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 ☒ No ☐
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). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On August 12, 2026, 9,399,731shares 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 and its wholly owned subsidiary, First Community Bank (the “Bank”), collectively, (the “Company,” unless the context requires otherwise), state fairly, in all material respects, the Company’s financial position at June 30, 2026 and December 31, 2025, and the Company’s results of operations for the three and six months ended June 30, 2026 and 2025, and cash flows for the six months ended June 30, 2026 and 2025. The results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.
In the opinion of management, all adjustments necessary to state fairly 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, 2025 should be referred to in connection with these unaudited interim financial statements.
Reclassifications
Certain amounts presented in the Company’s previously issued financial statements have been reclassified to conform to the current presentation. These reclassifications had no effect on previously reported shareholders’ equity or net income.
Significant accounting policies not previously presented in the Annual Report on Form 10-K for the year ended December 31, 2025
Acquired Loans
Acquired loans are accounted for at fair value as of the date of acquisition. For both purchased credit deteriorated loans and purchased seasoned loans, the gross-up method is used. Under this method, the loans are recorded at fair value and an increase to the allowance for credit losses – loans, is booked at the date of acquisition. The gross-up, or difference between fair value and unpaid principal balance at the acquisition date is amortized or accreted to interest income over the life of the loan.
Business Combinations
Acquisitions of businesses are accounted for using the acquisition method of accounting. In accordance with applicable accounting guidance, the Company recognizes assets acquired and liabilities assumed at their respective fair values as of the date of acquisition, with the related transaction costs expensed in the period incurred. The Company uses third-party valuation specialists to assist in the determination of fair value of certain assets and liabilities at the merger date, including loans and intangible assets. While the Company uses our best estimates and assumptions to accurately value assets acquired and liabilities assumed on the acquisition date, the estimates are inherently uncertain. For further discussion of our methodology for estimating the fair value of acquired assets and assumed liabilities in connection with our acquisition of Signature Bank of Georgia, see Note 2, “Business Combination”.
Purchased Transferable Tax Credits
The Company may purchase transferable tax credits from third parties pursuant to relevant transferability provisions. Purchased tax credits are accounted for in accordance with ASC 740, Income Taxes. Purchased transferable tax credits are recorded as an income tax-related asset at the amount of cash consideration paid at the date the Company obtains control of the credits. The asset is subsequently recognized as a reduction of income tax expense in the period in which the credits are utilized to offset the Company’s federal income tax liability.
Purchased credits do not give rise to deferred tax assets or liabilities and are not amortized. The Company evaluates the realizability of purchased credits each reporting period based on expected taxable income and statutory expiration dates. If it is more likely than not that any portion of the purchased credits will not be realized, the carrying amount is reduced and a corresponding charge is recorded within the provision for income taxes in the consolidated statements of income. The Company assesses whether any uncertain tax positions exist related to the eligibility or utilization of purchased credits under the guidance in ASC 740-10. Any such amounts are recorded as liabilities for unrecognized tax benefits when appropriate. Cash paid for the acquisition of purchased transferable credits is presented within Operating activities in the Consolidated Statements of Cash Flows.
Recently Issued Accounting Pronouncements
The following is a summary of recent authoritative pronouncements:
In November 2024, the FASB issued ASU No. 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This ASU was clarified by the January 2025 issuance of ASU 2025-01, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date.” Combined, these ASUs require disaggregated disclosure of income statement expenses for public business entities. The ASUs require new financial statement disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. Both ASUs are effective for our fiscal years, beginning after December 15, 2026, and for interim periods, beginning after December 15, 2027, though early adoption is permitted. The Company is assessing ASU 2024-03 and ASU 2025-01, and their adoption is not expected to have a significant impact on our financial position, results of operations or cash flows.
In November 2025, the FASB issued ASU 2025-08, Financial Instruments – Credit Losses (Topic 326): Purchased Loans. These amendments are intended to improve comparability and consistency in acquisition reporting for purchased loans. The amendments eliminate day-one current expected credit loss double counting, define purchased seasoned loans, expand the gross-up approach to include purchased seasoned loans, other than credit cards, clarify interest income recognition for purchased loans, and allow entities to measure expected credit losses using amortized cost rather than unpaid principal balance. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2026. Early adoption is permitted, and the Company early-adopted these amendments in 2026.
Other accounting standards that have been issued or proposed by the FASB or other standard-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Note 2 - Business Combination
On January 8, 2026 (the “Acquisition Date”), First Community Bank acquired all of the outstanding common stock of Signature Bank of Georgia (“SGBG”). In connection with the transaction, the Company issued 1,658,339 shares of its common stock to the shareholders of SGBG. Pursuant to the Agreement and Plan of Merger, dated as of July 13, 2025, SGBG merged with and into First Community Bank, with First Community Bank continuing as the surviving bank.
Each outstanding share of SGBG common stock was converted into the right to receive 0.6410 shares of Company common stock. Total consideration for the acquisition was approximately $49.7 million of Company common stock, based on the Company’s common stock price of $29.99 per share. In connection with the merger, the Company issued approximately 1.7 million shares of common stock and paid approximately $5,000 in cash.
The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the Acquisition Date.
The following table summarizes the preliminary estimated fair values of the assets acquired, liabilities assumed and consideration transferred in connection with the SGBG acquisition as of the Acquisition Date:
Schedule of Estimated Fair Values of Assets Acquired, Liabilities Assumed and Consideration Transferred
The goodwill arising from the acquisition reflects the Company’s increased market share and related synergies expected to result from combining the operations of First Community Bank and SGBG. Of the $14.8 million in goodwill arising from the acquisition, $5.8 million was assigned to the Government Guaranteed Lending segment and $9.0 million was assigned to the Commercial and Retail Banking segment. In accordance with ASC 350, Intangibles-Goodwill and Other, goodwill will not be amortized, and all goodwill will be tested for impairment at least annually. The fair value of the acquired identifiable intangible assets was $2.6 million, consisting primarily of a core deposit intangible.
The fair value of the acquired assets and liabilities reflected in the table above is preliminary pending receipt of the final valuation for certain assets and liabilities. During the measurement period, which may last up to twelve months following the Acquisition Date, the Company will continue to review information relating to facts and circumstances that existed as of the Acquisition Date and, if necessary, will adjust the preliminary fair value estimates of the acquired assets and liabilities. The Company expects that certain adjustments to the preliminary fair value estimates may be recorded after June 30, 2026, through the 12-month measurement period. No adjustments to the preliminary fair value estimates were made during the three or six months ended June 30, 2026.
The following is a description of the methods used to determine the fair values of significant assets acquired and liabilities assumed.
Cash and due from banks and interest-bearing bank balances – The carrying amount of these assets approximates fair value based on the short-term nature of these assets.
Investment securities –The available-for-sale investment securities portfolio was valued using third-party pricing services for those securities retained and valued using the actual sales prices for those securities that were sold during the first quarter of 2026. Only one security, valued at approximately $1.0 million, was retained; the Company sold the remaining 96% of the securities acquired in the days following the acquisition.
Loans held-for-investment –A valuation of the acquired loan portfolio was performed by a third party as of the Acquisition Date to assess the fair value. The fair value of loans was determined using a discounted cash flow methodology that considered the loans’ underlying characteristics including account type, remaining terms, annual interest rates or coupon, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposure and remaining balance. Loans were aggregated by similar risk characteristics in applying the valuation methodology.
At the Acquisition Date, of the $195.7 million of loans acquired from SGBG, $18.4 million were accounted for as purchased credit deteriorated (“PCD”) loans. The remaining loans were accounted for as purchased seasoned (“PSL”) loans. The following tables provide a summary of PCD and PSL loans purchased as part of the SGBG acquisition as of the acquisition date:
Schedule of PCD and PSL Loans Purchased as part of Acquisition
Intangible Assets – A valuation of intangible assets, primarily composed of core deposit intangibles, was performed by a third party as of the Acquisition Date to assess the fair value. Core deposit intangibles represent the value of relationships with deposit customers and the related cost savings derived from available core deposits relative to an alternative funding source. The fair value of the core deposit intangible was estimated using a net cost savings method, a variation of the income approach. This approach considers expected client attrition rates, average life and balance inflation, alternative cost of funds, the interest cost and net maintenance cost associated with the client deposit base, and a discount rate used to discount the future economic benefits of the core deposit intangible asset to present value. Intangible assets will be amortized on a straight-line method over a period of 10 years.
Deposits – The fair value for demand and savings deposits is the amount payable on demand at the Acquisition Date. The fair value for time deposits was valued by a third party using a discounted cash flow calculation that applied interest rates currently being offered to the contractual interest rates on such time deposits.
The results of operations of SGBG are included in the Company’s consolidated results of operations beginning on the Acquisition Date. Transaction costs incurred in connection with the acquisition were expensed as incurred. Additional transaction and integration costs will be expensed in future periods as incurred.
The following table presents supplemental pro forma information as if the acquisition had occurred at the beginning of 2025. The unaudited pro forma information reflects adjustments made to include acquisition-related adjustments for interest income on loans and securities acquired, amortization of intangibles arising from the transaction, interest expense on deposits acquired, effect of merger expenses, and the related income tax effects. The pro forma financial information does not include the potential impacts of possible business model changes, current market conditions, revenue enhancements, expense efficiencies, or other factors. The pro forma information is theoretical in nature and not necessarily indicative of future consolidated results of operations of the Company or the consolidated results of operations which would have resulted had the Company acquired SGBG at the beginning of 2025.
Supplemental Pro Forma Information as if Acquisition had occurred at Beginning of 2025
Note 3 - 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. Diluted 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 4 - Investment Securities
The amortized cost and estimated fair values of investment securities are summarized below.
Schedule of Amortized Cost and Estimated Fair Values of Investment Securities Available-For-Sale
AVAILABLE-FOR-SALE:
HELD-TO-MATURITY:
Schedule of Amortized Cost and Estimated Fair Values of Investment Securities Held-To-Maturity
There were nogross realized gains or gross realized losses from the sale of available-for-sale investment securities during the three or six months ended June 30, 2026 and 2025, respectively.
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 is 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, 2026 and December 31, 2025, 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, 2026.
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, 2025.
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, 2026 and 2025.
Schedule of allowance for credit losses on held to maturity securities
At June 30, 2026, 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, 2026.
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, 2026 and December 31, 2025. The state and local government 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, 2026 and December 31, 2025, aggregated by credit quality indicators.
Schedule of amortized cost of debt securities held to maturity aggregated by credit quality indicators.
The following tables show the amortized cost and fair value of investment securities at June 30, 2026 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 5 - Loans
The following table summarizes the composition of our loan portfolio. Total loans are recorded net of deferred loan fees and costs, which totaled $2.4 million and $2.3 million as of June 30, 2026 and December 31, 2025, respectively.
Schedule of Loan Portfolio
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, 2026 and charge-offs for the three months ended June 30, 2026:
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, 2025 and charge offs for the three months ended December 31, 2025:
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, 2026 and June 30, 2025, is shown below:
Schedule of Allowance for Credit Losses
There were four loans modified for borrowers experiencing financial difficulty during the six months ended June 30, 2026, and two loans modified for borrowers experiencing financial difficulty during the same period ended June 30, 2025.
The following table shows the amortized cost basis as of June 30, 2026 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, 2026 and December 31, 2025.
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 $2,000 and $7,000 of interest income on non-accrual loans during the three and six months ended June 30, 2026, and the Company recognized $6,000 and $22,500 of interest income on non-accrual loans during the three and six months ended June 30, 2025.
During the three and six months ended June 30, 2026 and 2025, less than $1,000 of accrued interest was written off by reversing interest income.
The following table shows the collateral dependent loans that were individually evaluated at June 30, 2026.
Schedule of Collateral Dependent Loans that were Individually Evaluated
There were no collateral dependent loans that were individually evaluated at December 31, 2025.
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 classified on the balance sheet within Other Liabilities and was $609,000 and $531,000 at June 30, 2026 and December 31, 2025, 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, 2026 and June 30, 2025.
Schedule of Unfunded Commitments
Note 6 - 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 interest-bearing bank balances 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 were originated in the Company’s name and 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.
Collateral Dependent Loans—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, 2026 and December 31, 2025 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, 2026 and December 31, 2025 that are measured on a recurring basis.
Schedule of Fair Value, Assets Measured on Recurring Basis
There were no liabilities carried at fair value as of June 30, 2026 that are measured on a recurring basis. The following table summarizes quantitative disclosures about the fair value for each category of liabilities carried at fair value as of December 31, 2025 that are measured on a 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, 2026 and December 31, 2025 that are measured on a non-recurring basis. There were no Level 3 financial instruments as of June 30, 2026 and December 31, 2025 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 five such loans at June 30, 2026 and no such loans at December 31, 2025. 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 against 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, 2026 and December 31, 2025, the significant unobservable inputs used in the fair value measurements were as follows:
Schedule of Fair Value Measurement Inputs and Valuation Techniques
Note 7 - Deposits
The Company’s total deposits are comprised of the following amounts at the dates indicated:
Schedule of Deposits
Note 8 - 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 (the “CODM”). The CODM regularly reviews the performance of the Company’s five 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, 2026 and June 30, 2025.
Schedule of Company’s Reportable Segment
The table below presents total assets for the Company’s reportable business segments as of June 30, 2026 and December 31, 2025.
Note 9 - Leases
At June 30, 2026, the Company had operating leases for four facilities, compared to three facilities at December 31, 2025. All leases commenced prior to 2025, other than the additional lease assumed in connection with the acquisition of SGBG in 2026. The four leases have maturities ranging from May 2027 to December 2038. 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, 2026.
Schedule of Future Undiscounted Operating Lease Payments
Note 10 - Accumulated Other Comprehensive Loss
The following table presents the changes in each component of accumulated other comprehensive loss net of tax, for the six months ended June 30, 2026 and 2025.
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 22, 2026, the Company and the Bank announced a planned management succession and leadership transition, effective January 1, 2027, pursuant to which J. Ted Nissen will retire from his executive officer and director positions with the Company and the Bank, Vaughan R. Dozier, Jr. will become Chief Executive Officer of the Bank, and Joseph A. “Drew” Painter will become President of the Bank. Michael C. Crapps will continue to serve as President and Chief Executive Officer of the Company. Additional information regarding this management succession and leadership transition is set forth in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 22, 2026.
Except as described above, management has reviewed events occurring after June 30, 2026, and has determined that no other subsequent events occurred requiring accrual or disclosure that have not already been reflected in these unaudited consolidated financial statements or the footnotes thereto.
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, including statements regarding the anticipated timing and benefits of leadership transitions, consulting arrangements with former executives, and the expected roles and responsibilities of the company’s executive officers. 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,” “positions,” “forward,” “future,” 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, 2025 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 16, 2026 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, 2025. 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, 2026, as compared to the three and six months ended June 30, 2025, and analyzes our financial condition as of June 30, 2026 as compared to December 31, 2025. 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.
Merger with Signature Bank of Georgia
On July 13, 2025, the Company and First Community Bank entered into an Agreement and Plan of Merger with Signature Bank of Georgia (“SGBG”), pursuant to which SGBG agreed to merge with and into First Community Bank, with First Community Bank continuing as the surviving bank. The merger was completed on January 8, 2026.
At the effective time of the merger, each outstanding share of SGBG common stock was converted into the right to receive 0.6410 shares of Company common stock, with cash paid in lieu of any fractional shares. In addition, each outstanding option to acquire SGBG common stock, whether vested or unvested, was converted into the right to receive a cash payment equal to the number of shares of SGBG common stock subject to the option multiplied by the excess, if any, of the fair market value per share of SGBG common stock, based on the value of the merger consideration, over the applicable exercise price. If the applicable exercise price equaled or exceeded the fair market value per share of SGBG common stock, the holder received a nominal payment of $0.01 per share.
In connection with the merger, the Company issued approximately 1.7 million shares of common stock and paid approximately $5,000 in cash. Additional information regarding the merger is included in Note 2, “Business Combination,” to the consolidated financial statements included in this report.
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, 2026 and our notes included in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC on March 16, 2026.
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, 2025.
Except for the estimates related to business combination described below, 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, 2025.
The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with FASB ASC Topic 805,Business Combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the Acquisition Date. For further details, see Note 2.
Comparison of Results of Operations for the Three Months Ended June 30, 2026 to the Three Months Ended June 30, 2025
Net Income
Our net income for the three months ended June 30, 2026 increased $2.4 million to $7.6 million, or $0.80 diluted earnings per common share, as compared to $5.2 million, or $0.67 diluted earnings per common share, for the three months ended June 30, 2025. The increase in net income between the two periods is primarily due to a $4.2 million increase in net interest income and a $1.4 million increase in non-interest income, partially offset by a $363,000 increase in provision for credit losses, $2.2 million increase in non-interest expense, and a $646,000 increase in income tax expense.
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 $4.2 million, or 27.3%, to $19.5 million for the three months ended June 30, 2026 from $15.3 million for the three months ended June 30, 2025. Our net interest margin improved 31 basis points to 3.50% during the three months ended June 30, 2026 compared to 3.19% during the three months ended June 30, 2025. Our net interest margin, on a taxable equivalent basis, was 3.51% for the three months ended June 30, 2026 compared to 3.21% for the three months ended June 30, 2025. Average earning assets were $2.2 billion for the three months ended June 30, 2026 and $1.9 billion in the same period of 2025.
Average loans increased $309.5 million, or 24.5%, to $1.6 billion for the three months ended June 30, 2026 from $1.3 billion for the same period in 2025. Our loan (including loans held-for-sale) to deposit ratio on average during the three months ended June 30, 2026 was 77.9%, as compared to 72.7% during the same period in 2025. The yield on loans increased 25 basis points to 6.02% during the three months ended June 30, 2026 from 5.77% during the same period in 2025 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, 2026 increased $4.6 million, or 0.9%, to $510.1 million from $505.5 million during the same period in 2025. Interest-bearing deposits in other banks and fed funds sold decreased $3.5 million to $152.4 million during the three months ended June 30, 2026 from $155.9 million during the same period in 2025. The decrease in interest-bearing deposits in other banks and fed funds sold was due to loan growth outpacing deposit growth. The yield on our securities portfolio declined to 3.33% for the three months ended June 30, 2026 from 3.43% for the same period in 2025. The yield on our interest-bearing deposits in other banks and fed funds sold was 3.54% for the three months ended June 30, 2026 compared to 4.32% during the same period in 2025.
The cost of interest-bearing liabilities was 2.42% during the three months ended June 30, 2026 compared to 2.56% during the same period in 2025. The cost of deposits, including demand deposits, was 1.76% during the three months ended June 30, 2026 compared to 1.82% during the same period in 2025. The cost of funds, including demand deposits, was 1.82% during the three months ended June 30, 2026 compared to 1.91% during the same period in 2025. This decline was driven by a decrease in the market interest rates for deposits during the period. 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. We had $1.8 billion, $1.5 billion, and $1.5 billion in pure deposits plus customer cash management repurchase agreements at June 30, 2026, December 31, 2025 and June 30, 2025, 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, 2026 increased $1.4 million to $5.6 million from $4.2 million during the same period in 2025. The $1.4 million increase in non-interest income was primarily related to increases of $191,000 in mortgage banking income, $535,000 in investment advisory fees and non-deposit commissions, and $704,000 in government guaranteed lending income, partially offset by a decline of $127,000 in gain on sale of other assets. The government guaranteed lending income came from a new segment, government guaranteed lending, acquired from SGBG.
Mortgage banking income increased $191,000 to $1.1 million during the three months ended June 30, 2026 from $879,000 during the same period in 2025. Total production in the mortgage line of business in the second quarter of 2026 was $53.8 million, which was comprised of $38.3 million in secondary market loans, $2.3 million in adjustable rate mortgages (ARMs), and $13.2 million in construction loans. Total fee revenue in the mortgage line of business was $1.1 million in the three months ended June 30, 2026, which includes $1.1 million associated with the secondary market loans, with a gain-on-sale margin of 2.78%. This compares to production year-over-year of $62.9 million, which was comprised of $31.9 million in secondary market loans, $5.7 million in ARMs, and $25.3 million in construction loans during the same period of 2025. Fee revenue associated with the secondary market loans in the three months ended June 30, 2025 was $876,000 with a gain-on-sale margin of 2.74%.
Investment advisory fees rose $535,000 to $2.3 million during the three months ended June 30, 2026 from $1.8 million during the same period in 2025. Total assets under management increased to $1.4 billion at June 30, 2026 from $1.2 billion at December 31, 2025. Our net new assets under management were $10.4 million during the three months ended June 30, 2026. Furthermore, our investment performance for the three months ended June 30, 2026 was 21.0% compared to 14.9% for the S&P 500. Our customers’ assets under management are allocated across a range of asset classes, including equities, bonds, and cash.
Fee revenue from the new Government Guaranteed Lending line of business was $704,000 during the three months ended June 30, 2026. Production in this line of business in the second quarter of 2026 included $16.1 million in SBA loans. During the quarter, we sold $8.9 million in loans, which resulted in a premium of $671,000 and a gain-on-sale margin of 9.59%.
Other non-interest income increased $139,000 to $1.4 million during the three months ended June 30, 2026 from $1.2 million during the same period in 2025. The $139,000 increase was primarily due to increases in other non-recurring income (gain on insurance proceeds) of $80,000, rental income of $20,000, and wire transfer fees of $16,000.
The following table shows the components of non-interest income for the three-month periods ended June 30, 2026 and June 30, 2025.
Non-interest expense increased $2.2 million during the three months ended June 30, 2026 to $15.3 million compared to $13.1 million during the same period in 2025. The increase in non-interest expense was primarily due to increases of $1.5 million in salaries and employee benefits, $121,000 in occupancy, $269,000 in merger, and $168,000 in other non-interest expense.
The following table shows the components of non-interest expense for the three-month periods ended June 30, 2026 and June 30, 2025.
Income Tax Expense
We incurred income tax expense of $2.1 million and $1.5 million for the three months ended June 30, 2026 and 2025, respectively. Our effective tax rate was 22.01% and 22.41% for the three months ended June 30, 2026 and 2025, respectively. During the second quarter of 2026, we purchased $900,000 in 2026 South Carolina Low-Income Housing Tax Credits, which resulted in an income tax benefit of $114,000.
Comparison of Results of Operations for the Six Months Ended June 30, 2026 to the Six Months Ended June 30, 2025
Our net income for the six months ended June 30, 2026 increased $3.9 million to $13.1 million, or $1.39 diluted earnings per common share, from $9.2 million, or $1.18 diluted earnings per common share for the six months ended June 30, 2025. The increase in net income between the two periods is primarily due to an increase of $8.2 million in net interest income, an increase of $2.2 million in total non-interest income, and a decrease of $101,000 in income tax expense, partially offset by an increase of $119,000 in provision for credit losses and an increase of $6.5 million in total non-interest expense.
Net interest income increased $8.2 million to $37.9 million for the six months ended June 30, 2026 from $29.7 million for the six months ended June 30, 2025. Our net interest margin increased by 0.27% to 3.43% during the six months ended June 30, 2026 from 3.16% during the six months ended June 30, 2025. Our net interest margin, on a taxable equivalent basis, was 3.44% for the six months ended June 30, 2026 compared to 3.17% for the six months ended June 30, 2025. Average earning assets increased $329.8 million, or 17.4%, to $2.2 billion for the six months ended June 30, 2026 compared to $1.9 billion in the same period of 2025.
Average loans increased $291.0 million, or 23.3%, to $1.5 billion for the six months ended June 30, 2026 from $1.3 billion for the same period in 2025. Our loan (including loans held-for-sale) to deposit ratio on average during the six months ended June 30, 2026 was 77.2%, as compared to 73.4% during the same period in 2025. The yield on loans increased 0.24% to 5.98% during the six months ended June 30, 2026 from 5.74% during the same period in 2025 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, 2026 increased $8.0 million, or 1.6%, to $506.8 million from $498.9 million during the same period in 2025. The increase in securities was due to the purchase of securities and a reduction in unrealized losses on our available-for-sale securities portfolio, partially offset by normal principal cash flows from the securities portfolio. Interest-bearing deposits in other banks increased $30.7 million to $179.0 million during the six months ended June 30, 2026 from $148.3 million during the same period in 2025. 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 3.33% for the six months ended June 30, 2026 from 3.42% for the same period in 2025. The yield on our interest-bearing deposits in other banks decreased to 3.52% for the six months ended June 30, 2026 from 4.31% for the same period in 2025 due to lower market interest rates.
The yields on earning assets for the six months ended June 30, 2026 and 2025 were 5.18% and 5.02%, respectively.
The cost of interest-bearing liabilities was 2.43% during the six months ended June 30, 2026 compared to 2.57% during the same period in 2025. The cost of deposits, including demand deposits, was 1.78% during the six months ended June 30, 2026 compared to 1.84% during the same period in 2025. The cost of funds, including demand deposits, was 1.84% during the six months ended June 30, 2026 compared to 1.92% during the same period in 2025. 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, 2026, pure deposits plus customer cash management repurchase agreements averaged 84.8% of total deposits plus customer cash management repurchase agreements as compared to 83.0% during the same period of 2025.
Non-interest income during the six months ended June 30, 2026 increased $2.2 million to $10.4 million from $8.2 million during the same period in 2025. The increase in non-interest income was primarily related to increases in mortgage banking income, investment advisory fees and non-deposit commissions, government guaranteed lending income, and other non-interest income, partially offset by a decline in gain on sale of other real estate owned. The government guaranteed lending income came from a new segment, government guaranteed lending, acquired from SGBG.
Mortgage banking income increased by $113,000 to $1.8 million during the six months ended June 30, 2026 from $1.6 million during the same period in 2025. Secondary mortgage production during the six months ended June 30, 2026 was $63.7 million compared to $57.7 million during the same period in 2025 while the gain on sale margin declined to 2.73% during the six months ended June 30, 2026 from 2.83% during the same period in 2025.
Investment advisory fees and non-deposit commissions increased $1.0 million to $4.6 million during the six months ended June 30, 2026 from $3.6 million during the same period in 2025. Total assets under management increased to $1.4 billion at June 30, 2026 compared to $1.2 billion at December 31, 2025 and $1.0 billion at June 30, 2025. Our net new assets were $16.4 million during the six months ended June 30, 2026. Furthermore, our investment performance for the six-month period from December 31, 2025 to June 30, 2026 was 16.38% compared to 9.55% for the S&P 500. Our customers’ assets under management are allocated across a range of asset classes, including equities, bonds, and cash.
Fee revenue from the new Government Guaranteed Lending line of business was $1.1 million during the six months ended June 30, 2026. Production in this line of business in the first half of 2026 included $18.5 million in SBA loans. During the period, we sold $13.5 million in loans, which resulted in a premium of $865,000 and a gain-on-sale margin of 7.89%.
Gain on sale of other real estate owned decreased $127,000 to zero during the six months ended June 30, 2026 from $127,000 during the same period in 2025 due to a sale of other real estate owned during the six months ended June 30, 2025.
Other non-interest income increased $158,000 to $2.6 million during the six months ended June 30, 2026 from $2.4 million during the same period in 2025. The $158,000 increase was primarily due to increases in other non-recurring gain on insurance proceeds income of $80,000, rental income of $35,000, and wire transfer fees of $35,000.
The following table shows the components of non-interest income for the six-month periods ended June 30, 2026 and June 30, 2025.
Non-interest expense increased $6.5 million during the six months ended June 30, 2026 to $32.3 million compared to $25.8 million during the same period in 2025. This increase is primarily due to an increase of $3.3 million in salaries and employee benefits, an increase of $161,000 in occupancy, an increase of $127,000 in marketing and public relations, an increase of $118,000 in amortization of intangible, an increase of $1.9 million in merger expense, and an increase of $925,000 in other non-interest expense.
The following table shows the components of non-interest expense for the six-month periods ended June 30, 2026 and June 30, 2025.
We incurred income tax expense of $2.6 million and $2.7 million for the six months ended June 30, 2026 and 2025, respectively. Our effective tax rate was 16.47% and 22.60% for the six months ended June 30, 2026 and 2025, respectively. The decrease in the effective tax rate was due to an adjustment of $878,000 due to federal tax credits purchased and an adjustment of $114,000 due to state tax credits purchased during the six months ended June 30, 2026.
Provision and Allowance for Credit Losses and Credit Metrics
Provision and Allowance for Credit Losses
The total allowance for credit losses (ACL) is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments. The ACL for loans is further composed of the allowance for individually assessed loans, the allowance for collectively assessed expected losses, the allowance for collectively assessed qualitative adjustments, and the allowance for collectively assessed additional allowance. The allowance for collectively assessed qualitative adjustments is calculated using a set of qualitative factors which as of June 30, 2026 and December 31, 2025 included changes in lending policies and procedures, changes in staff, markets, and products, change in total of 30-89 days past due and other loans especially mentioned, changes in the loan review system, changes in collateral value for non-collateral dependent loans, changes in concentration of credits, changes in the legal or regulatory requirements and competition, data limitations, model imprecision, and reasonable and supportable forecast alternative scenarios. The 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, 2026 and December 31, 2025, approximately 91.7% and 91.5%, 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 who 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 of the allowance 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 that 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 0.04% of total assets with the nominal level of $887,000 in non-performing assets at June 30, 2026 compared to 0.02% and $372,000 at December 31, 2025. Non-accrual loans increased to $300,000 at June 30, 2026 from $202,000 at December 31, 2025. We had four accruing loans past due 90 days or more totaling $419,000 at June 30, 2026 compared to $2,000 at December 31, 2025. Loans past due 30 days or more represented 0.26% of the loan portfolio at June 30, 2026 compared to 0.07% at December 31, 2025. The ratio of classified loans plus OREO and repossessed assets increased to 2.55% of total bank regulatory risk-based capital at June 30, 2026 from 0.76% at December 31, 2025.
During the six months ended June 30, 2026, we experienced net charge-offs, including overdrafts, of $26,000 and net loan recoveries, excluding overdrafts, of $3,000. In comparison, during the six months ended June 30, 2025, we experienced net recoveries, including overdrafts, of $1,000 and net loan recoveries, excluding overdrafts, of $19,000.
There were eight loans totaling $719,000 (0.05% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at June 30, 2026. Four of these loans were on non-accrual status. The largest loan of the four is $193,000 and is secured by real estate. The balance of the remaining loans on non-accrual status is $107,000. These loans are secured by business assets. At June 30, 2026, we had four accruing loans that were past due 90 days or more. At both June 30, 2026 and December 31, 2025, we considered loan relationships exceeding $500,000 and on non-accrual status as individually assessed loans for the allowance for credit losses. In addition to the loans meeting the criteria above, purchased loans with a specific credit mark are also individually assessed. At June 30, 2026 we have five individually assessed loans totaling $2.8 million. At December 31, 2025, 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 $2.4 million allowance for credit losses on our individually assessed loans at June 30, 2026 and none at December 31, 2025. At June 30, 2026, we had $3.7 million in loans that were delinquent 30 days to 89 days representing 0.24% of total loans compared to $934,000 or 0.07% of total loans at December 31, 2025.
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 $314.6 million, or 15.3% (30.8% annualized), to $2.4 billion at June 30, 2026 from $2.1 billion at December 31, 2025. The increase in assets was primarily due to increases in cash and due from banks of $7.8 million, investment securities available for sale of $28.5 million, loans held-for-investment of $267.3 million, goodwill of $14.8 million, intangible assets of $2.4 million, and other assets of $13.3 million, partially offset by a decrease in interest-bearing bank balances of $6.7 million and investment securities held-to-maturity of $10.2 million, and an increase in allowance for credit losses of $4.7 million. As discussed elsewhere, $195.7 million of the growth in loans held-for-investment and all of the growth in goodwill and intangible assets came from the acquisition of Signature Bank of Georgia.
Loans and loans held-for-sale
Loans held-for-sale increased to $11.9 million at June 30, 2026 from $10.7 million at December 31, 2025. Loans (excluding loans held-for-sale) increased $267.3 million, or 20.4% (41.1% annualized), to $1.6 billion at June 30, 2026 from $1.3 billion at December 31, 2025. Total loan production, excluding mortgage secondary market and new construction residential real estate, was $151.5 million during the six months ended June 30, 2026 compared to $99.9 million during the same period in 2025. Advances from unfunded commercial construction loans available for draws were $35.1 million during the six months ended June 30, 2026 compared to $23.8 million during the same period in 2025. Payoffs and paydowns totaled $95.1 million during the six months ended June 30, 2026 compared to $60.7 million during the same period in 2025.
Total production in the mortgage line of business in the six months ended June 30, 2026 was $95.8 million which was comprised of $63.7 million in secondary market loans, $4.2 million in adjustable rate mortgages (ARMs), and $27.9 million in construction loans. 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. 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 loan-to-deposit ratio (including loans held-for-sale) at June 30, 2026 and December 31, 2025 was 78.5% and 75.6%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at June 30, 2026 and December 31, 2025 was 77.9% and 74.9%, 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, 2026, the non-owner occupied commercial real estate loans and the construction and land development loans were approximately 314% and 70% of total risk-based capital, respectively, compared to 307% and 71% at December 31, 2025. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 55% from June 30, 2023 to June 30, 2026. 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, 2026.
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 $18.6 million to $510.8 million, net of allowance for credit losses on investments of $14,000, at June 30, 2026 from $492.2 million, net of allowance for credit losses on investments of $19,000, at December 31, 2025. The increase was driven primarily by purchases of securities in the available-for-sale portfolio, and a reduction in unrealized losses on our available-for-sale securities 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 $9.8 million ($7.7 million net of tax) at June 30, 2026.
Our HTM investments totaled $185.0 million and represented approximately 36% of our total investments at June 30, 2026. Our AFS investments totaled $322.6 million or approximately 63% of our total investments at June 30, 2026. Our investments at cost totaled $3.3 million or approximately 1% of our total investments at June 30, 2026. 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, 2026, the estimated weighted average life of our total investment portfolio was 5.1 years, the modified duration was 4.2, the effective duration was 3.4, and the weighted average tax equivalent book yield was 3.66%.
Interest-bearing deposits in other banks and fed funds sold decreased $6.7 million to $130.5 million at June 30, 2026 from $137.2 million at December 31, 2025 due to loan growth outpacing deposit growth.
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, 2026:
Deposits
Deposits increased $275.3 million, or 15.7% (31.7% annualized), to $2.02 billion at June 30, 2026 compared to $1.75 billion at December 31, 2025. Our pure deposits, which are defined as total deposits less certificates of deposit, increased $267 million, or 18.6% (37.4% annualized), to $1.73 billion at June 30, 2026 from $1.44 billion at December 31, 2025. We continue to focus on growing our pure deposits in order to better manage our overall cost of funds. Certificates of deposit increased $8.7 million to $322 million at June 30, 2026 from $314 million at December 31, 2025.
We had no brokered certificates of deposit at June 30, 2026 or December 31, 2025. Total uninsured deposits were $663.6 million and $581.3 million at June 30, 2026 and December 31, 2025, respectively. Included in uninsured deposits at June 30, 2026 and December 31, 2025 were $101.9 million and $187.5 million, respectively, 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 $561.7 million, or 27.7%, of total deposits at June 30, 2026 and $393.8 million, or 22.5%, of total deposits at December 31, 2025. The average balance of all customer deposit accounts at June 30, 2026 was $34,084. The average balance for consumer accounts was $18,376 and the average balance for non-consumer accounts was $72,396.
The following table sets forth the deposits by category:
The uninsured amount of time deposits in the table above at June 30, 2026 and December 31, 2025 was $49.6 million and $47.1 million, respectively.
The tables below show at June 30, 2026 and December 31, 2025, 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 the result of issuing $15.0 million in trust preferred securities. Short-term borrowings in the form of securities sold under agreements to repurchase averaged $101.1 million and $101.9 million during the three months ended June 30, 2026 and December 31, 2025, respectively. The average rates paid during these periods were 2.25% and 2.26%, respectively. The balances of securities sold under agreements to repurchase were $96.5 million and $107.2 million at June 30, 2026 and December 31, 2025, 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 $1,000 and zero during the three months ended June 30, 2026 and December 31, 2025, respectively. The average rates paid during these periods were 0.00%. Federal funds purchased were zero at June 30, 2026 and December 31, 2025. As a member of the FHLB, the Bank has access to advances from the FHLB for various terms and amounts. FHLB advances averaged zero during the three months ended June 30, 2026 and December 31, 2025. The balances of FHLB advances were zero at June 30, 2026 and December 31, 2025.
We issued $15.5 million in trust preferred securities on March 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 it matures on March 16, 2034. The balances of trust preferred securities were $15.0 million as of June 30, 2026 and December 31, 2025. The securities accrue and pay distributions quarterly at a rate determined by an adjusted SOFR. Trust preferred securities averaged $15.0 million during the three months ended June 30, 2026 and December 31, 2025. The average rates during these periods were 6.59% and 6.89%, respectively.
Other liabilities declined $10.5 million to $5.6 million at June 30, 2026 from $16.1 million at December 31, 2025 primarily due to a $12.5 million reduction in accrued federal income tax payable due to the purchase of federal tax credits during the six months ended June 30, 2026.
Total shareholders’ equity increased $60.4 million, or 36.1%, to $228.0 million at June 30, 2026 from $167.6 million at December 31, 2025. Shareholders’ equity was 9.6% of total assets at June 30, 2026 and 8.1% at December 31, 2025. The increase in shareholders’ equity was due to a $10.1 million increase in retained earnings resulting from $13.1 million in net income less $3.0 million in dividends, a $41,000 decrease due to share repurchases, a $272,000 increase due to employee and director stock awards, a $187,000 increase due to dividend reinvestment plan (DRIP) purchases, a $49.7 million increase due to the acquisition of SGBG, and a $177,000 increase in accumulated other comprehensive loss. The increase in accumulated other comprehensive loss of $177,000 during the period was due to $857,000 of comprehensive loss from unrealized losses on available-for-sale securities, partially offset by the $654,000 of comprehensive income from reclassification adjustment for amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity and the $380,000 of comprehensive income from unrealized gain on investment hedge.
During the first quarter of 2026, a total of 1,483 shares of the Company’s common stock were repurchased at an average price of $27.77 and a total value of $41,180 under the 2025 Repurchase Plan, which expired at market close on May 8, 2026. On May 7, 2026, we announced that our Board of Directors approved a new plan to utilize up to $7.5 million of capital to repurchase shares of our common stock (the “2026 Repurchase Plan”), which represented approximately 3.4% of total shareholders’ equity at the time of the announcement. No repurchases have been made under the 2026 Repurchase Plan through August 12, 2026. The 2026 Repurchase Plan expires at market close on May 5, 2027.
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.
Net Interest Income Sensitivity
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 nor asset/liability modeling is a precise indicator 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, 2026 and at December 31, 2025 over the subsequent 12 months.
The maximum anticipated negative impacts of the modeled changes in net interest income were within policy limits at June 30, 2026 and December 31, 2025.
Present Value of Equity Sensitivity
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. We have established policy limits for the maximum negative impact of modeled changes in PVE, shown below.
Except for the down 400 basis point scenario, the maximum anticipated negative impacts of the modeled changes in PVE were within policy limits at June 30, 2026 and December 31, 2025. We are monitoring the risk posed by the down 400 basis point scenario.
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, 2026 and December 31, 2025, we had no brokered certificates of deposit. 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 $102.5 million with four financial institutions and $10.0 million through the Federal Reserve Discount Window. We utilized none of our federal funds purchased lines at June 30, 2026 and December 31, 2025. The FHLB of Atlanta has approved a line of credit of up to 30.00% 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, 2026 and at December 31, 2025. At June 30, 2026, we had remaining credit availability under this facility in excess of $720.3 million, subject to collateral requirements. Combined, we have total remaining credit availability, subject to collateral requirements, in excess of $832.8 million as compared to uninsured deposits excluding deposits of states or political subdivisions in the U.S., which are secured or collateralized, of $579.0 million.
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, 2026, we had issued commitments to extend unused credit of $258.3 million, including $78.2 million in unused home equity lines of credit, through various types of lending arrangements. At December 31, 2025, we had issued commitments to extend unused credit of $211.2 million, including $69.0 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.
The regulatory capital framework applicable to U.S. banking organizations is based on the Basel III capital standards, as implemented by the federal banking agencies and subsequently amended from time to time. These rules establish minimum risk-based and leverage capital requirements, define the components of regulatory capital, and include a capital conservation buffer. Although our Company qualifies as a “small bank holding company” under the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, and therefore is not subject to consolidated capital requirements at the holding company level, our Bank remains subject to these capital standards.
Under the current capital rules, the Bank is required to maintain the following minimum capital ratios:
Banking organizations that do not maintain capital ratios above the minimum required levels, inclusive of the capital conservation buffer, may be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses. The Bank continues to maintain capital levels in excess of all minimum required ratios.
Tier 1 capital under the Basel III framework includes two components: Common Equity Tier 1 capital and Additional Tier 1 capital. Common Equity Tier 1 capital consists primarily of common stock and related surplus, retained earnings, and certain qualifying minority interests, net of applicable deductions and adjustments. Additional Tier 1 capital primarily includes qualifying noncumulative perpetual preferred stock and certain other instruments. Tier 2 capital generally includes the allowance for credit losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt, and other instruments meeting regulatory criteria. In connection with the implementation of Basel III, we previously elected to opt out of including most components of AOCI in Common Equity Tier 1 capital, thereby retaining our prior treatment for AOCI.
Effective January 1, 2023, we adopted the Current Expected Credit Losses (“CECL”) methodology for estimating the allowance for credit losses. Upon adoption, we did not elect the regulatory capital transition option, and the day-one reduction to retained earnings and regulatory capital was reflected in our capital ratios as of that date.
The federal banking agencies have also implemented a simplified measure of capital adequacy for qualifying community banking organizations known as the Community Bank Leverage Ratio (“CBLR”) framework. Depository institutions and their holding companies with less than $10 billion in total consolidated assets that meet certain other qualifying criteria and maintain a leverage ratio greater than 9% may elect to use the CBLR framework. Institutions that opt into the CBLR framework and maintain a qualifying leverage ratio are considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and are deemed “well capitalized” for prompt corrective action purposes. In April 2026, the federal banking regulatory agencies jointly finalized a rule to modify the CBLR to 8% from 9%, effective July 1, 2026. Additionally, the rule extends the length of time that certain depository institutions and depository holding companies can remain in the CBLR framework while not meeting all of the criteria for initial qualification. We continue to evaluate annually whether to elect into the CBLR framework, but currently report under the traditional risk-based capital approach.
In July 2023, the federal banking agencies jointly issued a notice of proposed rulemaking commonly referred to as the “Basel III Endgame,” which would revise the capital framework for large and complex banking organizations, including changes to the calculation of risk-weighted assets and capital requirements for credit, market, and operational risk. The proposal has not yet been finalized as of the date of this filing, and the agencies are expected to issue a revised proposal or final rule in the future. The proposed rule is primarily applicable to large institutions exceeding specified asset and foreign-exposure thresholds and would not directly apply to institutions of our size. We continue to monitor the rulemaking process and evaluate any potential indirect impacts on our capital planning and regulatory compliance.
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, 2026, 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 2026 of $0.17 per common share. This dividend is payable on August 18, 2026 to shareholders of record of our common stock as of August 4, 2026.
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, 2026 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, 2025, 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 our Annual Report on Form 10-K for the year ended December 31, 2025. Those risk factors should be read in conjunction with the information set forth in this Quarterly Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(1) Average price paid per share excludes commission and handling fees. The maximum dollar value of shares that may yet be purchased under the publicly announced repurchase plan reflects the remaining authorization under the plan after deducting the aggregate amount paid for shares repurchased under the plan, including commission and handling fees.
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, 2026, neither the Company nor any 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.
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.