FIRST COMMUNITY CORP /SC/ [FCCO] Filings

10-Q 1 e23435_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 September 30, 2023

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 x		Smaller reporting company x
		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 November 9, 2023, 7,599,415 shares of the issuer’s common stock, par value $1.00 per share, were issued and outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income (Loss)	4
	Consolidated Statements of Changes in Shareholders’ Equity	5
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59

PART II – OTHER INFORMATION		60
Item 1.	Legal Proceedings	60
Item 1A.	Risk Factors	60
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3.	Defaults Upon Senior Securities	61
Item 4.	Mine Safety Disclosures	61
Item 5.	Other Information	61
Item 6.	Exhibits	62

SIGNATURES		63

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED BALANCE SHEETS

	September 30,
(Dollars in thousands, except par values)	2023			December 31,
	(Unaudited)			2022
ASSETS
Cash and due from banks	$	27,753		$	24,464
Interest-bearing bank balances		69,703			12,937
Investment securities available-for-sale		280,549			331,862
Investment securities held-to-maturity, fair value of $198,408 and $213,613 at September 30, 2023 and December 31, 2022, respectively, net of allowance for credit losses - investments		219,871			228,701
Other investments, at cost		6,305			4,191
Loans held-for-sale		5,509			1,779
Loans held-for-investment		1,091,645			980,857
Less, allowance for credit losses - loans		11,818			11,336
Net loans held-for-investment		1,079,827			969,521
Property and equipment - net		30,927			31,277
Lease right-of-use asset		3,323			2,702
Bank owned life insurance		29,982			29,952
Other real estate owned		666			934
Intangible assets		643			761
Goodwill		14,637			14,637
Other assets		24,027			19,228
Total assets	$	1,793,722		$	1,672,946
LIABILITIES
Deposits:
Non-interest bearing	$	450,737		$	461,010
Interest bearing		1,041,289			924,372
Total deposits		1,492,026			1,385,382
Securities sold under agreements to repurchase		67,173			68,743
Federal funds purchased		—			22,000
Federal Home Loan Bank advances		80,000			50,000
Junior subordinated debt		14,964			14,964
Lease liability		3,494			2,832
Other liabilities		12,464			10,664
Total liabilities		1,670,121			1,554,585
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 7,600,023 at September 30, 2023 and 7,577,912 at December 31, 2022		7,600			7,578
Nonvested restricted stock and stock units		1,929			1,461
Additional paid in capital		93,070			92,683
Retained earnings		54,059			49,025
Accumulated other comprehensive loss		(33,057	)		(32,386	)
Total shareholders’ equity		123,601			118,361
Total liabilities and shareholders’ equity	$	1,793,722		$	1,672,946

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


(Dollars in thousands, except per share amounts)	Three Months ended September 30,
	2023			2022
Interest and dividend income:
Loans, including fees	$	13,804		$	10,100
Investment securities – taxable		4,229			2,673
Investment securities - non taxable		366			385
Other short term investments and CD’s		335			194
Total interest income		18,734			13,352
Interest expense:
Deposits		4,777			332
Securities sold under agreement to repurchase		446			32
Other borrowed money		1,408			194
Total interest expense		6,631			558
Net interest income		12,103			12,794
Provision for credit losses		474			18
Net interest income after provision for credit losses		11,629			12,776
Non-interest income:
Deposit service charges		240			243
Mortgage banking income		508			290
Investment advisory fees and non-deposit commissions		1,187			1,053
Loss on sale of securities		(1,249	)		—
Gain on sale of other assets		46			—
Other		1,132			1,087
Total non-interest income		1,864			2,673
Non-interest expense:
Salaries and employee benefits		6,613			6,373
Occupancy		776			786
Equipment		416			331
Marketing and public relations		609			163
FDIC Insurance assessments		211			121
Other real estate expense, net		21			19
Amortization of intangibles		39			39
Other		2,588			2,585
Total non-interest expense		11,273			10,417
Net income before tax		2,220			5,032
Income tax expense		464			1,081
Net income	$	1,756		$	3,951

Basic earnings per common share	$	0.23		$	0.52
Diluted earnings per common share	$	0.23		$	0.52

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


(Dollars in thousands, except per share amounts)	Nine Months ended September 30,
	2023			2022
Interest and dividend income:
Loans, including fees	$	37,277		$	28,407
Investment securities - taxable		12,513			6,126
Investment securities - non taxable		1,109			1,140
Other short term investments and CD’s		1,222			387
Total interest income		52,121			36,060
Interest expense:
Deposits		10,162			974
Securities sold under agreement to repurchase		1,165			79
Other borrowed money		4,197			429
Total interest expense		15,524			1,482
Net interest income		36,597			34,578
Provision for (release of) credit losses		730			(177	)
Net interest income after provision for (release of) credit losses		35,867			34,755
Non-interest income:
Deposit service charges		692			770
Mortgage banking income		1,034			1,610
Investment advisory fees and non-deposit commissions		3,335			3,446
Loss on sale of securities		(1,249	)		—
Gain (loss) on sale of other assets		151			(45	)
Other		3,527			3,275
Total non-interest income		7,490			9,056
Non-interest expense:
Salaries and employee benefits		19,452			18,667
Occupancy		2,419			2,277
Equipment		1,129			992
Marketing and public relations		1,325			970
FDIC Insurance assessments		614			356
Other real estate expense		(142	)		95
Amortization of intangibles		118			118
Other		7,549			7,084
Total non-interest expense		32,464			30,559
Net income before tax		10,893			13,252
Income tax expense		2,347			2,682
Net income	$	8,546		$	10,570

Basic earnings per common share	$	1.13		$	1.40
Diluted earnings per common share	$	1.12		$	1.39

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)


	Three months ended September 30,
(Dollars in thousands)	2023			2022
Net income	$	1,756		$	3,951
Other comprehensive loss:
Unrealized loss during the period on available-for-sale securities, net of tax benefit of $768 and tax benefit of $1,881, respectively		(2,891	)		(7,078	)
Reclassification adjustment for loss included in net income, net of tax expense of $262 and $0, respectively		987			—
Reclassification adjustment for amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity, net of tax expense of $89 and $98, respectively		335			370
Other comprehensive loss		(1,569	)		(6,708	)
Comprehensive income (loss)	$	187		$	(2,757	)


	Nine months ended September 30,
(Dollars in thousands)	2023			2022
Net income	$	8,546		$	10,570
Other comprehensive loss:
Unrealized loss during the period on available-for-sale securities, net of tax benefit of $701 and $6,328, respectively		(2,639	)		(23,808	)
Reclassification adjustment for loss included in net income, net of tax expense of $262 and $0, respectively		987			—
Unrealized loss during the period on available-for-sale securities transferred to held-to-maturity, net of tax benefit of $0 and $3,509, respectively		—			(13,198	)
Reclassification adjustment for amortization of unrealized losses on securities transferred from available-for-sale to held-to-maturity, net of tax expense of $261 and $126, respectively		981			476
Other comprehensive loss		(671	)		(36,530	)
Comprehensive income (loss)	$	7,875		$	(25,960	)

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Nine months ended September 30, 2023 and 2022

(Unaudited)

										Nonvested						Accumulated
	Common						Additional			Restricted						Other
(Dollars and shares in thousands)	Shares			Common			Paid-in			Stock and			Retained			Comprehensive
	Issued			Stock			Capital			Stock Units			Earnings			Income (loss)			Total
Balance, December 31, 2022		7,578		$	7,578		$	92,683		$	1,461		$	49,025		$	(32,386	)	$	118,361
Net income		—			—			—			—			8,546			—			8,546
CECL implementation net of tax of $90		—			—			—			—			(337	)		—			(337	)
Other comprehensive loss net of tax benefit of $178		—			—			—			—			—			(671	)		(671	)
Issuance of common stock		2			2			39			(69	)		—			—			(28	)
Issuance of restricted stock		8			8			146			(154	)		—			—			—
Amortization of compensation on restricted stock		—			—			—			548			—			—			548
Grant restricted stock units		—			—			—			143			—			—			143
Shares forfeited		(6	)		(6	)		(105	)		—			—			—			(111	)
Dividends: Common ($0.42 per share)		—			—			—			—			(3,175	)		—			(3,175	)
Dividend reinvestment plan		18			18			307			—			—			—			325
Balance, September 30, 2023		7,600		$	7,600		$	93,070		$	1,929		$	54,059		$	(33,057	)	$	123,601

																Accumulated
	Common						Additional			Nonvested						Other
(Dollars and shares in thousands)	Shares			Common			Paid-in			Restricted			Retained			Comprehensive
	Issued			Stock			Capital			Stock			Earnings			Income (loss)			Total
Balance, December 31, 2021		7,549		$	7,549		$	92,139		$	(294	)	$	38,325		$	3,279		$	140,998
Net income		—			—			—			—			10,570			—			10,570
Other comprehensive loss net of tax benefit of $9,711		—			—			—			—			—			(36,530	)		(36,530	)
Issuance of common stock		1			1			27			—			—			—			28
Issuance of restricted stock		9			9			190			(199	)		—			—			—
Amortization of compensation on restricted stock		—			—			—			323			—			—			323
Grant restricted stock units		—			—			—			1,448			—			—			1,448
Shares forfeited		(2	)		(2	)		(40	)		—			—			—			(42	)
Dividends: Common ($0.39 per share)		—			—			—			—			(2,934	)		—			(2,934	)
Dividend reinvestment plan		16			16			268			—			—			—			284
Balance, September 30, 2022		7,573		$	7,573		$	92,584		$	1,278		$	45,961		$	(33,251	)	$	114,145

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

										Nonvested						Accumulated
	Common						Additional			Restricted						Other
	Shares			Common			Paid-in			Stock and			Retained			Comprehensive
(Dollars in thousands)	Issued			Stock			Capital			Stock Units			Earnings			Income (loss)			Total
Balance, December 31, 2022		7,578		$	7,578		$	92,683		$	1,461		$	49,025		$	(32,386	)	$	118,361
Net income		—			—			—			—			3,463			—			3,463
Adoption of CECL, net of tax		—			—			—			—			(337	)		—			(337	)
Other comprehensive income, net of tax expense		—			—			—			—			—			2,913			2,913
Issuance of common stock		2			2			39			(69	)		—			—			(28	)
Issuance of restricted stock		8			8			146			(154	)		—			—			—
Grant restricted stock units		—			—			—			72			—			—			72
Amortization of compensation on restricted stock		—			—			—			191			—			—			191
Shares forfeited		(5	)		(5	)		(100	)		—			—			—			(105	)
Dividends: Common ($0.13 per share)		—			—			—			—			(1,057	)		—			(1,057	)
Dividend reinvestment plan		5			5			103			—			—			—			108
Balance, March 31, 2023		7,588		$	7,588		$	92,871		$	1,501		$	51,094		$	(29,473	)	$	123,581
Net income		—			—			—			—			3,327			—			3,327
Other comprehensive income net of tax benefit of $536		—			—			—			—			—			(2,015	)		(2,015	)
Amortization of compensation on restricted stock		—			—			—			179			—			—			179
Grant restricted stock units		—			—			—			37			—			—			37
Shares forfeited		—			—			(5	)		—			—			—			(5	)
Dividends: Common ($0.14 per share)		—			—			—			—			(1,059	)		—			(1,059	)
Dividend reinvestment plan		6			6			97			—			—			—			103
Balance, June 30, 2023		7,594		$	7,594		$	92,963		$	1,717		$	53,362		$	(31,488	)	$	124,148
Net income		—			—			—			—			1,756			—			1,756
Other comprehensive loss net of tax benefit of $417		—			—			—			—			—			(1,569	)		(1,569	)
Amortization of compensation on restricted stock		—			—			—			178			—			—			178
Grant restricted stock units		—			—			—			34			—			—			34
Dividends: Common ($0.14 per share)		—			—			—			—			(1,059	)		—			(1,059	)
Dividend reinvestment plan		6			6			107			—			—			—			113
Balance, September 30, 2023		7,600		$	7,600		$	93,070		$	1,929		$	54,059		$	(33,057	)		123,601

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

										Nonvested						Accumulated
	Common						Additional			Restricted						Other
(Dollars in thousands)	Shares			Common			Paid-in			Stock and			Retained			Comprehensive
	Issued			Stock			Capital			Stock Units			Earnings			Income (loss)			Total
Balance, December 31, 2021		7,549		$	7,549		$	92,139		$	(294	)	$	38,325		$	3,279		$	140,998
Net income		—			—			—			—			3,489			—			3,489
Other comprehensive loss net of tax benefit of $4,862		—			—			—			—			—			(18,288	)		(18,288	)
Issuance of common stock		1			1			27			—			—			—			28
Issuance of restricted stock		7			7			147			(154	)		—			—			—
Amortization of compensation on restricted stock		—			—			—			79			—			—			79
Shares forfeited		(2	)		(2	)		(40	)		—			—			—			(42	)
Dividends: Common ($0.13 per share)		—			—			—			—			(977	)		—			(977	)
Dividend reinvestment plan		5			5			88			—			—			—			93
Balance, March 31, 2022		7,560		$	7,560		$	92,361		$	(369	)	$	40,837		$	(15,009	)	$	125,380
Net income		—			—			—			—			3,130			—			3,130
Other comprehensive loss net of tax benefit of $3,066		—			—			—			—			—			(11,534	)		(11,534	)
Issuance of restricted stock		2			2			43			(45	)		—			—			—
Amortization of compensation on restricted stock		—			—			—			89			—			—			89
Stock units		—			—			—			1,418			—			—			1,418
Dividends: Common ($0.13 per share)		—			—			—			—			(979	)		—			(979	)
Dividend reinvestment plan		5			5			83			—			—			—			88
Balance, June 30, 2022		7,567		$	7,567		$	92,487		$	1,093		$	42,988		$	(26,543	)	$	117,592
Net income		—			—			—			—			3,951			—			3,951
Other comprehensive loss net of tax benefit of $1,783		—			—			—			—			—			(6,708	)		(6,708	)
Amortization of compensation on restricted stock		—			—			—			155			—			—			155
Grant restricted stock units		—			—			—			30			—			—			30
Dividends: Common ($0.13 per share)		—			—			—			—			(978	)		—			(978	)
Dividend reinvestment plan		6			6			97			—			—			—			103
Balance, September 30, 2022		7,573		$	7,573		$	92,584		$	1,278		$	45,961		$	(33,251	)		114,145

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,
(Dollars in thousands)	2023			2022
Cash flows from operating activities:
Net income	$	8,546		$	10,570
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		1,317			1,268
Net premium amortization on investment securities available-for-sale		(1,754	)		2,007
Net premium amortization on investment securities held-to-maturity		(422	)		(107	)
Provision for (release of) for credit losses		730			(177	)
Write-downs of other real estate owned		—			19
Origination of loans held-for-sale		(36,003	)		(54,858	)
Sale of loans held-for-sale		32,273			60,220
(Gain) loss on sale of other real estate owned		(151	)		45
Amortization of intangibles		118			118
Accretion on acquired loans		(61	)		(34	)
Loss on sale of securities		1,249			—
Loss on fair value of equity securities		2			—
Increase in other assets		(3,942	)		(1,065	)
Increase (decrease) in other liabilities		1,815			(234	)
Net cash provided by operating activities		3,717			17,772
Cash flows from investing activities:
Purchase of investment securities available-for-sale		(6,025	)		(105,943	)
Purchase of investment securities held-to-maturity		—			(11,270	)
Purchase of other investment securities		(2,114	)		(144	)
Maturity/call of investment securities available-for-sale		17,089			54,669
Maturity/call of investment securities held-to-maturity		9,219			6,989
Proceeds from sale of securities available-for-sale		38,662			—
Increase in loans		(110,722	)		(86,161	)
Proceeds from sale of other real estate owned		419			117
Proceeds from sale of fixed assets		—			301
Purchase of property and equipment		(966	)		(638	)
Net disposal of property and equipment		—			24
Net cash used in investing activities		(54,438	)		(142,056	)
Cash flows from financing activities:
Increase in deposit accounts		106,644			74,965
(Decrease) increase in securities sold under agreements to repurchase		(1,570	)		19,443
Decrease in Fed Funds Purchased		(22,000	)		—
Advances from the Federal Home Loan Bank		269,000			—
Repayment of advances from the Federal Home Loan Bank		(239,000	)		—
Shares retired / forfeited		(111	)		(42	)
Dividends paid: Common Stock		(3,175	)		(2,934	)
Restricted Stock Units Granted		143			1,448
Proceeds from issuance of stock-based compensation, new issuance of common stock		(28	)		28
Change in non-vested restricted stock		548			323
Dividend reinvestment plan		325			284
Net cash provided by financing activities		110,776			93,515
Net increase (decrease) in cash and cash equivalents		60,055			(30,769	)
Cash and cash equivalents at beginning of period		37,401			69,022
Cash and cash equivalents at end of period	$	97,456		$	38,253
Supplemental disclosure:
Cash paid during the period for:
Interest	$	13,469		$	1,552
Income taxes	$	3,459		$	2,748
Non-cash investing and financing activities:
Unrealized gain (loss) on available-for-sale securities, net of tax	$	(1,652	)	$	(23,808	)
Amortization of unrealized losses on securities from transfer of available-for-sale securities to held-to-maturity, net of tax		981			476
Recognition of operating lease liability		825			—
Transfer of investment securities available-for-sale to held-to-maturity		—			245,619

See Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements (Unaudited)

Note 1 - Nature of Business and Basis of Presentation

Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated balance sheets, and the consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows of First Community Corporation (the “Company”) and its wholly owned subsidiary, First Community Bank (the “Bank”) (collectively, the “Company”) present fairly in all material respects the Company’s financial position at September 30, 2023 and December 31, 2022, and the Company’s results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Quarterly Reports on Form 10-Q. The information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 should be referred to in connection with these unaudited interim financial statements.

Application of New Accounting Guidance Adopted in 2023

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology that delayed recognition until it is probable a loss has been incurred with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. Additionally, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included a decrease in the allowance for credit losses on loans of $14,300, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $397,900, which is recorded within Other Liabilities. The Company recorded an allowance for credit losses for held to maturity securities of $43,500, which is presented as a reduction to held to maturity securities outstanding. The Company recorded a net decrease to retained earnings of $337,400 as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”).

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired available-for-sale investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed material.

The following table illustrates the impact on the allowance for credit losses (“ACL”) from the adoption of ASC 326:

(Dollars in thousands)	January 1, 2023 As Reported Under ASC 326		December 31, 2022 Pre-ASC 326 Adoption December		Impact of ASC 326 Adoption
Assets:
Held to maturity securities, at amortized cost	$	106,929	$	106,929	$	—

Allowance for credit losses on held to maturity securities:
State and local governments		43		—		43
Allowance for credit losses on held-to-maturity securities	$	43	$	—	$	43

Loans, at amortized cost	$	980,857	$	980,857	$	—

Allowance for credit losses on loans:
Commercial		1,042		849		193
Real Estate Construction		1,150		75		1,075
Real Estate Mortgage Residential		755		723		32
Real Estate Mortgage Commercial		7,686		8,569		(883	)
Consumer Home Equity		480		314		166
Consumer Other		209		170		39
Unallocated		—		636		(636	)
Allowance for credit losses on loans	$	11,322	$	11,336	$	(14	)

Liabilities:
Allowance for credit losses for unfunded commitments	$	398	$	—	$	398

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on non-accrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest.

Allowance for Credit Losses on Held-to-Maturity Securities

Management measures expected credit losses on held-to-maturity debt securities on a collective basis by major security type. Accrued interest receivable on held-to-maturity debt securities totaled $1.2 million at September 30, 2023 and was excluded from the estimate of credit losses. 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 a CECL reserve.

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 at the adoption of CECL or as of September 30, 2023. The state and local governments securities held by the Company are highly rated by major rating agencies.

Allowance for Credit Losses on Available-for-Sale Securities

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 reversal 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 September 30, 2023, there was no allowance for credit loss related to the available-for-sale securities portfolio.

Accrued interest receivable on available-for-sale securities totaled $840,000 at September 30, 2023 and was excluded from the estimate of credit losses.

Loans

Loans that management has the intent and ability to hold for the foreseeable future, until maturity, or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $3.3 million at September 30, 2023 and was reported in other assets on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on non-accrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured.

Allowance for Credit Losses - Loans

The allowance for credit losses is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call report code and then by risk grade grouping. Risk grade is grouped within each call report code by pass, watch, special mention, substandard, and doubtful. Other loan types are separated into their own cohorts due to specific risk characteristics for that pool of loans.

The Company has elected a non-discounted cash flow methodology with probability of default (“PD”) and loss given default (“LGD”) for all call report code cohorts (“cohorts”). The PD calculation looks at the historical loan portfolio at particular points in time (each month during the lookback period) to determine the probability that loans in a certain cohort will default over the next 12-month period. A default is defined as a loan that has moved to past due 90 days and greater, non-accrual status, or experienced a charge-off during the period. Currently, the Company’s historical data is insufficient due to a minimal amount of default activity or zero defaults, therefore, management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the Company’s historical PDs.

The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. All defaults (non-accrual, charge-off, or greater than 90 days past due) occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event (i.e., non-accrual or charge-off). Due to very limited charge-off history, management uses index LGDs comprised of rates derived from the LGD experience of other community banks in place of the Company’s historical LGDs.

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the allowance for credit losses on loans. The calculation includes a 12-month PD forecast based on the peer index regression model comparing peer defaults to the national unemployment rate. After the forecast period, PD rates revert on a straight-line basis back to long-term historical average rates over a 12-month period.

The Company recognizes that all significant factors that affect the collectability of the loan portfolio must be considered to determine the estimated credit losses as of the evaluation date. Furthermore, the methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Company adjusts the modeled historical losses by qualitative adjustments to incorporate all significant risks to form a sufficient basis to estimate the credit losses. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience, loan review and audit results, asset quality and portfolio trends, loan portfolio growth and concentrations, trends in underlying collateral, as well as external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. Generally, this population includes loan relationships exceeding $500,000 and on non-accrual status, however they can also include any loan that does not share risk characteristics with its respective pool. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date unadjusted for selling costs as appropriate. When the expected source of repayment is from a source other than the underlying collateral, impairment will generally be measured based upon the present value of expected proceeds discounted at the contractual interest rate.

Allowance for Credit Losses on Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan cohort at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements:

In March 2022, the FASB issued amendments which are intended to improve the decision usefulness of information provided to investors about certain loan refinancings, restructurings, and write-offs. The amendments were effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has adopted these amendments which did not have a material effect on the Company’s financial statements or disclosures.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Note 2 - Earnings Per Common Share

Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during the period, excluding non-vested restricted shares. Dilutive earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during the period plus the maximum dilutive effect on common stock issuable upon exercise of stock options or vesting of restricted stock units. Stock options and unvested restricted stock units are considered common stock equivalents and are only included in the calculation of dilutive earnings per common share if the effect is dilutive.

The following reconciles the numerator and denominator of the basic and diluted earnings per common share computation:

Schedule of Earning Per Common Share


	Nine months				Three months
	Ended September 30,				Ended September 30,
(In thousands except average market price and per share data)	2023		2022		2023		2022
Numerator (Net income available to common shareholders)	$	8,546	$	10,570	$	1,756	$	3,951
Denominator
Weighted average common shares outstanding for:
Basic shares		7,564		7,525		7,573		7,531
Dilutive securities:
Deferred compensation		27		29		22		24
Restricted stock – Treasury stock method		58		49		60		53
Diluted shares		7,649		7,603		7,655		7,608
Earnings per common share:
Basic		1.13		1.40		0.23		0.52
Diluted		1.12		1.39		0.23		0.52
The average market price used in calculating assumed number of shares	$	18.83	$	19.53	$	17.80	$	18.11

Note 3 - Investment Securities

The amortized cost and estimated fair values of investment securities are summarized below. For the three and nine months ended September 30, 2023, there was no allowance for credit losses on available-for-sale securities.

AVAILABLE-FOR-SALE:

			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
September 30, 2023
US Treasury securities	$	20,773	$	—	$	(3,223	)	$	17,550
Government Sponsored Enterprises		2,500		—		(492	)		2,008
Mortgage-backed securities		258,775		3		(22,188	)		236,590
Small Business Administration pools		17,157		26		(562	)		16,621
Corporate and other securities		8,759		—		(979	)		7,780
Total	$	307,964	$	29	$	(27,444	)	$	280,549

			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
December 31, 2022
US Treasury securities	$	60,552	$	—	$	(4,569	)	$	55,983
Government Sponsored Enterprises		2,500		—		(426	)		2,074
Mortgage-backed securities		263,704		10		(19,114	)		244,600
Small Business Administration pools		21,657		60		(630	)		21,087
Corporate and other securities		8,772		12		(666	)		8,118
Total	$	357,185	$	82	$	(25,405	)	$	331,862

HELD-TO-MATURITY:

Debt Securities, Held-to-Maturity

			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses			Fair Value
September 30, 2023
Mortgage-backed securities	$	114,459	$	—	$	(12,464	)	$	101,995
State and local government		105,412		—		(8,999	)		96,413
Total	$	219,871	$	—	$	(21,463	)	$	198,408

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2022
Mortgage-backed securities	$	121,772	$	—	$	(8,656	)	$	113,116
State and local government		106,929		—		(6,432	)		100,497
Total	$	228,701

FIRST COMMUNITY CORP /SC/ [FCCO] Filings
10-Q	[2023-11-09]
10-Q	[2023-08-10]
10-Q	[2023-05-11]
10-K	[2023-03-22]
10-Q	[2022-11-09]
10-Q	[2022-08-10]
10-Q	[2022-05-11]
10-K	[2022-03-16]
10-Q	[2021-11-09]
10-Q	[2021-08-10]
10-Q	[2021-05-07]
10-K	[2021-03-12]
10-Q	[2020-11-06]
10-Q	[2020-08-10]
10-Q	[2020-05-08]
10-K	[2020-03-13]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-09]
10-K	[2019-03-14]
10-Q	[2018-11-08]
10-Q	[2018-08-08]
10-Q	[2018-05-09]
10-K	[2018-03-14]
10-Q	[2017-11-06]
10-Q	[2017-08-09]
10-Q	[2017-05-09]
10-K	[2017-03-13]
10-Q	[2016-11-10]
10-Q	[2016-08-11]
10-Q	[2016-05-12]
10-K	[2016-03-16]
10-Q	[2015-11-12]
10-Q	[2015-08-12]
10-Q	[2015-05-13]
10-K	[2015-03-27]
10-Q	[2014-11-13]
10-Q	[2014-08-13]
10-Q	[2014-05-12]
10-K	[2014-03-21]
10-Q	[2013-11-08]
10-Q	[2013-08-13]
10-Q	[2013-05-14]
10-K	[2013-03-28]
10-Q	[2012-11-13]
10-Q	[2012-08-10]
S-1	[2012-07-30]
S-1	[2012-05-15]
10-Q	[2012-05-11]
10-K	[2012-03-27]