchase Plan expires at the market close on May 8, 2026.
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:
Further, our ALCO and board of directors explicitly review our ALCO policies at least annually and review our ALCO assumptions and policy limits quarterly.
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 June 30, 2025 and at December 31, 2024 over the subsequent 12 months. We were liability sensitive at June 30, 2025 and at December 31, 2024. 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 Loan Pay-Fixed Swap Agreement and Investment Pay-Fixed Interest Rate Swap Agreement that we entered into effective May 5, 2023 and April 30, 2025, respectively. Furthermore, we reduced the average life on our non-maturity deposits at June 30, 2024. As a result, our modeling, at June 30, 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 less 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 in all of the scenarios during the first 12-month period subsequent to interest rate changes. The positive impact in the down 100 and down 200 basis point scenarios of declining rates changes to a slightly less positive impact on net interest income during the second 12-month period subsequent to interest rate changes. In the down 300 and down 400 basis point scenarios, the model reflects a slight decrease. 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. As a result, our modeling, at December 31, 2024, 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 less 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 in all of the scenarios during the first 12-month period subsequent to interest rate changes. The positive impact in the down 100, down 200, and down 300 basis point scenarios of declining rates changes to a slightly less positive impact on net interest income during the second 12-month period subsequent to interest rate changes. In the down 400 basis points scenario, the model reflects a slight decrease in net interest income. 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.
Net Interest Income Sensitivity
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 1.76%, 4.64%, 8.44%, and 12.41%, respectively, at June 30, 2025, and decline 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 1.44%, 1.97%, and decline 0.52%, and 3.78%, respectively, at June 30, 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 June 30, 2025 and at December 31, 2024. However, our PVE increases slightly in the up 100 and up 200, and declines in the up 300 and up 400 basis point scenarios at June 30, 2025 and December 31, 2024.
Present Value of Equity Sensitivity
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 June 30, 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 on July 31, 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 June 30, 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 June 30, 2025 and at December 31, 2024. At June 30, 2025, we had remaining credit availability under this facility in excess of $509.7 million, subject to collateral requirements. Combined, we have total remaining credit availability, subject to collateral requirements, in excess of $597.1 million as compared to uninsured deposits excluding deposits of states or political subdivisions in the U.S., which are secured or collateralized, of $482.5 million as previously noted.
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 June 30, 2025, we had issued commitments to extend unused credit of $197.2 million, including $67.9 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:
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.
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 June 30, 2025, the Bank met all capital adequacy requirements under the rules on a fully phased-in basis.
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.
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 second quarter of 2025 of $0.16 per common share. This dividend is payable on August 19, 2025 to shareholders of record of our common stock as of August 5, 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 June 30, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II -
OTHER INFORMATION
Item 1. Legal Proceedings.
We are 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.
Item 3. Defaults Upon Senior Securities.
Not Applicable.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Trading Plans
During the three months ended June 30, 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.
Item 6. Exhibits.
Amended and Restated Bylaws dated May 16, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 18, 2023).
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.