# First Community Corporation (FCCO) 10-Q SEC filing - Q1 FY2026
- Filed: May 15, 2026, 4:10 PM EDT
- Fiscal quarter: Q1 FY2026
- Calendar quarter: Q1 2026
- Accession: 0001552781-26-000341
- OpenCapital page: https://www.opencapital.sh/filings/0001552781-26-000341
- Markdown URL: https://www.opencapital.sh/filings/0001552781-26-000341.md
- Official SEC filing index: https://www.sec.gov/Archives/edgar/data/932781/000155278126000341/0001552781-26-000341-index.htm
## Filing documents
- [10-Q (e26248_fcco-10q.htm)](https://www.sec.gov/Archives/edgar/data/932781/000155278126000341/e26248_fcco-10q.htm)
---
## 10-Q
SEC source: [e26248_fcco-10q.htm](https://www.sec.gov/Archives/edgar/data/932781/000155278126000341/e26248_fcco-10q.htm)
**UNITED
STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
Washington,
D.C. 20549
FORM 10-Q
(Mark One)
x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2026
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from \_\_\_\_ to \_\_\_\_
**Commission
File Number: 000-28344**
**FIRST COMMUNITY CORPORATION**
(Exact name of registrant as specified in its charter)
South Carolina 57-1010751
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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:
Title of each class Trading Symbol(s) Name of exchange on which registered
Common stock, par value $1.00 per share FCCO The Nasdaq Capital Market
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated Filer ☒ Smaller reporting company ☒
Emerging growth company o
If an emerging growth company, indicate
by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date: On May
15, 2026,9,397,960 shares
of the issuer’s common stock, par value $1.00 per share, were issued and outstanding.
**TABLE
OF CONTENTS**
| [**PART I – FINANCIAL INFORMATION**](#e26248a001) | | 1 |
| --- | --- | --- |
| [**Item 1.**](#e26248a002) | [**Financial Statements**](#e26248a002) | 1 |
| | [Consolidated Balance Sheets](#e26248a003) | 1 |
| | [Consolidated Statements of Income](#e26248a004) | 2 |
| | [Consolidated Statements of Comprehensive Income](#e26248a005) | 3 |
| | [Consolidated Statements of Changes in Shareholders’ Equity](#e26248a006) | 4 |
| | [Consolidated Statements of Cash Flows](#e26248a007) | 5 |
| | [Notes to Consolidated Financial Statements](#e26248a008) | 6 |
| [**Item 2.**](#e26248a009) | [**Management’s Discussion and Analysis of Financial Condition and Results of Operations**](#e26248a009) | 29 |
| [**Item 3.**](#e26248a010) | [**Quantitative and Qualitative Disclosures About Market Risk**](#e26248a010) | 52 |
| [**Item 4.**](#e26248a011) | [**Controls and Procedures**](#e26248a011) | 52 |
| [**PART II – OTHER INFORMATION**](#e26248a012) | | 53 |
| [**Item 1.**](#e26248a013) | [**Legal Proceedings**](#e26248a013) | 53 |
| [**Item 1A.**](#e26248a014) | [**Risk Factors**](#e26248a014) | 53 |
| [**Item 2.**](#e26248a015) | [**Unregistered Sales of Equity Securities and Use of Proceeds**](#e26248a015) | 53 |
| [**Item 3.**](#e26248a016) | [**Defaults Upon Senior Securities**](#e26248a016) | 54 |
| [**Item 4.**](#e26248a017) | [**Mine Safety Disclosures**](#e26248a017) | 54 |
| [**Item 5.**](#e26248a018) | [**Other Information**](#e26248a018) | 54 |
| [**Item 6.**](#e26248a019) | [**Exhibits**](#e26248a019) | 55 |
| [**SIGNATURES**](#e26248a020) | | 56 |
**PART
I – FINANCIAL INFORMATION**
**Item
1. Financial Statements**
**FIRST COMMUNITY CORPORATION**
### CONSOLIDATED BALANCE SHEETS
| (Dollars in thousands, except par values and share counts) | March 31, 2026 / (Unaudited) | December 31, 2025 |
| --- | --- | --- |
| ASSETS | | |
| Cash and due from banks | $35,438 | $23,876 |
| Interest-bearing bank balances | 182,497 | 137,184 |
| Investment securities available-for-sale | 320,710 | 294,109 |
| Investment securities held-to-maturity, fair value of $180,911 and $188,563 at March 31, 2026 and December 31, 2025, respectively, net of allowance for credit losses — investments | 188,712 | 195,116 |
| Other investments, at cost | 3,204 | 2,942 |
| Loans held-for-sale | 6,936 | 10,737 |
| Loans held-for-investment | 1,549,143 | 1,311,019 |
| Less, allowance for credit losses – loans | 18,364 | 13,806 |
| Net loans held-for-investment | 1,530,779 | 1,297,213 |
| Property and equipment – net | 29,732 | 29,342 |
| Lease right-of-use asset | 2,383 | 2,192 |
| Bank owned life insurance | 32,010 | 31,801 |
| Other real estate owned | 168 | 168 |
| Intangible assets | 2,785 | 289 |
| Goodwill | 29,399 | 14,637 |
| Other assets | 26,778 | 18,126 |
| Total assets | $2,391,531 | $2,057,732 |
| LIABILITIES | | |
| Deposits: | | |
| Non-interest bearing | $543,839 | $467,265 |
| Interest bearing | 1,504,425 | 1,282,279 |
| Total deposits | 2,048,264 | 1,749,544 |
| Securities sold under agreements to repurchase | 99,835 | 107,189 |
| Junior subordinated debt | 14,964 | 14,964 |
| Lease liability | 2,565 | 2,373 |
| Other liabilities | 5,086 | 16,105 |
| Total liabilities | $2,170,714 | $1,890,175 |
| SHAREHOLDERS’ EQUITY | | |
| Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; none issued and outstanding | — | — |
| Common stock, par value $1.00 per share; 20,000,000 shares authorized; issued and outstanding 9,397,960 at March 31, 2026 and 7,693,215 at December 31, 2025 | 9,398 | 7,693 |
| Nonvested restricted stock and stock units | 2,012 | 3,065 |
| Additional paid in capital | 143,947 | 94,909 |
| Retained earnings | 84,294 | 80,291 |
| Accumulated other comprehensive loss | (18,834) | (18,401) |
| Total shareholders’ equity | 220,817 | 167,557 |
| Total liabilities and shareholders’ equity | $2,391,531 | $2,057,732 |
See Notes to Consolidated
Financial Statements
1
**FIRST COMMUNITY CORPORATION**
### CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
| (Dollars in thousands, except per share amounts) | Three Months ended March 31, 2026 | Three Months ended March 31, 2025 |
| --- | --- | --- |
| Interest and dividend income: | | |
| Loans, including fees | $22,129 | $17,444 |
| Investment securities – taxable | 3,800 | 3,808 |
| Investment securities – non taxable | 324 | 342 |
| Interest-bearing deposits in other banks and fed funds sold | 1,786 | 1,488 |
| Total interest and dividend income | 28,039 | 23,082 |
| Interest expense: | | |
| Deposits | 8,761 | 7,609 |
| Securities sold under agreements to repurchase | 664 | 814 |
| Other borrowed money | 245 | 269 |
| Total interest expense | 9,670 | 8,692 |
| Net interest income | 18,369 | 14,390 |
| Provision for credit losses | 193 | 437 |
| Net interest income after provision for credit losses | 18,176 | 13,953 |
| Non-interest income: | | |
| Deposit service charges | 223 | 221 |
| Mortgage banking income | 681 | 759 |
| Investment advisory fees and non-deposit commissions | 2,271 | 1,806 |
| Government guaranteed lending | 395 | — |
| Other | 1,220 | 1,196 |
| Total non-interest income | 4,790 | 3,982 |
| Non-interest expense: | | |
| Salaries and employee benefits | 9,492 | 7,657 |
| Occupancy | 817 | 777 |
| Equipment | 379 | 390 |
| Marketing and public relations | 560 | 514 |
| FDIC insurance assessments | 272 | 300 |
| Amortization of intangibles | 96 | 39 |
| Merger | 1,581 | — |
| Other | 3,834 | 3,077 |
| Total non-interest expense | 17,031 | 12,754 |
| Net income before tax | 5,935 | 5,181 |
| Income tax expense | 437 | 1,184 |
| Net income | $5,498 | $3,997 |
| Basic earnings per common share | $0.60 | $0.52 |
| Diluted earnings per common share | $0.59 | $0.51 |
See Notes to Consolidated
Financial Statements
2
**FIRST COMMUNITY CORPORATION**
### CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
_(Unaudited)_
| (Dollars in thousands) | Three months ended March 31, 2026 | Three months ended March 31, 2025 |
| --- | --- | --- |
| Net income | $5,498 | $3,997 |
| Other comprehensive income (loss): | | |
| Unrealized (loss) gain during the period on available-for-sale securities, net of tax benefit of $205 and expense of $559, respectively | (774) | 2,156 |
| Reclassification adjustment for amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity, net of tax expense of $88 and $86, respectively | 332 | 330 |
| Unrealized gain during the period on investment hedge, net of tax expense of $2 and zero, respectively | 9 | — |
| Other comprehensive (loss) income | (433) | 2,486 |
| Comprehensive income | $5,065 | $6,483 |
See Notes to Consolidated
Financial Statements
3
**FIRST COMMUNITY CORPORATION**
### CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
_(Unaudited)_
| (Shares and dollars in thousands) | For the Three Months Ended / Common / Shares / Issued | For the Three Months Ended / Common / Stock | For the Three Months Ended / Additional / Paid-in / Capital | For the Three Months Ended / Nonvested / Restricted / Stock | For the Three Months Ended / Retained / Earnings | For the Three Months Ended / Accumulated / Other / Comprehensive / Loss | For the Three Months Ended / Total |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance, December 31, 2025 | 7,693 | $7,693 | $94,909 | $3,065 | $80,291 | $(18,401) | $167,557 |
| Net income | — | — | — | — | 5,498 | — | 5,498 |
| Other comprehensive loss net of tax benefit of $115 | — | — | — | — | — | (433) | (433) |
| Shares issued as acquisition consideration | 1,658 | 1,658 | 48,075 | | | | 49,733 |
| Repurchase of common shares | (1) | (1) | (40) | | | | (41) |
| Stock-based compensation | 45 | 45 | 912 | (1,053) | — | — | (96) |
| Dividends: Common ($0.16 per share) | — | — | — | — | (1,495) | — | (1,495) |
| Dividend reinvestment plan | 3 | 3 | 91 | — | — | — | 94 |
| Balance, March 31, 2026 | 9,398 | $9,398 | $143,947 | $2,012 | $84,294 | $(18,834) | $220,817 |
| Balance, December 31, 2024 | 7,644 | $7,644 | $93,834 | $2,639 | $65,836 | $(25,459) | $144,494 |
| Net income | — | — | — | — | 3,997 | — | 3,997 |
| Other comprehensive income net of tax expense of $645 | — | — | — | — | — | 2,486 | 2,486 |
| Stock-based compensation | 34 | 34 | 700 | (700) | — | — | 34 |
| Dividends: Common ($0.15 per share) | — | — | — | — | (1,148) | — | (1,148) |
| Dividend reinvestment plan | 4 | 4 | 92 | — | — | — | 96 |
| Balance, March 31, 2025 | 7,682 | $7,682 | $94,626 | $1,939 | $68,685 | $(22,973) | $149,959 |
See Notes to Consolidated
Financial Statements
4
**FIRST COMMUNITY CORPORATION**
### CONSOLIDATED STATEMENTS OF CASH FLOWS
_(Unaudited)_
| (Dollars in thousands) | Three months ended March 31, 2026 | Three months ended March 31, 2025 |
| --- | --- | --- |
| Cash flows from operating activities: | | |
| Net income | $5,498 | $3,997 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | |
| Depreciation | 446 | 424 |
| Net premium amortization on investment securities available-for-sale | (694) | (686) |
| Net premium amortization on investment securities held-to-maturity | (201) | (158) |
| Provision for credit losses | 193 | 437 |
| Origination of loans held-for-sale | (25,395) | (25,745) |
| Sale of loans held-for-sale | 29,869 | 29,110 |
| Gain on sale of loans held-for-sale | (673) | (755) |
| Amortization of intangibles | 96 | 39 |
| Gain on fair value of equity securities | — | (1) |
| Stock-based compensation | (96) | 34 |
| (Increase) decrease in other assets | 47 | 386 |
| Increase (decrease) in other liabilities | (11,480) | (609) |
| Net cash provided by operating activities | (2,390) | 6,473 |
| Cash flows from investing activities: | | |
| Purchase of investment securities available-for-sale | (17,032) | (9,789) |
| Purchase of other investments | (262) | (216) |
| Sale/Maturity/call of investment securities available-for-sale | 16,204 | 5,842 |
| Maturity/call of investment securities held-to-maturity | 6,607 | 3,775 |
| Increase in loans | (42,261) | (31,426) |
| Proceeds from sale of other real estate owned | — | 106 |
| Purchase of property and equipment | (96) | (200) |
| Acquisition of Signature Bank of Georgia, net of cash and cash equivalents acquired | 35,932 | — |
| Net cash used in investing activities | (908) | (31,908) |
| Cash flows from financing activities: | | |
| Increase in deposit accounts | 68,969 | 49,817 |
| Decrease in securities sold under agreements to repurchase | (7,354) | 26,702 |
| Dividends paid: Common Stock | (1,495) | (1,148) |
| Share repurchase | (41) | — |
| Dividend reinvestment plan | 94 | 96 |
| Net cash provided by financing activities | 60,173 | 75,467 |
| Net increase in cash and equivalents | 56,875 | 50,032 |
| Cash and cash equivalents at beginning of period | 161,060 | 149,828 |
| Cash and cash equivalents at end of period | $217,935 | $199,860 |
| Supplemental disclosure: | | |
| Cash paid during the period for: | | |
| Interest | $9,454 | $8,371 |
| Income taxes | $13 | $1 |
| Supplemental disclosures | | |
| Unrealized gain on available-for-sale securities, net of tax | $(774) | $2,156 |
| Amortization of unrealized losses on securities from transfer of available-for-sale securities to held-to-maturity, net of tax | 332 | 330 |
| Recognition of operating lease right of use asset | 301 | — |
| Recognition of operating lease liability | 301 | — |
| Fair value of assets acquired in Signature Bank of Georgia acquisition, excluding cash, cash equivalents, and goodwill | 229,320 | — |
| Fair value of liabilities acquired in Signature Bank of Georgia acquisition | 230,282 | — |
| Goodwill from Signature Bank of Georgia acquisition | 14,762 | — |
| Common stock issued for Signature Bank of Georgia acquisition | $49,733 | — |
See Notes to Consolidated
Financial Statements
5
### **Notes to Consolidated Financial Statements (Unaudited)**
### ***Note 1 - Nature of Business and Basis of Presentation***
*Basis
of Presentation*
In the opinion of management, the
accompanying unaudited consolidated balance sheets, and the consolidated statements of income, comprehensive income, changes in shareholders’
equity, and cash flows of First Community Corporation (the “Company”) and its wholly owned subsidiary, First Community Bank
(the “Bank”) (collectively, the “Company”) state fairly, in all material respects, the Company’s financial
position at March 31, 2026 and December 31, 2025, and the Company’s results of operations for the three months ended March 31,
2026 and 2025, and cash flows for the three months ended March 31, 2026 and 2025. The results of operations for the three months ended
March 31, 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.
*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.
6
***Recently
Issued Accounting Pronouncements***
The following is a
summary of recent authoritative pronouncements:
In December 2023, the FASB issued ASU 2023-09,
Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This amendment is intended to enhance the transparency and decision
usefulness of income tax disclosures by requiring public business entities to disclose additional information in specified categories
with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. It also
requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds
a specified threshold. For public business entities, the amendments are effective for annual periods beginning after December 15, 2024.
Early adoption is permitted. The Company adopted ASU 2023-09 in 2025.
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 an all-stock transaction. 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, consisting entirely of Company common stock, based on the Company’s common stock price of $29.99 per share.
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.
7
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
| (Dollars in thousands) | Fair Value / January 8, 2026 |
| --- | --- |
| ASSETS | |
| Cash and due from banks | $918 |
| Interest-bearing bank balances | 35,020 |
| Investment securities available-for-sale | 25,882 |
| Other investments | 172 |
| Net loans held-for-investment | 191,378 |
| Property and equipment – net | 740 |
| Lease right-of-use asset | 301 |
| Intangible assets | 2,592 |
| Goodwill | 14,762 |
| Other assets | 8,255 |
| Total assets | $280,020 |
| LIABILITIES AND PURCHASE PRICE | |
| Deposits: | |
| Non-interest bearing | 81,211 |
| Interest bearing | 148,541 |
| Total deposits | 229,752 |
| Lease liability | 301 |
| Other liabilities | 229 |
| Total liabilities assumed | $230,282 |
| Purchase price | 49,738 |
| Total liabilities assumed and purchase price | $280,020 |
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. In accordance with ASC 350, *Intangibles-Goodwill and Other*,
goodwill will not be amortized, but will be tested for impairment at least annually. 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. 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 March 31, 2026, through the 12-month measurement period.
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.
8
**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:
| (Dollars in thousands) | Purchased Credit Deteriorated Loans | Gross Purchased Seasoned Loans | Gross Total |
| --- | --- | --- | --- |
| January 8, 2026 | | | |
| Principal of loans acquired | $18,444 | $176,375 | $194,819 |
| ACL at acquisition | (2,641) | (1,698) | (4,339) |
| Non-credit discount (premium) | (589) | 1,487 | 898 |
| Fair value of loans | $15,214 | $176,164 | $191,378 |
**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.
9
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 exclude acquisition-related adjustments for interest income on loans and securities acquired, amortization
of intangibles arising from the transaction, interest expense on deposits acquired, 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
| (Dollars in thousands) | Three months ended March 31, 2026 | Three months ended March 31, 2025 |
| --- | --- | --- |
| Net interest income | $16,808 | $18,625 |
| Net income | $4,181 | $6,739 |
**Correction of Certain Amounts Previously Reported
in Earnings Release –** On April 22, 2026, the Company issued an earnings release announcing its financial results for the three
months ended March 31, 2026. During the preparation of this Quarterly Report on Form 10-Q, the Company identified certain corrections
to the preliminary purchase accounting for the Company’s acquisition of SGBG, which closed on January 8, 2026. The corrections related
primarily to the calculation of deferred tax assets and the resulting allocation of the preliminary fair value of the assets acquired
among goodwill, other intangible assets and other assets. The purchase accounting for the acquisition remains preliminary and subject
to adjustment during the measurement period as the Company completes its valuation of the assets acquired and liabilities assumed and
obtains additional information regarding facts and circumstances that existed as of the acquisition date. The corrections are reflected
in the unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q.
The corrections did not affect the Company’s
total assets, total liabilities, total shareholders’ equity, net income, or basic or diluted earnings per share as reflected in
the earnings release. The corrections resulted in immaterial changes to certain regulatory capital ratios and certain non-GAAP financial
measures included in the earnings release, including tangible book value per common share, tangible common equity to tangible assets and
return on average tangible common equity. The following table summarizes certain affected amounts reflected in the April 22, 2026 earnings
release compared to the corrected amounts reflected in this Quarterly Report on Form 10-Q:
Schedule of Amount Reflected in April 22, 2026 Earning Release as compared to Amount Reflected in Quarterly Report
| Consolidated Balance Sheet Data at March 31, 2026 | Amounts Reflected in April 22, 2026 Earnings Release | Corrected Amounts Reflected in Form 10-Q |
| --- | --- | --- |
| Other intangible assets | $2.805 million | $2.785 million |
| Goodwill | $31.140 million | $29.399 million |
| Other assets | $25.017 million | $26.778 million |
| Total assets | $2.392 billion | $2.392 billion |
| Preliminary Purchase Accounting for Signature Bank of Georgia Acquisition | | |
| Intangible assets | $2.612 million | $2.592 million |
| Goodwill | $16.503 million | $14.762 million |
| Other assets | $6.495 million | $8.256 million |
The Company evaluated the corrections and determined
they were not material to the previously issued earnings release. The corrected amounts are reflected throughout this Quarterly Report
on Form 10-Q.
### ***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.
Dilutive earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during the
period plus the maximum dilutive effect on common stock issuable upon exercise of stock options or vesting of restricted stock units.
Stock options and unvested restricted stock units are considered common stock equivalents and are only included in the calculation of
dilutive earnings per common share if the effect is dilutive.
The following reconciles the numerator and
denominator of the basic and diluted earnings per common share computation:
Schedule of Earning Per Common Share
| (In thousands except average market price and per share data) | Three months / Ended March 31, 2026 | Three months / Ended March 31, 2025 |
| --- | --- | --- |
| Numerator (Net income available to common shareholders) | $5,498 | $3,997 |
| Denominator | | |
| Weighted average common shares outstanding for: | | |
| Basic shares | 9,215 | 7,648 |
| Dilutive securities: | | |
| Deferred compensation | 130 | 120 |
| Diluted common shares outstanding | 9,345 | 7,768 |
| Earnings per common share: | | |
| Basic | 0.60 | 0.52 |
| Diluted | 0.59 | 0.51 |
| The average market price used in calculating assumed number of shares | $29.28 | $24.35 |
10
### ***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:**
| (Dollars in thousands) / March 31, 2026 | Amortized / Cost | Gross / Unrealized / Gains | Gross / Unrealized / Losses | Fair Value |
| --- | --- | --- | --- | --- |
| US Treasury securities | $15,859 | — | $(1,787) | $14,072 |
| Government Sponsored Enterprises | 2,500 | — | (258) | 2,242 |
| Mortgage-backed securities | 300,611 | 280 | (11,102) | 289,789 |
| Small Business Administration pools | 7,865 | 17 | (216) | 7,666 |
| Corporate and other securities | 7,508 | 7 | (574) | 6,941 |
| Total | $334,343 | $304 | $(13,937) | $320,710 |
| | | Gross | Gross | |
| | Amortized | Unrealized | Unrealized | |
| (Dollars in thousands) | Cost | Gains | Losses | Fair Value |
| December 31, 2025 | | | | |
| US Treasury securities | $25,804 | $7 | $(1,718) | $24,093 |
| Government Sponsored Enterprises | 2,500 | — | (244) | 2,256 |
| Mortgage-backed securities | 262,096 | 694 | (10,605) | 252,185 |
| Small Business Administration pools | 8,858 | 17 | (207) | 8,668 |
| Corporate and other securities | 7,507 | — | (600) | 6,907 |
| Total | $306,765 | $718 | $(13,374) | $294,109 |
**HELD-TO-MATURITY:**
Schedule of Amortized Cost and Estimated Fair Values of Investment Securities Held-To-Maturity
| (Dollars in thousands) / March 31, 2026 | Amortized Cost Net of Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| --- | --- | --- | --- | --- |
| Mortgage-backed securities | $89,400 | — | $(5,375) | $84,025 |
| State and local government | 99,312 | 15 | (2,441) | 96,886 |
| Total | $188,712 | $15 | $(7,816) | $180,911 |
| (Dollars in thousands) | Amortized Cost Net of Allowance for Credit Loss | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |
| December 31, 2025 | | | | |
| Mortgage-backed securities | $93,066 | — | (4,913) | 88,153 |
| State and local government | 102,050 | 140 | (1,780) | 100,410 |
| Total | $195,116 | 140 | (6,693) | 188,563 |
There were no gross realized gains
or gross realized losses from the sale of available-for-sale investment securities during the three months ended March 31, 2026 and 2025,
respectively.
11
For available-for-sale
securities, management evaluates all investments in an unrealized loss position on a quarterly basis, or more frequently when economic
or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the
Company will be required to sell the security, the security is written down to fair value, and the entire loss is recorded in earnings.
If either of the above
criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making
the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance
on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled
interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit
loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any
excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis.
Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.
Changes in the allowance for credit
loss are recorded as provision for (or release of) credit loss expense. Losses are charged against the allowance for credit loss when
management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or
requirement to sell is met. At March 31, 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 March 31, 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.
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| March 31, 2026 | Less than 12 months | | | | 12 months or more | | | | Total | | | |
| Available-for-sale securities: | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | |
| (Dollars in thousands) | Value | | Loss | | Value | | Loss | | Value | | Loss | |
| US Treasury securities | $ | — | $ | — | $ | $14,072 | $ | $1,787 | $ | $14,072 | $ | $1,787 |
| Government Sponsored Enterprises | | — | | — | | 2,242 | | 258 | | 2,242 | | 258 |
| Mortgage-backed securities | | 51,679 | | 511 | | 180,830 | | 10,591 | | 232,509 | | 11,102 |
| Small Business Administration pools | | 315 | | 2 | | 5,667 | | 214 | | 5,982 | | 216 |
| Corporate and other securities | | — | | — | | 4,926 | | 574 | | 4,926 | | 574 |
| Total | $ | $51,994 | $ | $513 | $ | $207,737 | $ | $13,424 | $ | $259,731 | $ | $13,937 |
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.
| | | | | | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| December 31, 2025 | Less than 12 months | | | | 12 months or more | | | | Total | | | |
| Available-for-sale securities: | Fair | | Unrealized | | Fair | | Unrealized | | Fair | | Unrealized | |
| (Dollars in thousands) | Value | | Loss | | Value | | Loss | | Value | | Loss | |
| US Treasury securities | $ | — | $ | — | | 14,134 | | 1,717 | | 14,134 | | 1,717 |
| Government Sponsored Enterprises | | — | | — | | 2,256 | | 244 | | 2,256 | | 244 |
| Mortgage-backed securities | | 454 | | | | 189,625 | | 10,604 | | 190,079 | | 10,604 |
| Small Business Administration pools | | 317 | | 3 | | 6,342 | | 204 | | 6,659 | | 207 |
| Corporate and other securities | | — | | — | | 6,893 | | 601 | | 6,893 | | 601 |
| Total | $ | $771 | $ | $3 | | 219,250 | | 13,370 | | 220,021 | | 13,373 |
12
The following table shows a roll forward
of the allowance for credit losses on held to maturity securities for the three months ended March 31, 2026 and 2025.
Schedule of allowance for credit losses on held to maturity securities
| (Dollars in thousands) | Three Months / Ended / March 31, 2026 | Three Months / Ended / March 31, 2026 |
| --- | --- | --- |
| Allowance for Credit Losses on Held-to-Maturity Securities: | | |
| State and local government | | |
| Beginning balance, December 31, 2025 | $ | $19 |
| Release of allowance for credit losses | | (3) |
| Ending balance, March 31, 2026 | $ | $16 |
| | Three Months | |
| | Ended | |
| (Dollars in thousands) | March 31, 2025 | |
| Allowance for Credit Losses on Held-to-Maturity Securities: | | |
| State and local government | | |
| Beginning balance, December 31, 2024 | $ | $23 |
| Provision for credit losses | | 1 |
| Ending balance, March 31, 2025 | $ | $24 |
At March 31, 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 March 31, 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 March 31, 2026 and December 31, 2025. The state and local government
securities held by the Company are highly rated by major rating agencies.
13
The Company monitors the credit quality
of the debt securities held to maturity through the use of credit ratings (Moody’s) on a quarterly basis. In the event that Moody’s
does not provide a rating, the comparable S&P rating is used and converted to a Moody’s rating. The following table summarizes
the amortized cost of debt securities held to maturity at March 31, 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.
| (Dollars in thousands) | As of / March 31, 2026 | As of / December 31, 2025 |
| --- | --- | --- |
| Rating: | | |
| Aaa | $133,400 | $139,210 |
| Aa1/Aa2/Aa3 | 50,284 | 50,343 |
| A1/A2 | 5,044 | 5,581 |
| Less: Allowance for Credit Losses on Held-to-Maturity Securities | 16 | 19 |
| Total | $188,712 | $195,115 |
The following tables show the amortized
cost and fair value of investment securities at March 31, 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
| March 31, 2026 / (Dollars in thousands) | Available-for-sale / Amortized / Cost | Available-for-sale / Fair / Value |
| --- | --- | --- |
| Due in one year or less | $2,372 | $2,350 |
| Due after one year through five years | 29,201 | 27,289 |
| Due after five years through ten years | 35,302 | 34,072 |
| Due after ten years | 267,468 | 256,999 |
| Total | $334,343 | $320,710 |
| | Held-To-Maturity | |
| March 31, 2026 | Amortized | Fair |
| (Dollars in thousands) | Cost | Value |
| Due in one year or less | $2,240 | $2,240 |
| Due after one year through five years | 64,303 | 63,142 |
| Due after five years through ten years | 55,258 | 53,853 |
| Due after ten years | 66,927 | 61,692 |
| Allowance for Credit Losses on Held-to-Maturity Securities | (16) | (16) |
| Total | $188,712 | $180,911 |
14
### ***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 $2.6 million and $2.3 million as of
March 31, 2026 and December 31, 2025, respectively.
Schedule of Loan Portfolio
| (Dollars in thousands) | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Commercial | $99,521 | $91,930 |
| Real estate: | | |
| Construction | 184,957 | 152,077 |
| Mortgage-residential | 131,021 | 130,476 |
| Mortgage-commercial | 1,056,654 | 863,422 |
| Consumer: | | |
| Home equity | 58,400 | 53,693 |
| Other | 18,590 | 19,421 |
| Total loans, net of deferred loan fees and costs | $1,549,143 | $1,311,019 |
The Company categorizes loans into
risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information,
historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company
analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. Loans not meeting
the criteria below that are analyzed individually as part of the analysis are considered as pass rated loans. The Company uses the following
definitions for risk ratings:
Special
Mention. Loans classified as special mention have a potential weakness that deserves management’s
close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan
or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose
an institution to sufficient risk to warrant adverse classification.
Substandard.
Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral
pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are
characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful.
Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable
and improbable.
15
The following table presents the Company’s
recorded investment in loans by credit quality indicators by year of origination as of March 31, 2026:
Schedule of loan category and loan by risk categories
| ($ in thousands) | Term Loans by year of Origination / 2022 | Term Loans by year of Origination / 2023 | Term Loans by year of Origination / 2024 | Term Loans by year of Origination / 2025 | Term Loans by year of Origination / 2026 | Term Loans by year of Origination / Prior | Term Loans by year of Origination / Revolving | Term Loans by year of Origination / Revolving Converted to Term | Term Loans by year of Origination / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial | | | | | | | | | |
| Pass | $4,178 | $6,000 | $10,839 | $15,914 | $1,145 | $25,613 | $35,660 | — | $99,349 |
| Special mention | 3 | 149 | — | — | — | — | 20 | — | 172 |
| Total commercial | 4,181 | 6,149 | 10,839 | 15,914 | 1,145 | 25,613 | 35,680 | — | 99,521 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Real estate construction | | | | | | | | | |
| Pass | 32,850 | 24,783 | 35,344 | 32,687 | 8,740 | 8,058 | 40,209 | — | 182,671 |
| Special mention | — | 1,527 | 759 | — | — | — | — | — | 2,286 |
| Total real estate construction | 32,850 | 26,310 | 36,103 | 32,687 | 8,740 | 8,058 | 40,209 | — | 184,957 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Real estate mortgage-residential | | | | | | | | | |
| Pass | 26,914 | 46,815 | 19,825 | 10,569 | 2,870 | 19,331 | 794 | 2,670 | 129,788 |
| Special mention | 354 | 480 | — | — | — | 200 | — | — | 1,034 |
| Substandard | — | — | — | — | — | 199 | — | — | 199 |
| Total real estate mortgage-residential | 27,268 | 47,295 | 19,825 | 10,569 | 2,870 | 19,730 | 794 | 2,670 | 131,021 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Real estate mortgage-commercial | | | | | | | | | |
| Pass | 187,889 | 144,471 | 99,061 | 164,280 | 96,178 | 339,183 | 23,829 | 101 | 1,054,992 |
| Special mention | — | — | — | — | — | 1,606 | — | — | 1,606 |
| Substandard | — | — | — | — | — | 56 | — | — | 56 |
| Total real estate mortgage-commercial | 187,889 | 144,471 | 99,061 | 164,280 | 96,178 | 340,845 | 23,829 | 101 | 1,056,654 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Consumer - home equity | | | | | | | | | |
| Pass | — | — | — | — | — | — | 57,196 | — | 57,196 |
| Special mention | — | — | — | — | — | — | 135 | — | 135 |
| Substandard | — | — | — | — | — | — | 1,069 | — | 1,069 |
| Total consumer - home equity | — | — | — | — | — | — | 58,400 | — | 58,400 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Consumer - other | | | | | | | | | |
| Pass | 244 | 708 | 1,505 | 2,156 | 103 | 926 | 12,782 | — | 18,424 |
| Substandard | — | — | — | 166 | — | — | — | — | 166 |
| Total consumer - other | 244 | 708 | 1,505 | 2,322 | 103 | 926 | 12,782 | — | 18,590 |
| Current period gross write-offs | — | — | — | — | — | — | 15 | — | 15 |
16
The following table presents the Company’s
recorded investment in loans by credit quality indicators by year of origination as of December 31, 2025:
| ($ in thousands) | Term Loans by year of Origination / 2021 | Term Loans by year of Origination / 2022 | Term Loans by year of Origination / 2023 | Term Loans by year of Origination / 2024 | Term Loans by year of Origination / 2025 | Term Loans by year of Origination / Prior | Term Loans by year of Origination / Revolving | Term Loans by year of Origination / Revolving Converted to Term | Term Loans by year of Origination / Total |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Commercial | | | | | | | | | |
| Pass | $17,336 | $4,627 | $5,776 | $12,192 | $15,461 | $7,442 | $28,603 | $8 | $91,445 |
| Special mention | — | — | — | — | — | 347 | — | — | 347 |
| Substandard | — | — | — | — | — | 138 | — | — | 138 |
| Total commercial | 17,336 | 4,627 | 5,776 | 12,192 | 15,461 | 7,927 | 28,603 | 8 | 91,930 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Real estate construction | | | | | | | | | |
| Pass | 2,216 | 32,526 | 23,408 | 34,974 | 14,749 | 5,788 | 35,618 | 554 | 149,833 |
| Special mention | — | — | 1,503 | 741 | — | — | — | — | 2,244 |
| Total real estate construction | 2,216 | 32,526 | 24,911 | 35,715 | 14,749 | 5,788 | 35,618 | 554 | 152,077 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Real estate mortgage-residential | | | | | | | | | |
| Pass | 4,685 | 27,047 | 45,261 | 15,007 | 10,196 | 15,284 | 796 | 10,973 | 129,249 |
| Special mention | — | 351 | 475 | — | — | 199 | — | — | 1,025 |
| Substandard | — | — | — | — | — | 202 | — | — | 202 |
| Total real estate mortgage-residential | 4,685 | 27,398 | 45,736 | 15,007 | 10,196 | 15,685 | 796 | 10,973 | 130,476 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Real estate mortgage-commercial | | | | | | | | | |
| Pass | 104,047 | 170,357 | 122,001 | 80,330 | 149,985 | 216,802 | 17,741 | 335 | 861,598 |
| Special mention | — | — | — | — | — | 1,766 | — | — | 1,766 |
| Substandard | — | — | — | — | — | 58 | — | — | 58 |
| Total real estate mortgage-commercial | 104,047 | 170,357 | 122,001 | 80,330 | 149,985 | 218,626 | 17,741 | 335 | 863,422 |
| Current period gross write-offs | — | 2 | — | — | — | — | — | — | 2 |
| Consumer - home equity | | | | | | | | | |
| Pass | — | — | — | — | — | — | 52,453 | — | 52,453 |
| Special mention | — | — | — | — | — | — | 185 | — | 185 |
| Substandard | — | — | — | — | — | — | 1,055 | — | 1,055 |
| Total consumer - home equity | — | — | — | — | — | — | 53,693 | — | 53,693 |
| Current period gross write-offs | — | — | — | — | — | — | — | — | — |
| Consumer - other | | | | | | | | | |
| Pass | 143 | 291 | 756 | 1,712 | 2,572 | 1,078 | 12,869 | — | 19,421 |
| Special mention | — | — | — | — | — | — | — | — | — |
| Substandard | — | — | — | — | | — | — | — | — |
| Total consumer - other | 143 | 291 | 756 | 1,712 | 2,572 | 1,078 | 12,869 | — | 19,421 |
| Current period gross write-offs | — | — | 11 | 4 | — | — | 115 | — | 130 |
17
The detailed activity in the allowance for
credit losses and the recorded investment in loans receivable for the three months ended March 31, 2026 and March 31, 2025, is shown
below:
Schedule of Allowance for Credit Losses
| ($ in thousands) | Commercial | Real Estate Construction | Real Estate Mortgage Residential | Real Estate Mortgage Commercial | Consumer Home Equity | Consumer Other | Total Loans |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Balance at December 31, 2025 | $1,050 | $1,654 | $1,720 | $8,349 | $706 | $327 | $13,806 |
| Acquisition adjustments | 573 | 2,306 | 51 | 1,370 | 39 | — | 4,339 |
| Charge-offs | — | — | — | — | — | (15) | (15) |
| Recoveries | 1 | 1 | — | 2 | 1 | 5 | 10 |
| Provision for (release of) credit losses | 5 | 50 | (54) | 199 | 19 | 5 | 224 |
| Balance at March 31, 2026 | $1,629 | $4,011 | $1,717 | $9,920 | $765 | $322 | $18,364 |
| ($ in thousands) | Commercial | Real Estate Construction | Real Estate Mortgage Residential | Real Estate Mortgage Commercial | Consumer Home Equity | Consumer Other | Total Loans |
| Balance at December 31, 2024 | $994 | $1,675 | $1,639 | $7,974 | $568 | $285 | $13,135 |
| Charge-offs | — | — | — | — | — | (9) | (9) |
| Recoveries | 7 | 1 | — | 5 | 2 | 5 | 20 |
| Provision for credit losses | 50 | 68 | 42 | 213 | 32 | 57 | 462 |
| Balance at March 31, 2025 | $1,051 | $1,744 | $1,681 | $8,192 | $602 | $338 | $13,608 |
There were nine loans modified for borrowers
experiencing financial difficulty during the three months ended March 31, 2026, and no loans modified for borrowers experiencing financial
difficulty during the same period ended March 31, 2025.
The following table shows the amortized
cost basis as of March 31, 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
_March 31, 2026_
| (Dollars in thousands) | Amortized cost basis | % of Total Loan Type | Financial effect |
| --- | --- | --- | --- |
| Real Estate Mortgage Commercial | $1,487 | 0.14% | Interest only period extended instead of converting to principal and interest payments |
| Real Estate Mortgage Residential | 1,595 | 1.22% | Deferred monthly payments that are added to the end of the original loan term |
| Real Estate Mortgage Residential | 196 | 0.15% | Deferred interest payments added to principal balance, re-amortized loan |
| Real Estate Construction | 742 | 0.40% | Interest only period extended instead of converting to principal and interest payments |
| Total Loans | $4,020 | 0.26% | |
18
The following table depicts the performance
of loans that have been modified in the last 12 months.
| Line item | 30-89 Days | |
| --- | --- | --- |
| Current | Past Due | Nonaccrual |
| $1,487 | — | — |
| 1,595 | — | 196 |
| 742 | — | — |
| $3,824 | — | $$196 |
The following tables are by loan category
and present loans past due and on non-accrual status as of March 31, 2026 and December 31, 2025.
Schedule of Loan Category and Aging Analysis of Loans
| Line item | | | | | Greater than | Greater than | | | | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars in thousands) | 30-59 Days | | 60-89 Days | | 90 Days and | | | | Total | | | | | |
| March 31, 2026 | Past Due | | Past Due | | Accruing | | Non-accrual | | Past Due | | Current | | Total Loans | |
| Commercial | $ | $46 | $ | — | $ | — | $ | $115 | $ | $161 | $ | $99,360 | $ | $99,521 |
| Real estate: | | | | | | | | | | | | | | |
| Construction | | 416 | | — | | — | | — | | 416 | | 184,541 | | 184,957 |
| Mortgage-residential | | 1,022 | | 46 | | — | | 196 | | 1,264 | | 129,757 | | 131,021 |
| Mortgage-commercial | | — | | 451 | | 374 | | — | | 825 | | 1,055,829 | | 1,056,654 |
| Consumer: | | | | | | | | | | | | | | |
| Home equity | | 85 | | — | | — | | — | | 85 | | 58,315 | | 58,400 |
| Other | | 1 | | 127 | | — | | — | | 128 | | 18,462 | | 18,590 |
| Total | $ | $1,570 | $ | $624 | $ | $374 | $ | $311 | $ | $2,879 | $ | $1,546,264 | $ | $1,549,143 |
| | | | | | Greater than | | | | | | | | | |
| (Dollars in thousands) | 30-59 Days | | 60-89 Days | | 90 Days and | | | | Total | | | | | |
| December 31, 2025 | Past Due | | Past Due | | Accruing | | Non-accrual | | Past Due | | Current | | Total Loans | |
| Commercial | $ | — | $ | $20 | $ | — | $ | — | $ | $20 | $ | $91,910 | $ | $91,930 |
| Real estate: | | | | | | | | | | | | | | |
| Construction | | — | | — | | — | | — | | — | | 152,077 | | 152,077 |
| Mortgage-residential | | 756 | | — | | — | | 201 | | 957 | | 129,519 | | 130,476 |
| Mortgage-commercial | | 56 | | — | | — | | — | | 56 | | 863,366 | | 863,422 |
| Consumer: | | | | | | — | | — | | — | | — | | — |
| Home equity | | 65 | | — | | — | | 1 | | 66 | | 53,627 | | 53,693 |
| Other | | 37 | | — | | 2 | | — | | 39 | | 19,382 | | 19,421 |
| Total | $ | $914 | $ | $20 | $ | $2 | $ | $202 | $ | $1,138 | $ | $1,309,881 | $ | $1,311,019 |
19
The following table is a summary of the
Company’s non-accrual loans by major categories for the periods indicated.
Schedule of Nonaccrual Loans
_March 31, 2026_
| (Dollars in thousands) | Non-accrual Loans with No Allowance | Non-accrual Loans with an Allowance | Total Non-accrual Loans |
| --- | --- | --- | --- |
| Commercial | — | $115 | $115 |
| Real estate: | | | |
| Construction | — | — | — |
| Mortgage-residential | — | 196 | 196 |
| Mortgage-commercial | — | — | — |
| Consumer: | | | |
| Home equity | — | — | — |
| Other | — | — | — |
| Total | — | $311 | $311 |
| | December 31, 2025 | | |
| (Dollars in thousands) | Non-accrual Loans with No Allowance | Non-accrual Loans with an Allowance | Total Non-accrual Loans |
| Commercial | — | — | — |
| Real estate: | | | |
| Construction | — | — | — |
| Mortgage-residential | — | 201 | 201 |
| Mortgage-commercial | — | — | — |
| Consumer: | | | |
| Home equity | — | 1 | 1 |
| Other | — | — | — |
| Total | — | $202 | $202 |
The Company recognized $4,600 and
$11,400 of interest income on non-accrual loans during the three months ended March 31, 2026 and March 31, 2025, respectively.
During the three months ended March
31, 2026, zero and less than $1,000, respectively, of accrued interest was written off by reversing interest income.
The following table shows the collateral
dependent loans that were individually evaluated at March 31, 2026.
Schedule of Collateral Dependent Loans that were Individually Evaluated
| (Dollars in thousands) / March 31, 2026 | Amortized Cost Of / Collateral Dependent Loans | Related Allowance of / Collateral Dependent Loans | Amortized Cost with / No Related Allowance |
| --- | --- | --- | --- |
| Real Estate Construction | $2,437 | $2,041 | — |
| Total Loans | $2,437 | $2,041 | — |
There were no collateral dependent
loans that were individually evaluated at December 31, 2025.
20
***Unfunded
Commitments***
The Company maintains an allowance for off-balance
sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby
and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally
cancellable (i.e., commitment cannot be cancelled at any time). The allowance for off-balance sheet credit exposures is adjusted as a
provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a
historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded
over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance
for credit losses for unfunded loan commitments is separately classified on the balance sheet within Other Liabilities and was $654,000
and $531,000 at March 31, 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 months ended March 31, 2026 and March 31,
2025.
Schedule of Unfunded Commitments
| (Dollars in thousands) | Total Allowance for Credit Losses - Unfunded Commitments | Total Allowance for Credit Losses - Unfunded Commitments |
| --- | --- | --- |
| Balance, December 31, 2025 | $ | $531 |
| Acquisition adjustments | | 152 |
| Release of allowance for unfunded commitments | | (29) |
| Balance, March 31, 2026 | $ | $654 |
| (Dollars in thousands) | Total Allowance for Credit Losses - Unfunded Commitments | |
| Balance, December 31, 2024 | $ | $480 |
| Release of allowance for unfunded commitments | | (24) |
| Balance, March 31, 2025 | $ | $456 |
### ***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:
**Level l** Quoted prices in active markets for identical assets or liabilities.
**Level 2** Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
**Level 3** Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
21
Fair value estimates,
methods, and assumptions are set forth below.
*Cash
and short-term investments*—The carrying amount of these financial instruments (cash and
due from banks, interest-bearing bank balances, federal funds sold and securities purchased under agreements to resell) approximates
fair value. All mature within 90 days and do not present unanticipated credit concerns and are classified as Level 1.
*Investment
Securities*—Measurement is on a recurring basis based upon quoted market prices, if available.
If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques
such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity. Level 1
securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in active over-the-counter
markets. Level 2 securities include mortgage-backed securities issued both by government sponsored enterprises and private label mortgage-backed
securities. Generally, these fair values are priced from established pricing models. Level 3 securities include corporate debt obligations
and asset–backed securities that are less liquid or for which there is an inactive market.
*Other
investments, at cost*—The carrying value of other investments, such as FHLB stock, approximates
fair value based on redemption provisions.
*Loans
Held for Sale*—The Company originates fixed rate residential loans on a servicing released
basis in the secondary market. Loans closed but not yet settled with an investor, are carried in the Company’s loans held for sale
portfolio. These loans are fixed rate residential loans that 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.
22
The carrying amount and estimated fair value
by classification level of the Company’s financial instruments as of March 31, 2026 and December 31, 2025 are as follows:
Schedule of Fair Value, by Balance Sheet Grouping
_March 31, 2026_
| (Dollars in thousands) | Carrying / Amount | Fair Value / Total | Fair Value / Level 1 | Fair Value / Level 2 | Fair Value / Level 3 |
| --- | --- | --- | --- | --- | --- |
| Financial Assets: | | | | | |
| Cash, interest-bearing deposits in other banks, and fed funds sold | $217,935 | $217,935 | $217,935 | — | — |
| Available-for-sale securities | 320,710 | 320,710 | — | 320,710 | — |
| Held-to-maturity securities, net of allowance for credit losses | 188,712 | 180,911 | — | 180,911 | — |
| Other investments, at cost | 3,204 | 3,204 | — | — | 3,204 |
| Loans held for sale | 6,936 | 6,936 | — | 6,936 | — |
| Derivative financial instruments | 9 | 9 | — | 9 | — |
| Net loans receivable | 1,530,779 | 1,489,474 | — | — | 1,489,474 |
| Accrued interest receivable | 7,148 | 7,148 | 7,148 | — | — |
| Financial liabilities: | | | | | |
| Non-interest bearing demand | $543,839 | $543,839 | — | $543,839 | — |
| Interest bearing demand deposits and money market accounts | 1,046,596 | 1,046,596 | — | 1,046,596 | — |
| Savings | 107,917 | 107,917 | — | 107,917 | — |
| Time deposits | 349,912 | 349,322 | — | 349,322 | — |
| Total deposits | 2,048,264 | 2,047,674 | — | 2,047,674 | — |
| Securities sold under agreements to repurchase | 99,835 | 99,835 | — | 99,835 | — |
| Derivative financial instruments | 28 | 28 | — | 28 | — |
| Junior subordinated debentures | 14,964 | 13,272 | — | 13,272 | — |
| Accrued interest payable | 3,633 | 3,633 | 3,633 | — | — |
_December 31, 2025_
| (Dollars in thousands) | Carrying / Amount | Fair Value / Total | Fair Value / Level 1 | Fair Value / Level 2 | Fair Value / Level 3 |
| --- | --- | --- | --- | --- | --- |
| Financial Assets: | | | | | |
| Cash, interest-bearing deposits in other banks, and fed funds sold | $161,060 | $161,060 | $161,060 | — | — |
| Available-for-sale securities | 294,109 | 294,109 | — | 294,109 | — |
| Held-to-maturity securities | 195,116 | 188,563 | — | 188,563 | — |
| Other investments, at cost | 2,942 | 2,942 | — | — | 2,942 |
| Loans held for sale | 10,737 | 10,737 | — | 10,737 | — |
| Derivative financial instruments | 17 | 17 | — | 17 | — |
| Net loans receivable | 1,297,213 | 1,271,551 | — | — | 1,271,551 |
| Accrued interest receivable | 6,247 | 6,247 | 6,247 | — | — |
| Financial liabilities: | | | | | |
| Non-interest bearing demand | $467,265 | $467,265 | — | $467,265 | — |
| Interest bearing demand deposits and money market accounts | 837,711 | 837,711 | — | 837,711 | — |
| Savings | 102,768 | 102,768 | — | 102,768 | — |
| Time deposits | 341,800 | 336,205 | — | 336,205 | — |
| Total deposits | 1,749,544 | 1,743,949 | — | 1,743,949 | — |
| Short term borrowings | 107,189 | 107,189 | | 107,189 | |
| Derivative financial instruments | 36 | 36 | — | 36 | — |
| Junior subordinated debentures | 14,964 | 13,445 | — | 13,445 | — |
| Accrued interest payable | 3,416 | 3,416 | 3,416 | — | — |
23
The following tables summarize quantitative
disclosures about the fair value for each category of assets carried at fair value as of March 31, 2026 and December 31, 2025 that are
measured on a recurring basis.
Schedule of Fair Value, Assets Measured on Recurring Basis
| (Dollars in thousands) / Description | March 31, 2026 / Total | March 31, 2026 / Level 1 | March 31, 2026 / Level 2 | March 31, 2026 / Level 3 |
| --- | --- | --- | --- | --- |
| Available- for-sale securities | | | | |
| US Treasury securities | $14,072 | — | $14,072 | — |
| Government Sponsored Enterprises | 2,242 | — | 2,242 | — |
| Mortgage-backed securities | 289,789 | — | 289,789 | — |
| Small Business Administration pools | 7,666 | — | 7,666 | — |
| Corporate and other securities | 6,941 | — | 6,941 | — |
| Total Available-for-sale securities | 320,710 | — | 320,710 | — |
| Derivative financial instruments | 9 | — | 9 | — |
| Loans held for sale | 6,936 | — | 6,936 | — |
| Total | $327,655 | — | $327,655 | — |
| (Dollars in thousands) | December 31, 2025 | | | |
| Description | Total | Level 1 | Level 2 | Level 3 |
| Available- for-sale securities | | | | |
| US Treasury securities | $24,093 | — | $24,093 | — |
| Government Sponsored Enterprises | 2,256 | — | 2,256 | — |
| Mortgage-backed securities | 252,185 | — | 252,185 | — |
| Small Business Administration pools | 8,668 | — | 8,668 | — |
| Corporate and other securities | 6,907 | — | 6,907 | — |
| Total Available-for-sale securities | 294,109 | — | 294,109 | — |
| Derivative financial instruments | 17 | — | 17 | — |
| Loans held for sale | 10,737 | — | 10,737 | — |
| Total | $304,863 | — | $304,863 | — |
The following table summarizes quantitative
disclosures about the fair value for each category of liabilities carried at fair value as of March 31, 2026 and December 31, 2025 that
are measured on a recurring basis.
| (Dollars in thousands) / Description | March 31, 2026 / Total | March 31, 2026 / Level 1 | March 31, 2026 / Level 2 | March 31, 2026 / Level 3 |
| --- | --- | --- | --- | --- |
| Derivative financial instruments | $28 | — | $28 | — |
| (Dollars in thousands) | December 31, 2025 | | | |
| Description | Total | Level 1 | Level 2 | Level 3 |
| Derivative financial instruments | $36 | — | $36 | — |
The following tables summarize quantitative
disclosures about the fair value for each category of assets carried at fair value as of March 31, 2026 and December 31, 2025 that are
measured on a non-recurring basis. There were no Level 3 financial instruments as of March 31, 2026 and December 31, 2025 measured on
a recurring basis.
Schedule of Fair Value, Assets Measured on Non-Recurring Basis
| (Dollars in thousands) / Description | March 31, 2026 / Total | March 31, 2026 / Level 1 | March 31, 2026 / Level 2 | March 31, 2026 / Level 3 |
| --- | --- | --- | --- | --- |
| Other real estate owned: | $168 | — | — | $168 |
| Collateral dependent loans | $396 | — | — | $396 |
| Total | $564 | — | — | $564 |
| (Dollars in thousands) | December 31, 2025 | | | |
| Description | Total | Level 1 | Level 2 | Level 3 |
| Other real estate owned: | $168 | — | — | $168 |
24
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 was one loan at March 31, 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 March 31, 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
| (Dollars in thousands) | Fair Value as of March 31, 2026 | Valuation Technique | Significant Observable Inputs | Significant Unobservable Inputs |
| --- | --- | --- | --- | --- |
| OREO | $168 | Appraisal Value/Comparison Sales/Other estimates | Appraisals and/or sales of comparable properties | Appraisals discounted 6% to 16% for sales commissions and other holding cost |
| Collateral dependent loans | $396 | Appraisal Value/Comparison Sales/Other estimates | Appraisals and/or sales of comparable properties | Appraisals discounted 6% to 16% for sales commissions and other holding cost |
| (Dollars in thousands) | Fair Value as of December 31, 2025 | Valuation Technique | Significant Observable Inputs | Significant Unobservable Inputs |
| OREO | $168 | Appraisal Value/Comparison Sales/Other estimates | Appraisals and/or sales of comparable properties | Appraisals discounted 6% to 16% for sales commissions and other holding cost |
### ***Note 7 - Deposits***
The Company’s total deposits are comprised
of the following amounts at the dates indicated:
Schedule of Deposits
| (Dollars in thousands) | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Non-interest bearing demand deposits | $543,839 | $467,265 |
| Interest bearing demand deposits and money market accounts | 1,046,596 | 837,711 |
| Savings | 107,917 | 102,768 |
| Time deposits | 349,912 | 341,800 |
| Total deposits | $2,048,264 | $1,749,544 |
25
### ***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’sfive reportable segments, which are detailed below:
- Commercial and retail banking: The Company’s primary business is to provide deposit and lending products and services to its commercial and retail customers.
- Mortgage banking: This segment provides mortgage origination services for loans that will be sold to investors in the secondary market, consumer mortgage loans that will be held-for-investment, and consumer residential construction loans. The Company allocates a provision for credit loss, cost of funds, and other operating costs to this segment.
- Investment advisory and non-deposit: This segment provides investment advisory services and non-deposit products.
- Government guaranteed lending: This new segment acquired as part of the SGBG acquisition provides loan products using the Small Business Administration (SBA) and United States Department of Agriculture (USDA) support to qualified entities. This is a new segment as of January 8, 2026.
- Corporate: This segment includes the parent company financial information, including interest on parent company debt and dividend income received from the Bank.
The following tables present selected financial
information for the Company’s reportable business segments for the three months ended March 31, 2026 and March 31, 2025.
Schedule of Company’s Reportable Segment
| (Dollars in thousands) / Three months ended March 31, 2026 | Commercial / and Retail / Banking | Mortgage / Banking | Investment / Advisory and / Non-Deposit | Government / Guaranteed / Lending | Corporate | Eliminations | Consolidated |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Dividend and Interest Income | $24,609 | $2,410 | — | $1,012 | $2,128 | $(2,120) | $28,039 |
| Interest expense | 8,441 | 719 | — | 265 | 245 | — | 9,670 |
| Net interest income | $16,168 | $1,691 | — | $747 | $1,883 | $(2,120) | $18,369 |
| Provision for credit losses | 196 | (3) | — | — | — | — | 193 |
| Noninterest income | 1,438 | 681 | 2,271 | 400 | — | — | 4,790 |
| Salaries and employee benefits | 6,734 | 844 | 1,199 | 491 | 224 | — | 9,492 |
| Other noninterest expense | 6,677 | 220 | 190 | 100 | 352 | — | 7,539 |
| Total noninterest expense | 13,411 | 1,064 | 1,389 | 591 | 576 | — | 17,031 |
| Net income before taxes | $3,999 | $1,311 | $882 | $556 | $1,307 | $(2,120) | $5,935 |
| Income tax provision (benefit) | 674 | — | — | — | (237) | — | 437 |
| Net income | $3,325 | $1,311 | $882 | $556 | $1,544 | $(2,120) | $5,498 |
| (Dollars in thousands) / Three months ended March 31, 2025 | Commercial / and Retail / Banking | Mortgage / Banking | Investment / Advisory and / Non-Deposit | Government / Guaranteed / Lending | Corporate | Eliminations | Consolidated |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Dividend and Interest Income | $20,973 | $2,100 | — | — | $1,432 | $(1,423) | $23,082 |
| Interest expense | 7,756 | 667 | — | — | 269 | — | 8,692 |
| Net interest income | $13,217 | $1,433 | — | — | $1,163 | $(1,423) | $14,390 |
| Provision for credit losses | 462 | (25) | — | — | — | — | 437 |
| Noninterest income | 1,417 | 759 | 1,806 | — | — | — | 3,982 |
| Salaries and employee benefits | 5,599 | 841 | 983 | — | 234 | — | 7,657 |
| Other noninterest expense | 4,288 | 246 | 177 | — | 386 | — | 5,097 |
| Total noninterest expense | 9,887 | 1,087 | 1,160 | — | 620 | — | 12,754 |
| Net income before taxes | $4,285 | $1,130 | $646 | — | $543 | $(1,423) | $5,181 |
| Income tax provision (benefit) | 1,369 | — | — | — | (185) | — | 1,184 |
| Net income | $2,916 | $1,130 | $646 | — | $728 | $(1,423) | $3,997 |
26
The table below presents total
assets for the Company’s reportable business segments as of March 31, 2026 and December 31, 2025.
| (Dollars in thousands) | Commercial / and Retail / Banking | Mortgage / Banking | Investment / Advisory and / Non-Deposit | Government / Guaranteed / Lending | Corporate | Eliminations | Consolidated |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Total Assets as of March 31, 2026 | $2,178,530 | $157,254 | $21 | $54,112 | $250,907 | $(249,293) | $2,391,531 |
| Total Assets as of December 31, 2025 | $1,895,061 | $161,291 | $22 | — | $201,180 | $(199,822) | $2,057,732 |
### ***Note 9*** ***- Leases***
At March 31, 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
| (Dollars in thousands) | March 31, 2026 | December 31, 2025 |
| --- | --- | --- |
| Right-of-use assets | $2,383 | $2,192 |
| Lease liabilities | $2,565 | $2,373 |
| Weighted average remaining lease term | 9.67 years | 10.74 years |
| Weighted average discount rate | 4.20% | 4.24% |
| (Dollars in thousands) | Three Months Ended March 31, 2026 | Three Months Ended March 31, 2025 |
| --- | --- | --- |
| Operating lease cost | $135.8 | $97.4 |
| Cash paid for amounts included in the measurement of lease liabilities | $134.0 | $93.9 |
27
The following table shows future undiscounted
lease payments for operating leases with initial terms of one year or more as of March 31, 2026.
Schedule of Future Undiscounted Operating Lease Payments
| (Dollars in thousands) / Year | Operating Leases |
| --- | --- |
| 2026 | $463 |
| 2027 | 459 |
| 2028 | 303 |
| 2029 | 178 |
| 2030 | 181 |
| Thereafter | 1,586 |
| Total undiscounted lease payments | $3,170 |
| Less effect of discounting | (605) |
| Present value of estimated lease payments (lease liability) | $2,565 |
### ***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 three months ended March 31, 2026 and 2025.
Schedule of Accumulated Other Comprehensive Loss
| March 31, 2026 (Dollars in thousands) | Securities Available for Sale | Securities Held to Maturity | Investment Hedge | Accumulated Other Comprehensive Loss |
| --- | --- | --- | --- | --- |
| Balance at December 31, 2025 | $(9,998) | $(8,369) | $(34) | $(18,401) |
| Other comprehensive income (loss) | (774) | — | 9 | (765) |
| Amortization of unrealized loss on securities transferred to held-to-maturity | — | 332 | — | 332 |
| Net other comprehensive income (loss) during period | (774) | 332 | 9 | (433) |
| Balance at March 31, 2026 | $(10,772) | $(8,037) | $(25) | $(18,834) |
| March 31, 2025 (Dollars in thousands) | Securities Available for Sale | Securities Held to Maturity | Accumulated Other Comprehensive Loss |
| --- | --- | --- | --- |
| Balance at December 31, 2024 | $(15,765) | $(9,694) | $(25,459) |
| Other comprehensive income | 2,156 | — | 2,156 |
| Amortization of unrealized loss on securities transferred to held-to-maturity | — | 330 | 330 |
| Net other comprehensive income during period | 2,156 | 330 | 2,486 |
| Balance at March 31, 2025 | $(13,609) | $(9,364) | $(22,973) |
### ***Note 11*** ***- Subsequent Events***
Subsequent events are events or transactions
that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions
that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in
the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that
did not exist at the date of the balance sheet but arose after that date.
Management has reviewed events occurring,
and no other subsequent events occurred requiring accrual or that require disclosure and have not been disclosed in the footnotes
to the Company’s unaudited consolidated financial statements as of March 31, 2026.
28
**Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.**
**CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS**
This report,
including information included or incorporated by reference in this report, contains statements which constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future
performance, and business of our company. Forward-looking statements are based on many assumptions and estimates and are not guarantees
of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will
depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “approximately,”
“is likely,” “would,” “could,” “should,” “will,” “expect,” “anticipate,”
“predict,” “project,” “potential,” “continue,” “assume,” “believe,”
“intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar
expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results
to differ materially from those anticipated in our forward-looking statements include, without limitation, those described under the
heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the U.S. Securities
and Exchange Commission (the “SEC”) on March 16, 2026 and the following:
- credit losses as a result of, among other potential factors, declining real estate values, increasing interest rates, increasing unemployment, or changes in customer payment behavior or other factors;
- the amount of our loan portfolio collateralized by real estate and weaknesses in the real estate market;
- restrictions or conditions imposed by our regulators on our operations;
- the adequacy of the level of our allowance for credit losses and the amount of credit loss provisions required in future periods;
- examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, write-down assets, or take other actions;
- risks associated with actual or potential information gatherings, investigations or legal proceedings by customers, regulatory agencies or others;
- reduced earnings due to higher credit impairment charges resulting from additional decline in the value of our securities portfolio, specifically as a result of increasing default rates, and loss severities on the underlying real estate collateral;
- increases in competitive pressure in the banking and financial services industries;
- changes in the interest rate environment, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets, and that could reduce anticipated or actual margins; temporarily reduce the market value of our available-for-sale investment securities and temporarily reduce accumulated other comprehensive income or increase accumulated other comprehensive loss, which temporarily could reduce shareholders’ equity;
- enterprise risk management may not be effective in mitigating risk and reducing the potential for losses;
- changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry, including as a result of the presidential administration and congressional elections;
- general economic conditions resulting in, among other things, a deterioration in credit quality;
29
- changes occurring in business conditions and inflation, including the impact of inflation on us, including a decrease in demand for new mortgage loan and commercial real estate loan originations and refinancings, an increase in competition for deposits, and an increase in non-interest expense, which may have an adverse impact on our financial performance;
- changes in access to funding or increased regulatory requirements with regard to funding, which could impair our liquidity;
- FDIC assessment which has increased, and may continue to increase, our cost of doing business;
- cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third-party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;
- changes in deposit flows, which may be negatively affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, and returns available to customers on alternative investments;
- changes in technology, including the increasing use of artificial intelligence;
- our current and future products, services, applications and functionality and plans to promote them;
- changes in monetary and tax policies, including potential changes in tax laws and regulations;
- changes in accounting standards, policies, estimates and practices as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board;
- our assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results;
- the rate of delinquencies and amounts of loans charged-off;
- the rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio;
- our ability to maintain appropriate levels of capital, including levels of capital required under the capital rules implementing Basel III;
- our ability to successfully execute our business strategy;
- our ability to attract and retain key personnel;
- our ability to retain our existing customers, including our deposit relationships;
- our use of brokered deposits may be an unstable and/or an expensive deposit source to fund earning asset growth;
- our ability to obtain brokered deposits as an additional funding source could be limited;
- adverse changes in asset quality and resulting credit risk-related losses and expenses;
- risks related to the completed SGBG merger, including the diversion of management’s time and attention to integration matters, unexpected integration costs, deposit or customer attrition, employee retention and business disruption, difficulties integrating systems, operations, controls and personnel, and the possibility that expected revenues, cost savings, synergies and other anticipated benefits of the merger may not be realized when expected or at all;
30
- the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, such as the war in Ukraine, the Middle East conflict, including in Iran, and the conflict between China and Taiwan, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs, government shutdowns, and disruptions caused by widespread cybersecurity incidents;
- disruptions due to flooding, severe weather or other natural disasters; and
- other risks and uncertainties described under “Risk Factors” below.
Because of these
and other risks and uncertainties, our actual future results may be materially different from the results indicated by any forward-looking
statements. For additional information with respect to factors that could cause actual results to differ from the expectations stated
in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 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 months ended March 31, 2026, as compared to the three months ended March
31, 2025, and analyzes our financial condition as of March 31, 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.
31
**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 March 31, 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.
32
**Comparison
of Results of Operations for the Three Months Ended March 31, 2026 to the Three Months Ended March 31, 2025**
Net
Income
Our net income
for the three months ended March 31, 2026 increased $1.5 million to $5.5 million, or $0.59 diluted earnings per common share, as compared
to $4.0 million, or $0.51 diluted earnings per common share, for the three months ended March 31, 2025. The increase in net income between
the two periods is primarily due to a $4.0 million increase in net interest income, a $244,000 decrease in provision for credit losses,
a $808,000 increase in non-interest income, and a $747,000 decrease in income tax expense, partially offset by a $4.3 million increase
in non-interest expense.
- The $4.0 million increase in net interest income results from a $349.2 million increase in average earning assets, partially driven by our acquisition of SGBG, and a 23 basis point increase in net interest margin between the two periods.
- The $193,000 provision for credit losses during the three months ended March 31, 2026 was primarily due to a $224,000 provision for credit losses on loans, partially offset by a $29,000 release of the allowance for credit losses – unfunded commitments and a $3,000 release of the allowance for credit losses – held-to-maturity securities. These changes in the allowance for credit losses – loans and in the allowance for credit losses – unfunded commitments were driven by increases in our loans and decreases in our unfunded commitments, respectively. During the three months ended March 31, 2026, the Company recorded net charge-offs of $5,000.
- The $437,000 provision for credit losses during the three months ended March 31, 2025 was primarily due to a $473,000 increase in the allowance for credit losses – loans, partially offset by a decline of $25,000 in the allowance for credit losses - unfunded commitments, and $11,000 in net recoveries during the three months ended March 31, 2025. The increase in the allowance for credit losses – loans was primarily due to a $31.4 million increase in loans held-for-investment and a one basis point increase in our qualitative factors during the three months ended March 31, 2025.
- The $808,000 increase in non-interest income was primarily related to increases of $465,000 in investment advisory fees and non-deposit commissions and $395,000 in government guaranteed lending income. The government guaranteed lending income came from a new segment, government guaranteed lending, acquired from SGBG.
- The $4.3 million increase in non-interest expense is primarily due to increases of $1.8 million in salaries and employee benefits, $57,000 in amortization of intangibles, $1.6 million in merger expenses, and $765,000 in other non-interest expense.
- Our effective tax rate was 7.36% during the three months ended March 31, 2026 compared to 22.85% during the three months ended March 31, 2025. This decline was due to federal income tax credits purchased during the three months ended March 31, 2026.
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.
33
Net interest
income increased $4.0 million, or 27.7%, to $18.4 million for the three months ended March 31, 2026 from $14.4 million for the three
months ended March 31, 2025. Our net interest margin improved 23 basis points to 3.35% during the three months ended March 31, 2026 compared
to 3.12% during the three months ended March 31, 2025. Our net interest margin, on a taxable equivalent basis, was 3.37% for the three
months ended March 31, 2026 compared to 3.13% for the three months ended March 31, 2025. Average earning assets were $2.2 billion for
the three months ended March 31, 2026 and $1.9 billion in the same period of 2025.
- The $4.0 million increase in net interest income results from a $349.2 million increase in average earning assets, heavily driven by our acquisition of approximately $191.4 million in loans from SGBG, and a 23 basis point increase in net interest margin between the two periods.
- The increase in average earning assets was primarily due to increases of $272.3 million in average loans, $11.4 million in average securities, and $65.4 million in average interest bearing deposits in other banks. We obtained $191.4 million in loans from the acquisition of SGBG, driving the increase in loans. We sold approximately 96% of the acquired securities portfolio; growth in the securities portfolio is primarily driven by investment purchases
- Our earning asset yield rose 12 basis points to 5.12% for the three months ended March 31, 2026, compared to 5.00% for the three months ended March 31, 2025.
- Investment securities represented 22.7% of average total earning assets for the three months ended March 31, 2026 compared to 26.3% during the same period in 2025.
- Interest bearing deposits in other banks and fed funds sold represented 9.3% of average total earning assets for the three months ended March 31, 2026 compared to 7.5% during the same period in 2025.
- Loans represented 68.0% of average total earning assets for the three months ended March 31, 2026 compared to 66.2% during the same period in 2025.
- Market interest rates decreased as the Federal Reserve cut the target rate range. The target rate range for the federal funds rate was 3.50% - 3.75% at March 31, 2026 compared to 4.25% - 4.50% at March 31, 2025.
34
Average loans increased
$272.3 million, or 22.0%, to $1.5 billion for the three months ended March 31, 2026 from $1.2 billion for the same period in 2025. Our
loan (including loans held-for-sale) to deposit ratio on average during the three months ended March 31, 2026 was 76.0%, as compared
to 73.0% during the same period in 2025. The yield on loans increased 23 basis points to 5.94% during the three months ended March 31,
2026 from 5.71% 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 March 31, 2026 increased $11.4 million, or 2.3%, to $503.6 million from $492.2 million during the same period
in 2025. Interest-bearing deposits in other banks and fed funds sold increased $65.4 million to $206.0 million during the three months
ended March 31, 2026 from $140.5 million during the same period in 2025. The increase in interest-bearing deposits in other banks and
fed funds sold was due to additional cash from our acquisition of SGBG and our decision to hold excess liquidity in interest bearing
deposits at the Federal Reserve Bank. The yield on our securities portfolio declined to 3.32% for the three months ended March 31, 2026
from 3.42% for the same period in 2025. The yield on our interest-bearing deposits in other banks and fed funds sold was 3.51% for the
three months ended March 31, 2026 compared to 4.29% during the same period in 2025. Average fed funds sold increased to $213,000 during
the three months ended March 31, 2026 from $150,000 during the same period in 2025. The yield on fed funds sold declined to 3.81% during
the three months ended March 31, 2026 from 6.44% during the same period in 2025.
The cost of interest-bearing
liabilities was 2.45% during the three months ended March 31, 2026 compared to 2.58% during the same period in 2025. The cost of deposits,
including demand deposits, was 1.80% during the three months ended March 31, 2026 compared to 1.85% during the same period in 2025. The
cost of funds, including demand deposits, was 1.85% during the three months ended March 31, 2026 compared to 1.94% 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 March
31, 2026, December 31, 2025 and March 31, 2025, respectively. As of March 31, 2026, we had no brokered certificates of deposit.
*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.
35
**FIRST
COMMUNITY CORPORATION**
**Yields
on Average Earning Assets and
Rates on Average Interest-Bearing Liabilities**
| (Dollars in thousands) | Three months ended March 31, 2026 / Average / Balance | Three months ended March 31, 2026 / Interest / Earned/Paid | Three months ended March 31, 2026 / Yield/ / Rate | Three months ended March 31, 2025 / Average / Balance | Three months ended March 31, 2025 / Interest / Earned/Paid | Three months ended March 31, 2025 / Yield/ / Rate |
| --- | --- | --- | --- | --- | --- | --- |
| Assets | | | | | | |
| Earning assets | | | | | | |
| Loans(1) | $1,511,496 | $22,129 | 5.94% | $1,239,225 | $17,444 | 5.71% |
| Non-taxable securities | 42,981 | 324 | 3.06% | 46,986 | 342 | 2.95% |
| Taxable securities | 460,574 | 3,800 | 3.35% | 445,204 | 3,808 | 3.47% |
| Int bearing deposits in other banks | 205,972 | 1,784 | 3.51% | 140,548 | 1,487 | 4.29% |
| Fed funds sold | 213 | 2 | 3.81% | 63 | 1 | 6.44% |
| Total earning assets | $2,221,236 | $28,039 | 5.12% | $1,872,026 | $23,082 | 5.00% |
| Cash and due from banks | 28,395 | | | 24,632 | | |
| Premises and equipment | 29,885 | | | 29,874 | | |
| Goodwill and other intangibles | 30,655 | | | 15,063 | | |
| Other assets | 59,446 | | | 53,138 | | |
| Allowance for credit losses - investments | (19) | | | (23) | | |
| Allowance for credit losses - loans | (17,593) | | | (13,217) | | |
| Total assets | $2,352,005 | | | $1,981,493 | | |
| Liabilities | | | | | | |
| Interest-bearing liabilities | | | | | | |
| Interest-bearing transaction accounts | $515,148 | $2,226 | 1.75% | $331,897 | $965 | 1.18% |
| Money market accounts | 493,628 | 3,551 | 2.92% | 440,282 | 3,319 | 3.06% |
| Savings deposits | 105,599 | 47 | 0.18% | 113,070 | 79 | 0.28% |
| Time deposits | 348,870 | 2,937 | 3.41% | 333,615 | 3,246 | 3.95% |
| Fed funds purchased | — | — | NA | 2 | — | 0.00% |
| Securities sold under agreements to repurchase | 121,940 | 664 | 2.21% | 130,779 | 814 | 2.52% |
| Other long-term debt | 14,964 | 245 | 6.64% | 14,964 | 269 | 7.29% |
| Total interest-bearing liabilities | $1,600,149 | $9,670 | 2.45% | $1,364,609 | $8,692 | 2.58% |
| Demand deposits | 514,953 | | | 450,554 | | |
| Allowance for credit losses - unfunded commitments | 670 | | | 480 | | |
| Other liabilities | 20,660 | | | 19,113 | | |
| Shareholders’ equity | 215,573 | | | 146,737 | | |
| Total liabilities and shareholders’ equity | $2,352,005 | | | $1,981,493 | | |
| Cost of deposits, including demand deposits | | | 1.80% | | | 1.85% |
| Cost of funds, including demand deposits | | | 1.85% | | | 1.94% |
| Net interest spread | | | 2.67% | | | 2.42% |
| Net interest income/margin | | $18,369 | 3.35% | | $14,390 | 3.12% |
| Net interest income/margin (tax equivalent)(2) | | $18,456 | 3.37% | | $14,441 | 3.13% |
(1) All loans and deposits are domestic. Average loan balances include non-accrual loans and loans held-for-sale.
(2) Based on a 21.0% marginal tax rate.
The average balance amounts presented below reflect
the corrected preliminary purchase accounting adjustments described in Note 2. The corrections reallocated certain average balances between
goodwill and other intangibles and other assets but did not affect total average assets.
| Line item | Amounts Reflected in April 22, 2026 Earnings Release | Corrected Amounts Reflected in Form 10-Q |
| --- | --- | --- |
| Goodwill and other intangibles | $32.279 million | $30.655 million |
| Other assets | $57.822 million | $59.446 million |
| Total assets | $2.352 billion | $2.352 billion |
36
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.
_(in thousands)_
| Line item | Three Months Ended March 31, / 2026 versus 2025 / Increase (Decrease) Due to Changes in(1) / Volume | Three Months Ended March 31, / 2026 versus 2025 / Increase (Decrease) Due to Changes in(1) / Rate | Three Months Ended March 31, / 2026 versus 2025 / Increase (Decrease) Due to Changes in(1) / Total |
| --- | --- | --- | --- |
| Interest income: | | | |
| Loans | $3,962 | $723 | $4,685 |
| Non-taxable securities | (30) | 12 | (18) |
| Taxable securities | 129 | (137) | (8) |
| Interest bearing deposits in other banks | 602 | (305) | 297 |
| Fed funds sold | 2 | (1) | 1 |
| Total interest income | $4,665 | $292 | $4,957 |
| Interest expense: | | | |
| Interest-bearing transaction accounts | $671 | $590 | $1,261 |
| Money market accounts | 389 | (157) | 232 |
| Savings deposits | (5) | (27) | (32) |
| Time deposits | 143 | (452) | (309) |
| Fed funds purchased | | | |
| Securities sold under agreements to repurchase | (53) | (97) | (150) |
| FHLB advances | | | |
| Other long-term debt | | (24) | (24) |
| Total interest expense | $1,145 | $(167) | $978 |
| Net interest income | $3,520 | $459 | $3,979 |
(1) The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
Non-interest
Income and Non-interest Expense
Non-interest income
during the three months ended March 31, 2026 increased $808,000 to $4.8 million from $4.0 million during the same period in 2025. The
increase in non-interest income was primarily related to increases of $465,000 in investment advisory fees and non-deposit commissions
and $395,000 in government guaranteed lending income, partially offset by a reduction of $78,000 in mortgage banking income.
Mortgage banking income
decreased $78,000 to $681,000 during the three months ended March 31, 2026 from $759,000 during the same period in 2025. Total production
in the mortgage line of business in the first quarter of 2026 was $42.0 million, which was comprised of $25.4 million in secondary market
loans, $1.9 million in adjustable-rate mortgages (ARMs), and $14.7 million in construction loans. Total fee revenue in the mortgage line
of business was $681,000 in the first quarter of 2026, which includes $673,000 associated with the secondary market loans, with a gain-on-sale
margin of 2.65%. This compares to production year-over-year of $43.9 million, which was comprised of $25.8 million in secondary market
loans, $4.0 million in ARMs, and $14.1 million in construction loans during the first quarter of 2025. Fee revenue associated with the
secondary market loans in the first quarter of 2025 was $755,000 with a gain-on-sale margin of 2.93%.
37
Investment advisory
fees rose $465,000 to $2.3 million during the three months ended March 31, 2026 from $1.8 million during the same period in 2025. Total assets under management declined to $1.1 billion at March 31, 2026 from $1.2 billion at December 31, 2025, but increased from $892.8
million at March 31, 2025. Our net new assets under management were $7.9 million during the three months ended March 31, 2026. Furthermore, our
investment performance for the three months ended March 31, 2026 was negative 3.6% compared to negative 4.6% 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 $395,000 in the first quarter of 2026. Production in this line of business in
the first quarter of 2026 included $2.36 million in SBA loans. During the quarter, we sold $2.0 million in loans, which resulted in a
premium of $194,000 and a gain-on-sale margin of 9.59%. Loan volume was temporarily impacted by the federal government shutdowns
and Small Business Administration processing delays, which affected the processing of loans in the pipeline.
Other non-interest income
increased $24,000 to $1.2 million during the three months ended March 31, 2026 from $1.2 million during the same period in 2025. The
$24,000 increase was primarily due to increases in wire transfer fees of $18,000 and rental income of $15,000, partially offset by a
decline of $22,000 in ATM debit card income.
The following table
shows the components of non-interest income for the three-month periods ended March 31, 2026 and March 31, 2025.
| (Dollars in thousands) | Three months ended March 31, 2026 | Three months ended March 31, 2025 |
| --- | --- | --- |
| Deposit service charges | $223 | $221 |
| Mortgage banking income | 681 | 759 |
| Investment advisory fees and non-deposit commissions | 2,271 | 1,806 |
| Government guaranteed lending | 395 | — |
| ATM debit card income | 673 | 695 |
| Bank owned life insurance | 210 | 202 |
| Rental income | 131 | 116 |
| Other service fees including safe deposit box fees | 57 | 62 |
| Wire transfer fees | 53 | 35 |
| Other | 96 | 86 |
| Total | $4,790 | $3,982 |
Non-interest expense
increased $4.3 million during the three months ended March 31, 2026 to $17.0 million compared to $12.8 million during the same period
in 2025. The increase in non-interest expense was primarily due to increases of $1.8 million in salaries and employee benefits, $57,000
in amortization of intangibles, $1.6 million in merger expenses, and $765,000 in other expenses.
- Salary and benefits expense increased $1.8 million to $9.5 million during the three months ended March 31, 2026 from $7.7 million during the same period in 2025. This increase was primarily a result of new personnel retained from SGBG, normal salary adjustments, higher mortgage banking and financial planning and investment advisory commissions, and increased incentive accruals driven by stronger performance. We had 282 full-time equivalent employees at March 31, 2026 compared to 265 full-time equivalent employees at March 31, 2025.
- Merger expenses increased $1.6 million to $1.6 million from zero. These costs were primarily composed of legal and professional fees related to the merger with SGBG.
38
- Other non-interest expense increased $765,000 to $3.8 million during the three months ended March 31, 2026 from $3.1 million during the same period in 2025.
- Core banking and electronic processing and services increased $131,000 to $887,000 from $756,000 primarily due to additional expenses related to the acquisition of SGBG, higher customer activity, and enhanced technology.
- ATM/debit card processing increased $78,000 to $405,000 from $327,000 primarily due to higher customer activity and enhanced technology.
- Software subscriptions and services increased $257,000 to $605,000 from $348,000 primarily due to additional expenses related to the acquisition of SGBG, new subscriptions and services, and higher renewal prices.
The following
table shows the components of non-interest expense for the three-month periods ended March 31, 2026 and March 31, 2025.
| (Dollars in thousands) | Three months ended March 31, 2026 | Three months ended March 31, 2025 |
| --- | --- | --- |
| Salaries and employee benefits | $9,492 | $7,657 |
| Occupancy | 817 | 777 |
| Equipment | 379 | 390 |
| Marketing and public relations | 560 | 514 |
| FDIC insurance assessments | 272 | 300 |
| Other real estate expense | 4 | 12 |
| Amortization of intangibles | 96 | 39 |
| Core banking and electronic processing and services* | 887 | 756 |
| ATM/debit card processing | 405 | 327 |
| Software subscriptions and services | 605 | 348 |
| Supplies | 23 | 28 |
| Telephone | 127 | 109 |
| Courier | 85 | 88 |
| Correspondent services | 92 | 72 |
| Insurance | 117 | 108 |
| Debit card and fraud losses | 139 | 76 |
| Investment advisory services | 108 | 99 |
| Loan processing and closing costs | 100 | 59 |
| Director fees | 204 | 152 |
| Legal and professional fees | 425 | 465 |
| Merger | 1,581 | — |
| Shareholder expense | 84 | 99 |
| Other | 429 | 279 |
| Total | $17,031 | $12,754 |
**\*** Core banking and electronic processing and services includes core processing, bill payment, online banking, remote deposit capture, wire processing services, and postage costs for mailing customer notices and statements.
Income
Tax Expense
We incurred income
tax expense of $437,000 and $1.2 million for the three months ended March 31, 2026 and 2025, respectively. Our effective tax rate was
7.4% and 22.9% for the three months ended March 31, 2026 and 2025, respectively. The decrease in the effective tax rate was due to an
adjustment of $878,000 due to tax credits purchased during the three months ended March 31, 2026.
39
**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 March 31,
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:
| (Dollars in thousands) | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Beginning balance of allowance for credit losses - loans | $13,806 | $13,135 |
| Acquisition adjustments | 4,339 | |
| Loans charged-off: | | |
| Commercial | — | — |
| Real Estate Mortgage – Commercial | — | — |
| Consumer - Other | 15 | 9 |
| Total loans charged-off | 15 | 9 |
| Recoveries: | | |
| Commercial | 1 | 7 |
| Real Estate Mortgage – Residential | — | — |
| Real Estate Mortgage – Commercial | 2 | 5 |
| Real Estate – Construction | 1 | 1 |
| Consumer – Home Equity | 1 | 2 |
| Consumer – Other | 5 | 5 |
| Total recoveries | 10 | 20 |
| Net loan charge-offs (recoveries) | 5 | 11 |
| Provision for credit losses - loans | 224 | 462 |
| Balance at period end | $18,364 | $13,608 |
40
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
| (Dollars in thousands) | March 31, 2026 / Amount | March 31, 2026 / % of Allowance in / Category | December 31, 2025 / Amount | December 31, 2025 / % of Allowance in / Category |
| --- | --- | --- | --- | --- |
| Commercial | $1,629 | 8.9% | $1,050 | 7.6% |
| Real Estate – Construction | 4,011 | 21.8% | 1,654 | 12.0% |
| Real Estate Mortgage: | | | | |
| Residential | 1,717 | 9.4% | 1,720 | 12.5% |
| Commercial | 9,920 | 54.0% | 8,349 | 60.4% |
| Consumer: | | | | |
| Home Equity | 765 | 4.2% | 706 | 5.1% |
| Other | 322 | 1.8% | 327 | 2.4% |
| Total | $18,364 | 100.0% | $13,806 | 100.0% |
*Credit
Metrics*
We have a significant
portion of our loan portfolio with real estate as the underlying collateral. As of March 31, 2026 and December 31, 2025, approximately
92.4% 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 $853,000 in non-performing assets at March 31, 2026 compared to 0.02% and $372,000
at December 31, 2025. Non-accrual loans increased to $311,000 at March 31, 2026 from $202,000 at December 31, 2025. We had one accruing
loan past due 90 days or more totaling $374,000 at March 31, 2026 compared to $2,000 at December 31, 2025. Loans past due 30 days or
more represented 0.14% of the loan portfolio at March 31, 2026 compared to 0.07% at December 31, 2025. The ratio of classified loans
plus OREO and repossessed assets increased to 1.83% of total bank regulatory risk-based capital at March 31, 2026 from 0.76% at December
31, 2025.
During the three months
ended March 31, 2026, we experienced net charge-offs, including overdrafts, of $5,000 and net loan recoveries, excluding overdrafts,
of $4,000. In comparison, during the three months ended March 31, 2025, we experienced net recoveries, including overdrafts, of
$11,000 and net loan recoveries, excluding overdrafts, of $14,000.
41
There were five loans
totaling $685,000 (0.04% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing)
at March 31, 2026. Four of these loans were on non-accrual status. The largest loan of the four is $196,000 and is secured by real estate.
The balance of the remaining loans on non-accrual status is $115,000. These loans are secured by business assets. At March 31, 2026,
we had one accruing loan that was past due 90 days or more. At both March 31, 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. At March 31, 2026 we
have one individually assessed loan for $2.4 million and 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 $2.0 million allowance for credit losses on our individually assessed loans at March 31, 2026 and none at December
31, 2025. At March 31, 2026, we had $2.2 million in loans that were delinquent 30 days to 89 days representing 0.14% 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:
| (Dollars in thousands) | Three Months Ended / March 31, 2026 | Three Months Ended / March 31, 2025 |
| --- | --- | --- |
| Average loans outstanding (excluding loans held-for-sale) | $1,502,055 | $1,232,712 |
| Loans outstanding at period end (excluding loans held-for-sale) | $1,549,143 | $1,251,980 |
| Non-performing assets: | | |
| Non-accrual loans | $311 | $215 |
| Loans 90 days past due still accruing | 374 | 6 |
| Foreclosed real estate | 168 | 437 |
| Total non-performing assets | $853 | $658 |
| Net charge-offs to average loans (annualized) | 0.00% | 0.00% |
| Allowance as percent of total loans | 1.19% | 1.09% |
| Non-performing assets as % of total assets | 0.04% | 0.03% |
| Allowance as % of non-performing loans | 2,681.73% | 6,157.47% |
| Non-accrual loans as % of total loans | 0.02% | 0.02% |
| Allowance as % of non-accrual loans | 5,909.41% | 6,329.30% |
The following table
details net charge-offs to average loans outstanding by loan category for the periods indicated.
| (Dollars in thousands) | Three Months Ended March 31, 2026 / Net Charge- Offs (Recoveries) | Three Months Ended March 31, 2026 / Average Loans HFI(1) | Three Months Ended March 31, 2026 / Net Charge-Off (Recovery) Ratio | Three Months Ended March 31, 2025 / Net Charge- Offs (Recoveries) | Three Months Ended March 31, 2025 / Average Loans HFI(1) | Three Months Ended March 31, 2025 / Net Charge-Off (Recovery) Ratio |
| --- | --- | --- | --- | --- | --- | --- |
| Commercial | $(1) | $104,904 | 0.00% | $(7) | $87,712 | (0.01 |
| Real estate: | | | | | | |
| Construction | (1) | 173,296 | 0.00% | (1) | 147,659 | 0.00% |
| Mortgage-residential | — | 131,179 | 0.00% | — | 122,779 | 0.00% |
| Mortgage-commercial | (2) | 1,017,021 | 0.00% | (5) | 812,253 | 0.00% |
| Consumer: | | | | | | |
| Home Equity | (1) | 56,655 | 0.00% | (2) | 42,385 | (0.01 |
| Other | 10 | 19,000 | 0.05% | 4 | 19,924 | 0.02% |
| Total: | $5 | $1,502,055 | 0.00% | $(11) | $1,232,712 | 0.00% |
(1) Average loans exclude loans held for sale.
42
**Financial
Position**
Assets increased $333.8
million, or 16.2% (65.8% annualized), to $2.4 billion at March 31, 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 $11.6 million, interest-bearing bank balances of $45.3 million, investment
securities available for sale of $26.6 million, loans held-for-investment of $238.1 million, goodwill of $14.8 million, intangible assets of $2.5 million, and other assets of $8.7 million, partially offset by a decrease in investment securities held-to-maturity of $6.4 million.
**Loans
and loans held-for-sale**
Loans held-for-sale
decreased to $6.9 million at March 31, 2026 from $10.7 million at December 31, 2025. Loans (excluding loans held-for-sale) increased
$238.1 million, or 18.2% (73.7% annualized), to $1.5 billion at March 31, 2026 from $1.3 billion at December 31, 2025. Total loan production,
excluding mortgage secondary market and new construction residential real estate, was $91.2 million during the three months ended March
31, 2026 compared to $53.6 million during the same period in 2025. Advances from unfunded commercial construction loans available for
draws were $10.2 million during the three months ended March 31, 2026 compared to $9.0 million during the same period in 2025. Payoffs
and paydowns totaled $43.7 million during the three months ended March 31, 2026 compared to $18.6 million during the same period in 2025.
Total production in
the mortgage line of business in the first quarter of 2026 was $42.0 million which was comprised of $25.4 million in secondary market
loans, $1.9 million in adjustable rate mortgages (ARMs), and $14.7 million in construction loans. Total production in the mortgage line
of business in the first quarter of 2025 was $43.9 million which was comprised of $25.8 million in secondary market loans, $4.0 million
in ARMs, and $14.1 million in construction 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 March 31, 2026 and December 31, 2025 was 76.0% and 75.6%, respectively. The loan-to-deposit
ratio (excluding loans held-for-sale) at March 31, 2026 and December 31, 2025 was 75.6% 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 March 31, 2026, the non-owner occupied commercial real estate loans and the construction and land development
loans were approximately 314% and 67% 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 62% from March 31, 2023 to March 31, 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.
43
The following table
shows the composition of the loan portfolio by category at the dates indicated:
| (Dollars in thousands) | March 31, 2026 / Amount | March 31, 2026 / Percent | December 31, 2025 / Amount | December 31, 2025 / Percent |
| --- | --- | --- | --- | --- |
| Commercial | $99,521 | 6.4% | $91,930 | 7.0% |
| Real estate: | | | | |
| Construction | 184,957 | 11.9% | 152,077 | 11.5% |
| Mortgage – residential | 131,021 | 8.5% | 130,476 | 10.0% |
| Mortgage – commercial | 1,056,654 | 68.2% | 863,422 | 65.9% |
| Consumer: | | | | |
| Home Equity | 58,400 | 3.8% | 53,693 | 4.1% |
| Other | 18,590 | 1.2% | 19,421 | 1.5% |
| Total gross loans | 1,549,143 | 100.0% | 1,311,019 | 100.0% |
| Allowance for credit losses | (18,364) | | (13,806) | |
| Total net loans | $1,530,779 | | $1,297,213 | |
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 March 31, 2026.
**Loan
Maturity Schedule and Sensitivity to Changes in Interest Rates**
_March 31, 2026_
| (In thousands) | One Year or Less | Over One Year Through Five Years | Over Five Years Through Fifteen Years | Over Fifteen Years | Total |
| --- | --- | --- | --- | --- | --- |
| Commercial | $23,545 | $50,274 | $25,702 | — | $99,521 |
| Real estate: | | | | | |
| Construction | 52,109 | 111,308 | 15,426 | 6,114 | 184,957 |
| Mortgage—residential | 6,683 | 13,310 | 2,689 | 108,339 | 131,021 |
| Mortgage—commercial | 144,099 | 732,819 | 146,945 | 32,791 | 1,056,654 |
| Consumer: | | | | | |
| Home equity | 1,092 | 10,800 | 46,508 | — | 58,400 |
| Other | 6,326 | 10,981 | 926 | 357 | 18,590 |
| Total | $233,854 | $929,492 | $238,196 | $147,601 | $1,549,143 |
**Loans
maturing after one year with:**
| Variable Rate | 302,914 |
| --- | --- |
| Fixed Rate | 1,012,375 |
| | $1,315,289 |
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.
44
**Investment
Securities**
Investment securities
increased $20.2 million to $512.6 million, net of allowance for credit losses on investments of $16,000, at March 31, 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 mortgage-backed securities in the available-for-sale portfolio, partially offset by normal principal cash flows.
On June 1, 2022, we
reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS). These securities were transferred
at fair value at the time of the transfer, which became the new cost basis for the securities held to maturity. The pretax unrealized
net holding loss on the available-for-sale securities on the date of transfer totaled approximately $16.7 million and continued to be
reported as a component of accumulated other comprehensive loss. This net unrealized loss is being amortized to interest income over
the remaining life of the securities as a yield adjustment. There were no gains or losses recognized as a result of this transfer. The
remaining pretax unrealized net holding loss on these investments was $10.2 million ($8.0 million net of tax) at March 31, 2026.
Our HTM investments
totaled $188.7 million and represented approximately 37% of our total investments at March 31, 2026. Our AFS investments totaled $320.7
million or approximately 62% of our total investments at March 31, 2026. Our investments at cost totaled $3.2 million or approximately
1% of our total investments at March 31, 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 March 31,
2026, the estimated weighted average life of our total investment portfolio was 4.9 years, the modified duration was 4.1, the effective
duration was 3.3, and the weighted average tax equivalent book yield was 3.66%.
Interest bearing deposits
in other banks and fed funds sold increased $45.3 million to $182.5 million at March 31, 2026 from $137.2 million at December 31, 2025
due to our decision to temporarily hold excess liquidity in interest-bearing bank deposits at the Federal Reserve Bank. This additional
liquidity will be used to fund loan growth and/or reduce borrowings and brokered certificates of deposit.
The following table
shows, at amortized cost, the expected maturities and weighted average yield, which is calculated using amortized cost as the weight
and tax-equivalent book yield, of securities held at March 31, 2026:
| (Dollars in thousands) / Available-for-Sale: | Within One Year / Amount | Within One Year / Yield | Over One Year and less than Five Years / Amount | Over One Year and less than Five Years / Yield | Over Five Years and less than Ten Years / Amount | Over Five Years and less than Ten Years / Yield | Over Ten Years / Amount | Over Ten Years / Yield |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| US Treasury securities | — | — | $15,859 | 1.12% | — | — | — | — |
| Government Sponsored Enterprises | — | — | — | — | 2,500 | 2.00% | — | — |
| Small Business Administration pools | 5 | 4.11% | 2,354 | 4.84% | 2,356 | 4.10% | 3,150 | 5.12% |
| Mortgage-backed securities | 2,367 | 2.38% | 8,994 | 3.45% | 24,945 | 3.89% | 264,305 | 3.89% |
| Corporate and other securities | — | — | 1,994 | 6.22% | 5,500 | 3.44% | 14 | — |
| Total investment securities available-for-sale | $2,372 | 2.38% | $29,201 | 2.49% | $35,302 | 3.70% | $267,468 | 3.90% |
| (Dollars in thousands) | Within One Year | | Over One Year and less than Five Years | | Over Five Years and less than Ten Years | | Over Ten Years | |
| Held-to-Maturity: | Amount | Yield | Amount | Yield | Amount | Yield | Amount | Yield |
| Mortgage-backed securities | — | — | $39,664 | 3.25% | $6,424 | 3.29% | $43,311 | 3.27% |
| State and local government | 2,240 | 3.35% | 24,639 | 3.35% | 48,833 | 3.59% | 23,616 | 3.33% |
| Total investment securities held-to-maturity | $2,240 | 3.35% | $64,303 | 3.29% | $55,258 | 3.56% | $66,927 | 3.30% |
45
**Deposits**
Deposits increased
$298.7 million, or 17.1% (69.2% annualized), to $2.05 billion at March 31, 2026 compared to $1.75 billion at December 31, 2025. Our pure
deposits, which are defined as total deposits less certificates of deposit, increased $291 million, or 20.2% (82.1% annualized), to $1.73
billion at March 31, 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 million to $322 million at March 31, 2026 from $314 million at
December 31, 2025.
We had no brokered certificates
of deposit at March 31, 2026 or December 31, 2025. Total uninsured deposits were $697.9 million and $581.3 million at March 31, 2026
and December 31, 2025, respectively. Included in uninsured deposits at March 31, 2026 and December 31, 2025 were $214.2 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 $483.7 million, or 23.6%, of total deposits
at March 31, 2026 and $393.8 million, or 22.5%, of total deposits at December 31, 2025. The average balance of all customer deposit accounts
at March 31, 2026 was $34,731. The average balance for consumer accounts was $18,525 and the average balance for non-consumer accounts
was $74,558.
The following table sets forth
the deposits by category:
| (Dollars in thousands) | March 31, 2026 / Amount | March 31, 2026 / % of / Deposits | December 31, 2025 / Amount | December 31, 2025 / % of / Deposits |
| --- | --- | --- | --- | --- |
| Demand deposit accounts | $543,839 | 26.6% | $467,265 | 26.7% |
| Interest bearing checking accounts | 568,365 | 27.7% | 367,195 | 21.0% |
| Money market accounts | 478,231 | 23.3% | 470,516 | 26.9% |
| Savings accounts | 107,917 | 5.3% | 102,768 | 5.9% |
| Time deposits | 349,912 | 17.1% | 341,800 | 19.5% |
| Total | $2,048,264 | 100.0% | $1,749,544 | 100.0% |
The uninsured amount
of time deposits in the table above at March 31, 2026 and December 31, 2025 was $49.1 million and $47.1 million, respectively.
The tables below
show at March 31, 2026 and December 31, 2025, maturities of certificates and other time deposits greater than $250,000.
_March 31, 2026_
| (Dollars in thousands) | Within Three / Months | After Three Through / Nine Months | After Nine Through / Twelve Months | After Twelve / Months | Total |
| --- | --- | --- | --- | --- | --- |
| Certificates and time deposits greater than $250,000 | $34,769 | $44,958 | $22,834 | $814 | $103,375 |
| | December 31, 2025 | | | | |
| | Within Three | After Three Through | After Nine Through | After Twelve | |
| (Dollars in thousands) | Months | Nine Months | Twelve Months | Months | Total |
| Certificates and time deposits greater than $250,000 | $44,205 | $29,127 | $27,971 | $508 | $101,811 |
46
**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 $121.9 million, $101.9 million, and $130.8 million during the three months ended March 31, 2026, December 31,
2025, and March 31, 2025, respectively. The average rates paid during these periods were 2.21%, 2.26%, and 2.52%, respectively. The balances
of securities sold under agreements to repurchase were $99.8 million, $107.2 million, and $129.8 million at March 31, 2026, December
31, 2025, and March 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 zero, zero, and $2,000 during the three months ended March 31, 2026, December 31, 2025, and March 31, 2025, respectively. The
average rates paid during these periods were 0.00%. Federal funds purchased were zero at March 31, 2026, December 31, 2025, and March
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 March 31, 2026, December 31, 2025, and March 31, 2025. The average rates paid during these periods
were zero. The balances of FHLB advances were zero at March 31, 2026, December 31, 2025, and March 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 matures on March 16, 2034. The balances of trust preferred securities
were $15.0 million as of March 31, 2026, December 31, 2025, and March 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 March 31, 2026,
December 31, 2025, and March 31, 2025. The average rates during these periods were 6.64%, 6.89%, and 7.29%, respectively.
Other liabilities
declined $11.0 million to $5.1 million at March 31, 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 three months ended March 31, 2026.
Total shareholders’
equity increased $53.3 million, or 31.8%, to $220.8 million at March 31, 2026 from $167.6 million at December 31, 2025. Shareholders’
equity was 9.2% of total assets at March 31, 2026 and 8.1% at December 31, 2025. The $53.3 million increase in shareholders’ equity
was due to a $4.0 million increase in retained earnings resulting from $5.5 million in net income less $1.5 million in dividends, a $97,000
decrease due to employee and director stock awards, a $94,000 increase due to dividend reinvestment plan (DRIP) purchases, a $49.7 million
increase due to the acquisition of SGBG, and a $433,000 increase in accumulated other comprehensive loss. The increase in accumulated other comprehensive loss of $433,000 during the period was due to $774,000 of comprehensive loss from unrealized
losses on available-for-sale securities, partially offset by the $332,000 of comprehensive income from reclassification adjustment for
amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity and the $9,000 of comprehensive
income from unrealized gain on investment hedge.
On May 9, 2025, we announced
that our Board of Directors approved a plan to utilize up to $7.5 million of capital to repurchase shares of our common stock (the “2025
Repurchase Plan”), which represented approximately 5.0% of total shareholders’ equity at the time of the announcement. 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. The 2025 Repurchase Plan expires at market close on May 8, 2026.
**Market
Risk Management**
Market risk reflects
the risk of economic loss resulting from adverse changes in market prices and interest rates. The risk of loss can be measured in either
diminished current market values or reduced current and potential net income. Our primary market risk is interest rate risk. We have
established an Asset/Liability Committee of the board of directors (the “ALCO”), which has members from our board of directors
and management to monitor and manage interest rate risk. Our ALCO:
- monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program;
- reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and confirmed that any residual risk is acceptable;
- monitors and manages the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on our net interest income; and
- has established policies, policy guidelines, and strategies with respect to interest rate risk exposure and liquidity.
Further, our ALCO and
board of directors explicitly review our ALCO policies at least annually and review our ALCO assumptions and policy limits quarterly.
47
*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 March 31, 2026 and at December 31, 2025 over the subsequent 12 months.
| Change in short-term interest rates | Hypothetical percentage change in net interest income / March 31, 2026 | Hypothetical percentage change in net interest income / December 31, 2025 | Hypothetical percentage change in net interest income / Policy Limit |
| --- | --- | --- | --- |
| +400bp | -10.32% | -15.11% | -20.00% |
| +300bp | -6.70% | -10.24% | -20.00% |
| +200bp | -3.06% | -5.83% | -15.00% |
| +100bp | -1.73% | -2.54% | -10.00% |
| Flat | — | — | — |
| -100bp | +1.77% | +2.74% | -10.00% |
| -200bp | +3.46% | +5.24% | -15.00% |
| -300bp | +4.32% | +5.31% | -20.00% |
| -400bp | +3.50% | +3.49% | -20.00% |
The maximum anticipated
negative impacts of the modeled changes in net interest income were within policy limits at March 31, 2026 and December 31, 2025.
48
*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.
| Change in present value of equity | Hypothetical percentage change in PVE / March 31, 2026 | Hypothetical percentage change in PVE / December 31, 2025 | Hypothetical percentage change in PVE / Policy Limit |
| --- | --- | --- | --- |
| +400bp | +6.06% | +1.13% | -25.00% |
| +300bp | +6.27% | +2.58% | -25.00% |
| +200bp | +5.53% | +3.11% | -20.00% |
| +100bp | +3.40% | +2.23% | -15.00% |
| Flat | — | — | — |
| -100bp | -5.27% | -3.84% | -15.00% |
| -200bp | -12.57% | -9.63% | -20.00% |
| -300bp | -22.08% | -19.36% | -25.00% |
| -400bp | -34.72% | -34.26% | -25.00% |
Except for the down
400 basis point scenario, the maximum anticipated negative impacts of the modeled changes in PVE were within policy limits at March 31,
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 March 31, 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.
49
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 March 31, 2026 and December 31, 2025. The FHLB of Atlanta has
approved a line of credit of up to 25.00% of the Bank’s total assets, which, when utilized, is collateralized by a pledge against
specific investment securities and/or eligible loans. We had no FHLB advances at March 31, 2026 and at December 31, 2025. At March 31,
2026, we had remaining credit availability under this facility in excess of $597.5 million, subject to collateral requirements. Combined,
we have total remaining credit availability, subject to collateral requirements, in excess of $700.0 million as compared to uninsured
deposits excluding deposits of states or political subdivisions in the U.S., which are secured or collateralized, of $483.7 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 March
31, 2026, we had issued commitments to extend unused credit of $261.4 million, including $73.0 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:
| Capital Ratio | Minimum Requirement | Including 2.5% Capital Conservation Buffer |
| --- | --- | --- |
| Common Equity Tier 1 risk-based capital ratio | 4.5% | 7.0% |
| Tier 1 risk-based capital ratio | 6.0% | 8.5% |
| Total risk-based capital ratio | 8.0% | 10.5% |
| Leverage ratio | 4.0% | N/A |
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.
50
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. 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 March 31, 2026, the Bank met all capital adequacy requirements under
the rules on a fully phased-in basis.
| (Dollars in thousands) / Capital Ratios / March 31, 2026 | Actual | Prompt Corrective Action (PCA) Requirements / Well Capitalized | Prompt Corrective Action (PCA) Requirements / Adequately Capitalized | Excess Capital $s of PCA Requirements / Well Capitalized | Excess Capital $s of PCA Requirements / Adequately Capitalized |
| --- | --- | --- | --- | --- | --- |
| Leverage Ratio | 9.09% | 5.00% | 4.00% | $95,087 | $118,345 |
| Common Equity Tier 1 Capital Ratio | 12.82% | 6.50% | 4.50% | 104,219 | 137,192 |
| Tier 1 Capital Ratio | 12.82% | 8.00% | 6.00% | 79,490 | 112,462 |
| Total Capital Ratio | 13.98% | 10.00% | 8.00% | 65,550 | 98,523 |
| December 31, 2025 | | | | | |
| Leverage Ratio | 8.66% | 5.00% | 4.00% | $75,818 | $96,513 |
| Common Equity Tier 1 Capital Ratio | 13.11% | 6.50% | 4.50% | 90,399 | 117,751 |
| Tier 1 Capital Ratio | 13.11% | 8.00% | 6.00% | 69,884 | 97,237 |
| Total Capital Ratio | 14.16% | 10.00% | 8.00% | 56,886 | 84,239 |
The March 31, 2026 regulatory capital ratios presented below reflect the
corrected preliminary purchase accounting adjustments described in Note 2. The corrections resulted in immaterial increases to the Bank’s
regulatory capital ratios from the amounts previously reported in the Company’s April 22, 2026 earnings release, and the Bank continued
to exceed all applicable well-capitalized regulatory capital requirements at March 31, 2026.
| Line item | Amounts Reflected in April 22, 2026 Earnings Release | Corrected Amounts Reflected in Form 10-Q |
| --- | --- | --- |
| Leverage Ratio | 9.06% | 9.09% |
| Common Equity Tier 1 Capital Ratio | 12.80% | 12.82% |
| Tier 1 Capital Ratio | 12.80% | 12.82% |
| Total Capital Ratio | 13.95% | 13.98% |
| Common Equity Tier 1 Capital | $210.758 million | $211.380 million |
| Tier 1 Regulatory Capital | $210.758 million | $211.380 million |
| Total regulatory capital | $229.791 million | $230.413 million |
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.
51
As
a bank holding company, our ability to declare and pay dividends is dependent on certain federal and state regulatory considerations,
including the guidelines of the Federal Reserve. The Federal Reserve has issued a policy statement regarding the payment of dividends
by bank holding companies. In general, the Federal Reserve’s policies provide that dividends should be paid only out of current
earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s
capital needs, asset quality and overall financial condition. The Federal Reserve’s policies also require that a bank holding company
serve as a source of financial strength to its subsidiary bank(s) by standing ready to use available resources to provide adequate capital
funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising
capacity to obtain additional resources for assisting its subsidiary banks where necessary. In addition, under the prompt corrective
action regulations, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.
These regulatory policies could affect our ability to pay dividends or otherwise engage in capital distributions. Our Board of Directors
approved a cash dividend for the first quarter of 2026 of $0.16 per common share. This dividend is payable on May 19, 2026 to shareholders
of record of our common stock as of May 5, 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 March 31, 2026 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
52
**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.**
(a) Under the Company’s Non-Employee Director Deferred Compensation Plan, as amended and restated effective as of January 1, 2021, during the three months ended March 31, 2026, we credited an aggregate of 6,070 deferred stock units to accounts for directors who elected to defer monthly fees. These deferred stock units include dividend equivalents in the form of additional stock units. The deferred stock units were issued pursuant to an exemption from registration under the Securities Act of 1933 in reliance upon Section 4(a)(2) of the Securities Act of 1933.
(b) Not Applicable.
(c) During the three months ended March 31, 2026, the Company repurchased 1,483 shares of its common stock under its publicly announced share repurchase plan at an average price of $27.71 per share, excluding commission and handling fees, for an aggregate purchase price of approximately $41,100, excluding commission and handling fees. Including commission and handling fees, the aggregate amount paid was approximately $41,180. In addition, 18,062 shares were withheld to satisfy tax withholding obligations in connection with the vesting of restricted stock during the three months ended March 31, 2026. Shares withheld for tax withholding obligations were not purchased under the Company’s publicly announced share repurchase plan.
Subsequent to March 31, 2026, on May 7, 2026, the Company announced that its Board of Directors approved a new share repurchase plan authorizing the Company to repurchase up to $7.5 million of its common stock. The 2026 Repurchase Plan expires at market close on May 5, 2027.
| Period | Total number of shares purchased | Average price paid per share(2) | Total number of shares purchased as part of publicly announced plans or programs | Maximum dollar value of shares that may yet be purchased under the plan(2) |
| --- | --- | --- | --- | --- |
| January 1 – January 31, 2026 | — | — | — | $7,500,000 |
| February 1 – February 28, 2026 | 17,969 | $29.82 | — | $7,500,000 |
| March 1 – March 31, 2026 | 1,576 | $27.74 | 1,483 | $7,458,820 |
| Total | 19,545 | $29.65 | 1,483 | $7,458,820 |
(1) Includes
18,062 shares withheld by the Company to satisfy tax withholding obligations in connection with the vesting of restricted stock. These
shares were not purchased under the Company’s publicly announced share repurchase plan.
(2) 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.
53
**Item
3. Defaults Upon Senior Securities.**
Not Applicable.
**Item
4. Mine Safety Disclosures.**
Not Applicable.
**Item
5. Other Information.**
*Trading
Plans*
During the three months
ended March 31, 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.
54
**Item
6. Exhibits.**
| Exhibit | Description |
| --- | --- |
| 2.1 | Agreement and Plan of Merger, dated as of July 13, 2025 by and between First Community Corporation, First Community Bank, and Signature Bank. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on July 14, 2025). |
| 3.1 | Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on June 27, 2011). |
| 3.2 | Articles of Amendment (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 23, 2019). |
| 3.3 | Amended and Restated Bylaws dated May 16, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 18, 2023). |
| 10.1 | Employment Agreement, dated July 13, 2025, by and between First Community Bank and Freddie Deutsch, effective as of January 8, 2026 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 9, 2026). |
| 31.1 | Rule 13a-14(a) Certification of the Principal Executive Officer. |
| 31.2 | Rule 13a-14(a) Certification of the Principal Financial Officer. |
| 32 | Section 1350 Certifications. |
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, formatted in iXBRL (inline eXtensible Business Reporting Language); (i) Consolidated Balance Sheets at March 31, 2026 and December 31, 2025, (ii) Consolidated Statements of Income for the three months ended March 31, 2026 and 2025, (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2026 and 2025 (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2026 and 2025, (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025, and (vi) Notes to Consolidated Financial Statements. |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL document). |
55
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
FIRST COMMUNITY CORPORATION
(REGISTRANT)
Date: May 15, 2026 By: /s/ Michael C. Crapps
Michael C. Crapps
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 2026 By: /s/ D. Shawn Jordan
D. Shawn Jordan
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
56