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What changed in FIRST COMMUNITY CORP /SC/'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIRST COMMUNITY CORP /SC/'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+535 added−547 removedSource: 10-K (2024-03-21) vs 10-K (2023-03-22)

Top changes in FIRST COMMUNITY CORP /SC/'s 2023 10-K

535 paragraphs added · 547 removed · 361 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

100 edited+50 added−26 removed164 unchanged
Biggest changeThe deposit operations of the Bank also are subject to laws, such as the following federal laws: · the FDIA, which, among other things, imposes a minimum amount of deposit insurance available per account to $250,000 and imposes other limits on deposit-taking; · the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; · the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts; · the Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; · The Expedited Funds Availability Act (“EFA Act”) and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and · the Truth in Savings Act (“TISA”) and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.
Biggest changeThe SAFE Act also prohibits individuals from engaging in the business of a residential mortgage loan originator without first obtaining and maintaining annually registration as either a federal or state licensed mortgage loan originator; · The Homeowners Protection Act (“HPA”), or the PMI Cancellation Act, provides requirements relating to private mortgage insurance (PMI) on residential mortgages, including the cancelation and termination of PMI, disclosure and notification requirements, and the requirement to return unearned premiums; · The Fair Housing Act (“FHA”) prohibits discrimination in all aspects of residential real-estate related transactions based on race or color, national origin, religion, sex, and other prohibited factors; · The Servicemembers Civil Relief Act (“SCRA”) and Military Lending Act (“MLA”), providing certain protections for servicemembers, members of the military, and their respective spouses, dependents and others; · Section 106(c)(5) of the Housing and Urban Development Act requires making home ownership available to eligible homeowners; and · the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. 22 The deposit operations of the Bank also are subject to laws, such as the following federal laws: · the FDIA, which, among other things, imposes a minimum amount of deposit insurance available per account to $250,000 and imposes other limits on deposit-taking; · the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; · the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts; · the Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check; · The Expedited Funds Availability Act (“EFA Act”) and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and · the Truth in Savings Act (“TISA”) and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.
The foundations of these interactions are embedded in our cultural beliefs: Everyone Matters - We value each of our employees for the unique contribution they make to the success of our company. While there are a variety of different positions in our company, each is an important and integral part of the work that we do.
The foundations of these interactions are embedded in our cultural beliefs: Everyone Matters - We value each of our employees for the unique contribution they make to our success. While there are a variety of different positions in our company, each is an important and integral part of the work that we do.
Notably, changes include: · expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network (“FinCEN”), the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions; · providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; · significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; 22 · improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and · enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30 percent of the amount that is collected in monetary sanctions as well as increased protections.
Notably, changes include: · expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network (“FinCEN”), the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions; · providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; · significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; · improvements to existing information sharing provisions that permit financial institutions to share information relating to suspicious activity reports with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and · enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30 percent of the amount that is collected in monetary sanctions as well as increased protections.
The Bank’s loan operations are also subject to federal laws applicable to credit transactions, such as: · the Dodd-Frank Act that created the Consumer Financial Protection Bureau (“CFPB”), an independent regulatory authority housed within the Federal Reserve, which has broad rule-making authority over a wide range of consumer laws that apply to insured depository institutions; · the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; · the Home Mortgage Disclosure Act (“HMDA”) and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves, and requiring collection and disclosure of data about applicant and borrower characteristics to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes; · the Equal Credit Opportunity Act (“ECOA”) and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; · the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, and Regulation V, governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections, and certain credit and other disclosures, and requiring Bank to have in place an “identity theft red flags” program to detect, prevent and mitigate identity theft. · the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices; · the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; · The Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators.
The Bank’s loan operations are also subject to federal laws applicable to credit transactions, such as: · the Dodd-Frank Act that created the Consumer Financial Protection Bureau (“CFPB”), an independent regulatory authority housed within the Federal Reserve, which has broad rule-making authority over a wide range of consumer laws that apply to insured depository institutions; · the Truth-In-Lending Act (“TILA”) and Regulation Z, governing disclosures of credit terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; · the Home Mortgage Disclosure Act (“HMDA”) and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves, and requiring collection and disclosure of data about applicant and borrower characteristics to assist in identifying possible discriminatory lending patterns and enforcing antidiscrimination statutes; · the Equal Credit Opportunity Act (“ECOA”) and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; · the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act, and Regulation V, governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections, and certain credit and other disclosures, and requiring banks to have in place an “identity theft red flags” program to detect, prevent and mitigate identity theft. · the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices; · the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; · The Secure and Fair Enforcement for Mortgage Licensing Act (“SAFE Act”) which mandates a nationwide licensing and registration system for residential mortgage loan originators.
(2) All deposit data is based on June 30, 2022 data sourced from S&P Global Market Intelligence. (3) Our full-service banking office in the Piedmont Region opened on October 20, 2022. We believe that we serve attractive banking markets with long-term growth potential and a well-educated employment base that helps to support our diverse and relatively stable local economy.
(2) All deposit data is based on June 30, 2023 data sourced from S&P Global Market Intelligence. (3) Our full-service banking office in the Piedmont Region opened on October 20, 2022. We believe that we serve attractive banking markets with long-term growth potential and a well-educated employment base that helps to support our diverse and relatively stable local economy.
The deduction limitation is now applied to all compensation exceeding $1.0 million, for our covered employees, regardless of how it is classified, which could have an adverse effect on our income tax expense and net income. Corporate Governance . The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies.
The deduction limitation is now applied to all compensation exceeding $1.0 million, for our covered employees, regardless of how it is classified, which could have an adverse effect on our income tax expense and net income. 28 Corporate Governance . The Dodd-Frank Act addressed many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies.
There are many steps that must be taken by the agencies before any final changes to the framework for evaluating bank mergers can be implemented and the prospects for such action continue to be uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. 12 Change in Control.
There are many steps that must be taken by the agencies before any final changes to the framework for evaluating bank mergers can be implemented and the prospects for such action continue to be uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. Change in Control.
The Bank must also maintain the Common Equity Tier 1 capital conservation buffer of 2.5%, in excess of its minimum regulatory risk-based capital ratios, to avoid becoming subject to restrictions on capital distributions, including dividends, as described above. 18 Branching. Federal legislation permits out-of-state acquisitions by bank holding companies, interstate branching by banks, and interstate merging by banks.
The Bank must also maintain the Common Equity Tier 1 capital conservation buffer of 2.5%, in excess of its minimum regulatory risk-based capital ratios, to avoid becoming subject to restrictions on capital distributions, including dividends, as described above. Branching. Federal legislation permits out-of-state acquisitions by bank holding companies, interstate branching by banks, and interstate merging by banks.
In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with fair lending requirements into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals. 19 Financial Subsidiaries.
In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with fair lending requirements into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals. Financial Subsidiaries.
In addition, the GLBA imposes new restrictions on transactions between a bank and its financial subsidiaries similar to restrictions applicable to transactions between banks and non-bank affiliates. Consumer Protection Regulations. Activities of the Bank are subject to a variety of statutes and regulations—both at the federal and state levels—designed to protect consumers.
In addition, the GLBA imposes new restrictions on transactions between a bank and its financial subsidiaries similar to restrictions applicable to transactions between banks and non-bank affiliates. 21 Consumer Protection Regulations. Activities of the Bank are subject to a variety of statutes and regulations—both at the federal and state levels—designed to protect consumers.
Other bank services include internet banking, cash management services, safe deposit boxes, travelers checks, direct deposit of payroll and social security checks, and automatic drafts for various accounts. We offer non-deposit investment products and other investment brokerage services through a registered representative with an affiliation through LPL Financial.
Other bank services include internet banking, cash management services, safe deposit boxes, direct deposit of payroll and social security checks, and automatic drafts for various accounts. We offer non-deposit investment products and other investment brokerage services through a registered representative with an affiliation through LPL Financial.
We do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future. Acquisition Activities . The primary purpose of a bank holding company is to control and manage banks.
We do not have any immediate plans to elect to use the community bank leverage ratio framework but may make such an election in the future. 13 Acquisition Activities . The primary purpose of a bank holding company is to control and manage banks.
As a result, we are primarily subject to the supervision, examination and reporting requirements of the Federal Reserve under the Bank Holding Company Act and its regulations promulgated thereunder. Moreover, as a bank holding company of a bank located in South Carolina, we also are subject to the South Carolina Banking and Branching Efficiency Act. Permitted Activities.
As a result, we are primarily subject to the supervision, examination and reporting requirements of the Federal Reserve under the Bank Holding Company Act and its regulations promulgated thereunder. Moreover, as a bank holding company of a bank located in South Carolina, we also are subject to the South Carolina Banking and Branching Efficiency Act. 15 Permitted Activities.
This commitment to excellence can be seen in the work that is completed and their interactions with their co-workers and customers. While we work hard, we also make time for some fun with employee events designed to offer the opportunity for relaxation and social interactions among co-workers.
This commitment to excellence can be seen in the work that is completed and their interactions with their co-workers and customers. While we work hard, we also make time for fun employee events designed to offer the opportunity for relaxation and social interactions among co-workers.
We currently do not exercise trust powers, but we can begin to do so with the prior approval of our primary banking regulators, the FDIC and the S.C. Board. Competition The banking business is highly competitive.
We currently do not exercise trust powers, but we can begin to do so with the prior approval of our primary banking regulators, the FDIC and the S.C. Board. 9 Competition The banking business is highly competitive.
Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying Tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution.
Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital generally includes the allowance for credit losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying Tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution.
We cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. A change in statutes, regulations or regulatory policies applicable to the Company or the Bank could have a material effect on our business. 25
We cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations. A change in statutes, regulations, or regulatory policies applicable to the Company or the Bank could have a material effect on our business. 29
While we believe that our corporate culture and work environment is a competitive advantage for our company, we also recognize that employees value and deserve competitive compensation packages. Our company offers competitive wages and benefits for our employees and we regularly benchmark our compensation to market. Our benefits package includes medical, dental, life, disability, vision and supplemental insurance options.
While we believe that our corporate culture and work environment is a competitive advantage for our company, we also recognize that employees value and deserve competitive compensation packages. We offer competitive wages and benefits for our employees and we regularly benchmark our compensation to market. Our benefits package includes medical, dental, life, disability, vision and supplemental insurance options.
Thus, if payment of such a management fee or the making of such would cause a bank to become undercapitalized, it could not pay a management fee or dividend to the bank holding company. As of December 31, 2022, the Bank was deemed to be “well capitalized.” Standards for Safety and Soundness .
Thus, if payment of such a management fee or the making of such would cause a bank to become undercapitalized, it could not pay a management fee or dividend to the bank holding company. As of December 31, 2023, the Bank was deemed to be “well capitalized.” Standards for Safety and Soundness .
We have a Code of Conduct and Business Ethics that all employees and board members read and follow that sets clear expectations with regard to personal and professional behavior. Strong Work Ethic - Our employees take pride in the quality of the work that they do.
We have a Code of Conduct and Business Ethics that all employees and board members read and are directed to follow that sets clear expectations with regard to personal and professional behavior. Strong Work Ethic - Our employees take pride in the quality of the work that they do.
From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system.
Proposed Legislation and Regulatory Action . From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system.
The Upstate region major employers include, among others, Prisma Health, Greenville County Schools, BMW Manufacturing Corp., Michelin North America, Bon Secours St. Francis Health System, AnMed Health Medical Center, Clemson University, Duke Energy Corp., GE Power & Water, and the Greenville County Government.
The Upstate region major employers include, among others, Prisma Health, Greenville County Schools, BMW Manufacturing Corp., Michelin North America, Bon Secours St. Francis Health System, AnMed Health Medical Center, Clemson University, Duke Energy Corp., GE Vernova, and the Greenville County Government.
These agencies, and the federal and state laws applicable to the Bank’s operations, extensively regulate various aspects of our banking business, including, among other things, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and on deposits, the maintenance of reserves on demand deposit liabilities, and the safety and soundness of our banking practices. 16 Prompt Corrective Action.
These agencies, and the federal and state laws applicable to the Bank’s operations, extensively regulate various aspects of our banking business, including, among other things, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and on deposits, the maintenance of reserves on demand deposit liabilities, and the safety and soundness of our banking practices.
To develop our current and future leaders, our company created the First Community Bank Leadership Institute (FCBLI), an 18-month program that provides academic and experiential learning to teach and nurture leadership skills across our organization to support the bank now and in the future.
To develop our current and future leaders, we created the First Community Bank Leadership Institute, an 18-month program that provides academic and experiential learning to teach and nurture leadership skills across our organization to support the bank now and in the future.
Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.
Effect of Governmental Monetary Policies. Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies.
Board and the FDIC regulate or monitor virtually all areas of the Bank’s operations, including: · security devices and procedures; · adequacy of capitalization and loss reserves; · loans; · investments; · borrowings; · deposits; · mergers; · issuances of securities; · payment of dividends; · interest rates payable on deposits; · interest rates or fees chargeable on loans; · establishment of branches; · corporate reorganizations; · maintenance of books and records; and · adequacy of staff training to carry on safe lending and deposit gathering practices.
Board and the FDIC regulate or monitor virtually all areas of the Bank’s operations, including: · security devices and procedures; · adequacy of capitalization and allowance for credit losses; · loans; · investments; · borrowings; · deposits; · mergers; · issuances of securities; · payment of dividends; · interest rates payable on deposits; · interest rates or fees chargeable on loans; · establishment of branches; · corporate reorganizations; · maintenance of books and records; and · adequacy of staff training to carry on safe lending and deposit gathering practices.
Excellence with Humility - Our company is blessed with dedicated and talented employees, loyal customers, supportive communities and shareholders who invest in and believe in our vision. We are humbled by the success we have experienced and are grateful for all that we have accomplished.
Excellence with Humility - Our company is blessed with dedicated and talented employees, loyal customers, supportive communities and shareholders, each of whom invest in and believe in our vision. We are humbled by the success we have experienced and are grateful for all that we have accomplished.
In addition to serving our fellow co-workers, we encourage our employees to serve our local communities. We offer company sponsored volunteer activities, as well as provide Volunteer PTO to allow employees to support causes that are close to their heart. 9 Honor and Integrity - Trust is at the foundation of all that we do.
In addition to serving our fellow co-workers, we encourage our employees to serve our local communities. We offer company sponsored volunteer activities, as well as provide Volunteer paid time off to allow employees to support causes that are close to their heart. Honor and Integrity - Trust is at the foundation of all that we do.
The Piedmont region major employers include, among others, Ross Stores, Inc. – Distribution, LPL Financial, Lash Group, Piedmont Medical Center, Comporium, Inc., and Schaeffler Group USA, Inc. We believe that this diversified economic base has reduced, and will likely continue to reduce, economic volatility in our market areas.
The Piedmont Region major employers include, among others, Ross Stores, Inc. – Distribution, LPL Financial, Wells Fargo Home Mortgage, Piedmont Medical Center, Comporium, Inc., and Schaeffler Group USA, Inc. We believe that this diversified economic base has reduced, and will likely continue to reduce, economic volatility in our market areas.
First Community Corporation We own 100% of the outstanding capital stock of the Bank, and, therefore, we are considered to be a bank holding company under the federal Bank Holding Company Act of 1956 (the “Bank Holding Company Act”).
First Community Corporation We own 100% of the outstanding capital stock of the Bank, and, therefore, we are considered to be a bank holding company under the federal Bank Holding Company Act.
Department of Justice (“DOJ”) (in consultation with the Federal Reserve, the OCC, and FDIC announced that it was seeking additional public comments on whether and how the DOJ should revise the 1995 Bank Merger Competitive Review Guidelines. The comment period closed on February 15, 2022.
Department of Justice (“DOJ”) (in consultation with the Federal Reserve, the Office of the Comptroller of the Currency (“OCC”), and FDIC announced that it was seeking additional public comments on whether and how the DOJ should revise the 1995 Bank Merger Competitive Review Guidelines. The comment period closed on February 15, 2022.
We believe that our relationships with our employees are good and our employees are not represented by any collective bargaining group or agreement. Our company’s “Why”, which is “Impacting Lives for Success and Significance”, guides our approach to our relationships with employees.
We believe that our relationships with our employees are good and our employees are not represented by any collective bargaining group or agreement. Our company’s “Why,” or purpose, is “Impacting Lives for Success and Significance”, which guides our approach to our relationships with employees.
On December 22, 2022, the federal banking agencies issued a revised interagency statement extending the temporary relief from such enforcement, which will expire on the sooner of January 1, 2024, or the effective date of a final Federal Reserve rule having a revision to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of a bank.
On December 22, 2022, the federal banking agencies issued a revised interagency statement extending the temporary relief from such enforcement, which was set to expire on January 1, 2024; however, on December 15, 2023, the federal banking agencies again issued a revised interagency statement extending the temporary relief from such enforcement which will expire the sooner of January 1, 2025, or the effective date of a final Federal Reserve rule having a revision to Regulation O that addresses the treatment of extensions of credit by a bank to fund complex-controlled portfolio companies that are insiders of a bank.
The current executive officers, and persons chosen to become executive officers, and their ages, positions with us over the past five years, and terms of office as of March 22, 2023, are as follows: Name (age) Position and Five Year History with Company With the Company Since Michael C. Crapps (64) Chief Executive Officer and President, Director 1994 John T.
The current executive officers, and persons chosen to become executive officers, and their ages, positions with us over the past five years, and terms of office as of March 21, 2024, are as follows: Name (age) Position and Five Year History with Company With the Company Since Michael C. Crapps (65) Chief Executive Officer and President, Director 1994 John T.
The largest employers in our CSRA market area, each of which employs in excess of 3,000 people, include the U.S. Army Cyber Center of Excellence & Fort Gordon, Augusta University, NSA Augusta, Augusta University Hospitals, Richmond County School System, University Hospital, and the Department of Energy, Savannah River Site.
The largest employers in our CSRA market area, each of which employs in excess of 3,000 people, include the U.S. Army Cyber Center of Excellence & Fort Gordon, Augusta University, NSA Augusta, Wellstar MCG Health, Richmond County School System, Piedmont Hospital, Amazon, and the Department of Energy, Savannah River Site.
As a result, our lending limit will increase or decrease in response to increases or decreases in the Bank’s level of capital. Based upon the capitalization of the Bank at December 31, 2022, the maximum amount we could lend to one borrower is $23.5 million.
As a result, our lending limit will increase or decrease in response to increases or decreases in the Bank’s level of capital. Based upon the capitalization of the Bank at December 31, 2023, the maximum amount we could lend to one borrower is $24.9 million.
We believe we have competed effectively in this market by offering quality and personal service. In addition, many of our non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. Human Capital At December 31, 2022, the company had 254 full-time, 7 part-time, and 8 seasonal/on-call employees.
We believe we have competed effectively in this market by offering quality and personal service. In addition, many of our non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally insured banks. Human Capital At December 31, 2023, we had 268 full-time, 14 part-time, and five seasonal/on-call employees.
In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; (iii) create a more transparent and objective method for measuring CRA performance; and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.
In its most recent CRA examination, the Bank received a “satisfactory” rating. 20 In December 2019, the FDIC and the Office of the Comptroller of the Currency (“OCC”) issued a notice of proposed rulemaking intended to (i) clarify which activities qualify for CRA credit; (ii) update where activities count for CRA credit; (iii) create a more transparent and objective method for measuring CRA performance; and (iv) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.
Nissen (61) Chief Banking Officer; formerly Chief Commercial and Retail Banking Officer 1995 Robin D. Brown (55) Chief Human Resources and Marketing Officer 1994 Tanya A. Butts (64) Chief Operations Officer/Chief Risk Officer 2016 John F. (Jack) Walker (57) Chief Credit Officer, formerly Senior Vice President and Loan Approval and Special Assets Officer 2009 D.
Nissen (62) Chief Banking Officer; formerly Chief Commercial and Retail Banking Officer 1995 Robin D. Brown (56) Chief Human Resources and Marketing Officer 1994 Tanya A. Butts (65) Chief Operations Officer/Chief Risk Officer 2016 John F. (Jack) Walker (58) Chief Credit Officer, formerly Senior Vice President and Loan Approval and Special Assets Officer 2009 D.
There were a number of regulatory actions intended to help mitigate the adverse economic impact of the COVID-19 pandemic on borrowers, including several mandates from the bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic.
There were a number of regulatory actions intended to help mitigate the adverse economic impact of the COVID-19 pandemic on borrowers, including several mandates from the bank regulatory agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic, many of which have expired. Capital and Related Requirements.
We also make real estate construction and acquisition loans. We originate fixed and variable rate mortgage loans, substantially all of which are sold into the secondary market. Our lending activities are subject to a variety of lending limits imposed by federal law.
We also make real estate construction and acquisition loans. We originate fixed and variable rate mortgage loans, of which some are sold into the secondary market and some are placed in our loans held-for-investment portfolio. Our lending activities are subject to a variety of lending limits imposed by federal law.
These regulatory policies could affect the Company’s ability to pay dividends or otherwise engage in capital distributions. 15 In addition, since the Company is legal entity separate and distinct from the Bank and does not conduct stand-alone operations, its ability to pay dividends depends on the ability of the Bank to pay dividends to it, which is also subject to regulatory restrictions as described below in “First Community Bank—Dividends.” South Carolina State Regulation.
In addition, since the Company is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, its ability to pay dividends depends on the ability of the Bank to pay dividends to it, which is also subject to regulatory restrictions as described below in “First Community Bank—Dividends.” South Carolina State Regulation.
If the FDIC determines, after notice and an opportunity for hearing, that the bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the bank to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.
A critically undercapitalized institution has a ratio of tangible equity to total assets that is equal to or less than 2%. 18 If the FDIC determines, after notice and an opportunity for hearing, that the bank is in an unsafe or unsound condition, the regulator is authorized to reclassify the bank to the next lower capital category (other than critically undercapitalized) and require the submission of a plan to correct the unsafe or unsound condition.
The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an institution, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should comply with the following principles: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. 24 The scope and content of federal bank regulatory agencies’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future.
The Incentive Compensation Guidance, which covers all employees that have the ability to materially affect the risk profile of an institution, either individually or as part of a group, is based upon the key principles that a financial institution’s incentive compensation arrangements should comply with the following principles: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.
The final rules direct the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers and to satisfy related disclosure obligations.
The final rules directed the stock exchanges to establish listing standards requiring listed companies to develop and implement a policy providing for the recovery of erroneously awarded incentive-based compensation received by current or former executive officers and to satisfy related disclosure obligations. As of December 1, 2023, the final clawback rules from The NASDAQ Stock Market were effective.
Statements of beneficial ownership of equity securities filed by directors, officers, and 10% or greater shareholders under Section 16 of the Exchange Act are also available through our website. The information on our website is not incorporated by reference into this report.
Statements of beneficial ownership of equity securities filed by directors, officers, and 10% or greater shareholders under Section 16 of the Exchange Act are also available through our website.
If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission and bonus pool arrangements are the norm.
Institutions in the top two tiers would be subject to rules much more detailed and proscriptive than are currently in effect. If interpreted aggressively by the regulators, the proposed rules could be used to prevent, as a practical matter, larger institutions from engaging in certain lines of business where substantial commission and bonus pool arrangements are the norm.
The largest employers in the Midlands market area, each of which employs in excess of 3,000 people, include the State of South Carolina, Prisma Health, BlueCross BlueShield of SC, the University of South Carolina, the United States Department of the Army (Fort Jackson Army Base), Richland School District 1, Richland School District 2, Lexington Medical Center, Southeastern Freight Lines, Lexington County School District One, and Medical Services of America.
The largest employers in the Midlands market area include the State of South Carolina, Prisma Health, BlueCross BlueShield of SC, the University of South Carolina, the United States Department of the Army (Fort Jackson Army Base), Richland County School District 1, Richland County School District 2, Lexington Medical Center, Lexington County School District One, and Michelin North America.
In 2019, we opened a de novo branch in Evans, Georgia, a suburb of Augusta in Columbia County, Georgia. We refer to the three-county area of Aiken County (South Carolina), Richmond County (Georgia) and Columbia County (Georgia) as the “CSRA” region. On March 14, 2022, we opened a loan production office in York County, South Carolina.
In 2018, we opened a de novo branch in downtown Augusta, Georgia (Richmond County). In 2019, we opened a de novo branch in Evans, Georgia, a suburb of Augusta in Columbia County, Georgia. We refer to the three-county area of Aiken County (South Carolina), Richmond County (Georgia) and Columbia County (Georgia) as the “CSRA” region.
Changes in market interest rates can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity.
Throughout 2023, the target federal funds rate range increased to between 5.25% and 5.50%. 27 Changes in market interest rates can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the market value of all interest-earning assets, other than those possessing a short term to maturity.
Our company encourages employees to continue on a lifelong trajectory of learning and we offer ongoing training to all employees through internal and external resources and encourage employees to continue with career development specific to their role to insure they stay current with the most up-to-date information and best practices.
In addition, we offer a generous paid time off plan that includes paid holidays. 10 Our company encourages employees to continue on a lifelong trajectory of learning, as such, we offer ongoing training to all employees through internal and external resources and encourage employees to continue with career development specific to their role to ensure they stay current with the most up-to-date information and best practices.
In the 2016 proposal, the top two tiers included institutions with more than $50 billion of assets, which would not currently apply to us.
In the 2016 proposal, the top two tiers included institutions with more than $50 billion of assets, which would not currently apply to us. No final rule has been adopted as of this filing.
The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA.
The CFPB has issued a number of significant rules that impact nearly every aspect of the lifecycle of consumer financial products and services, including rules regarding residential mortgage loans. These rules implement Dodd-Frank Act amendments to ECOA, TILA and RESPA. The CFPB continued its scrutiny of so called “pay-to-pay” and “junk fee” regimes, proposing rules related to credit card penalties.
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.
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 the Company’s ability to pay dividends or otherwise engage in capital distributions.
Transactions subject to the Bank Holding Company Act are exempt from Change in Control Act requirements. For state banks, state laws, including those of South Carolina, typically require approval by the state bank regulator as well. Transactions with Affiliates and Insiders. The Company is a legal entity separate and distinct from the Bank and its other subsidiaries.
For state banks, state laws, including those of South Carolina, typically require approval by the state bank regulator as well. Transactions with Affiliates and Insiders. The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company or its non-bank subsidiaries.
Board prior to acquiring the capital stock of a national bank, but we must notify them at least 15 days prior to doing so. We must receive the S.C. Board’s approval prior to engaging in the acquisition of a South Carolina state-chartered bank or another South Carolina bank holding company.
Board prior to acquiring the capital stock of a national bank, but we must notify them at least 15 days prior to doing so. We must receive the S.C.
A critically undercapitalized institution is subject to having a receiver or conservator appointed to manage its affairs and for loss of its charter to conduct banking activities. 17 An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution, would be undercapitalized.
An insured depository institution may not pay a management fee to a bank holding company controlling that institution or any other person having control of the institution if, after making the payment, the institution would be undercapitalized.
FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap.
While this OCC guidance does not apply to the Bank explicitly, it represents best practices guidance for the Bank. FHA prohibits discrimination in all aspects of residential real-estate related transactions based on prohibited factors, including race or color, national origin, religion, sex, familial status, and handicap.
Under Basel III, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer amount.
Under Basel III, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
With the acquisition of Cornerstone Bancorp in 2017, we added a branch in each of Greenville, Pickens, and Anderson Counties of South Carolina. We refer to this three-county area as the “Upstate” region of South Carolina. In 2018, we opened a de novo branch in downtown Augusta, Georgia (Richmond County).
In 2016, we opened a loan production office in Greenville County, which we converted into a full-service office in February 2019. With the acquisition of Cornerstone Bancorp in 2017, we added a branch in each of Greenville, Pickens, and Anderson Counties of South Carolina. We refer to this three-county area as the “Upstate” region of South Carolina.
On October 26, 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (clawback) provisions of the Dodd-Frank Act.
The SEC has completed the bulk (although not all) of the rulemaking necessary to implement these provisions. However, on October 26, 2022, the SEC adopted final rules implementing the incentive-based compensation recovery (clawback) provisions of the Dodd-Frank Act.
These laws generally are intended primarily for the protection of customers, depositors and other consumers, the FDIC’s Deposit Insurance Fund (the “DIF”), and the banking system as a whole; not for the protection of our other creditors and shareholders. 10 The following discussion is not intended to be a complete list of all the activities regulated by the banking laws or of the impact of those laws and regulations on our operations.
These laws generally are intended primarily for the protection of customers, depositors and other consumers, the FDIC’s Deposit Insurance Fund (the “DIF”), and the banking system as a whole; not for the protection of our other creditors and shareholders.
In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act (“FDIA”) require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default.
Further, federal law grants federal bank regulatory authorities’ additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition. 16 In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act (“FDIA”) require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default.
As of June 30, 2022, there were 25 financial institutions operating approximately 160 offices in the Midlands market, 20 financial institutions operating 93 branches in the CSRA market, 37 financial institutions operating 219 branches in the Upstate market, and 15 financial institutions operating 46 branches in the Piedmont market.
As of June 30, 2023, there were 26 financial institutions operating approximately 161 offices in the Midlands market, 20 financial institutions operating 91 branches in the CSRA market, 40 financial institutions operating 223 branches in the Upstate market, and 16 financial institutions operating 46 branches in the Piedmont market.
We cannot predict the effect that fiscal or monetary policies, economic control, or new federal or state legislation may have on our business and earnings in the future.
Changes in applicable laws or regulations may have a material effect on our business and prospects. Our operations may be affected by legislative changes and the policies of various regulatory authorities. We cannot predict the effect that fiscal or monetary policies, economic control, or new federal or state legislation may have on our business and earnings in the future.
We also offer retirement benefits with a 401(k) plan with matching and profit sharing. In addition, we offer a generous paid time off plan that includes paid holidays.
We also offer retirement benefits with a 401(k) plan with matching and profit sharing.
All insured institutions must undergo regular on-site examinations by their appropriate banking agency. The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate federal banking agency against each institution or affiliate as it deems necessary or appropriate.
The cost of examinations of insured depository institutions and any affiliates may be assessed by the appropriate federal banking agency against each institution or affiliate as it deems necessary or appropriate. Insured institutions are required to submit annual reports to the FDIC, their federal regulatory agency, and state supervisor when applicable.
Our markets have experienced economic and population growth over the past 10 years, and we expect that the area, as well as the service industry needed to support it, will continue to grow. 8 Banking Services We offer a full range of deposit services that are typically available in most banks and thrift institutions, including checking accounts, NOW accounts, savings accounts and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit.
Banking Services We offer a full range of deposit services that are typically available in most banks and thrift institutions, including checking accounts, NOW accounts, savings accounts and other time deposits of various types, ranging from daily money market accounts to longer-term certificates of deposit.
In March 2022, FinCEN issued an alert advising increased vigilance for potential Russian Sanctions Evasion Attempts. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions. In October 2022, FATF removed Nicaragua and Pakistan from its lists of Jurisdictions under Increased Monitoring and added the Democratic Republic of the Congo, Mozambique, and Tanzania.
In March 2022, FinCEN issued an alert advising increased vigilance for potential Russian Sanctions Evasion Attempts. Increased FinCEN scrutiny and sanctions against Russian entities continued in 2023. The Financial Action Task Force (“FATF”) continues to revise the list of high-risk jurisdictions.
Based on the foregoing, as a small bank holding company, we are generally not subject to the capital requirements at the holding company level unless otherwise advised by the Federal Reserve; however, our Bank remains subject to the capital requirements.
More stringent requirements are imposed on “advanced approaches” banking organizations—generally those organizations with $250 billion or more in total consolidated assets or $10 billion or more in total foreign exposures. 12 Based on the foregoing, as a small bank holding company, we are generally not subject to the capital requirements at the holding company level unless otherwise advised by the Federal Reserve; however, our Bank remains subject to the capital requirements.
Any extension of credit to an insider (i) must be made on substantially the same terms, including interest rates and collateral requirements, as those prevailing at the time for comparable transactions with unrelated third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. 13 On December 22, 2020, the federal banking agencies issued an interagency statement extending the temporary relief from enforcement action against banks or asset managers, which become principal stockholders of banks, with respect to certain extensions of credit by banks that otherwise would violate Regulation O, provided the asset managers and banks satisfy certain conditions designed to ensure that there is a lack of control by the asset manager over the bank..
On December 22, 2020, the federal banking agencies issued an interagency statement extending the temporary relief from enforcement action against banks or asset managers, which become principal stockholders of banks, with respect to certain extensions of credit by banks that otherwise would violate Regulation O, provided the asset managers and banks satisfy certain conditions designed to ensure that there is a lack of control by the asset manager over the bank.
The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. The S.C.
Deposits in the Bank are insured by the FDIC up to a maximum amount of $250,000. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. The S.C.
First Community Bank As a South Carolina state bank, the Bank’s primary federal regulator is the FDIC and the Bank is also regulated and examined by the S.C. Board. Deposits in the Bank are insured by the FDIC up to a maximum amount of $250,000.
Board’s approval prior to engaging in the acquisition of a South Carolina state-chartered bank or another South Carolina bank holding company. 17 First Community Bank As a South Carolina state bank, the Bank’s primary federal regulator is the FDIC, and the Bank is also regulated and examined by the S.C. Board.
The Bank can be requested, to search its records for any relationships or transactions with persons on those lists. If the Bank finds any relationships or transactions, it must file a suspicious activity report and contact the applicable governmental authorities.
The Bank can be requested to search its records for any relationships or transactions with persons on those lists.
We refer to these counties as the “Midlands” region of South Carolina. Lexington County is home to six of our branch offices. Richland County, in which we currently have four branches, is the second largest county in South Carolina.
We have a total of 13 full-service offices located in Richland, Lexington, Kershaw and Newberry Counties of South Carolina and the surrounding areas. We refer to these counties as the “Midlands” region of South Carolina. Lexington County is home to six of our branch offices.
Basel III was released in the form of enforceable regulations by each of the applicable federal bank regulatory agencies.
Regulatory capital rules known as the Basel III rules or Basel III, impose minimum capital requirements for bank holding companies and banks. Basel III was released in the form of enforceable regulations by each of the applicable federal bank regulatory agencies.
Shawn Jordan (55) Chief Financial Officer, formerly Executive Vice President 2019 None of the above officers are related and there are no arrangements or understandings between them and any other person pursuant to which any of them was elected as an officer, other than arrangements or understandings with the directors or officers of the Company acting solely in their capacities as such.
Crapps will continue to focus on board governance, investor relations, strategy development and growth decisions, client retention and prospecting, and leadership development. 11 None of the above officers are related and there are no arrangements or understandings between them and any other person pursuant to which any of them was elected as an officer, other than arrangements or understandings with the directors or officers of the Company acting solely in their capacities as such.
According to S&P Global Market Intelligence, 2023 median household incomes for each of the counties in the regions noted above were as follows: Richland County, SC $ 62,424 Lexington County, SC $ 70,718 Newberry County, SC $ 55,766 Kershaw County SC $ 60,911 Greenville County, SC $ 72,007 Anderson County, SC $ 61,342 Pickens County SC $ 55,988 Aiken County SC $ 60,219 Richmond County, GA $ 50,229 Columbia County, GA $ 101,286 York County, SC $ 76,108 The county estimates noted above compare to 2023 statewide median household income estimates of $64,242 and $70,349 for South Carolina and Georgia, respectively.
According to S&P Global Market Intelligence, 2024 median household incomes for each of the counties in the regions noted above were as follows: Richland County, SC $ 61,225 Lexington County, SC $ 69,231 Newberry County, SC $ 60,763 Kershaw County, SC $ 54,292 Greenville County, SC $ 72,599 Anderson County, SC $ 62,098 Pickens County, SC $ 52,577 Aiken County, SC $ 60,747 Richmond County, GA $ 51,710 Columbia County, GA $ 92,208 York County, SC $ 77,244 8 The county estimates noted above compare to 2024 statewide median household income estimates of $64,898 and $72,877 for South Carolina and Georgia, respectively.
Various legal limitations restrict the Bank from lending or otherwise supplying funds to the Company or its non-bank subsidiaries. The Company and the Bank are subject to Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W.
The Company and the Bank are subject to Sections 23A and 23B of the Federal Reserve Act and Federal Reserve Regulation W.
If we were to elect in writing for financial holding company status, each insured depository institution we control would have to be well capitalized, well managed and have at least a satisfactory rating under the Community Reinvestment Act (“CRA”) (discussed below). 14 The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.
The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe periodically determine the amount of the allowance based on consideration of several factors, including: · an ongoing review of the quality, mix, and size of our overall loan portfolio; · our historical loan loss experience; · evaluation of economic conditions; · regular reviews of loan delinquencies and loan portfolio quality; and · the amount and quality of collateral, including guarantees, securing the loans.
Biggest changeWe periodically determine the amount of the allowance based on consideration of several factors, including: · an ongoing review of the quality, mix, and size of our overall loan portfolio; · regular reviews of loan delinquencies and loan portfolio quality; and · our historical credit loss experience; · the amount and quality of collateral, including guarantees, securing the loans. · evaluation of economic conditions; There is no precise method of predicting credit losses; therefore, we face the risk that charge-offs in future periods will exceed our allowance for credit losses and that additional increases in the allowance for credit losses will be required.
Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for loan losses, adverse asset values of the collateral securing our loans and an overall material adverse effect on the quality of our loan portfolio.
Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for credit losses, adverse asset values of the collateral securing our loans and an overall material adverse effect on the quality of our loan portfolio.
In addition, business assets may depreciate over time, may be difficult to appraise, and may fluctuate in value based on the success of the business. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit worthiness of the borrower and secondarily on the underlying collateral value provided by the borrower and liquidity of the guarantor.
In addition, business assets may depreciate over time, be difficult to appraise, and fluctuate in value based on the success of the business. Accordingly, the repayment of commercial business loans depends primarily on the cash flow and credit worthiness of the borrower and secondarily on the underlying collateral value provided by the borrower and liquidity of the guarantor.
In particular, the capital requirements applicable under the Basel III require the Bank to satisfy additional, more stringent, capital adequacy standards than it had in the past.
In particular, the capital requirements applicable under Basel III require the Bank to satisfy additional, more stringent, capital adequacy standards than it had in the past.
For example, there could be electrical or telecommunication outages; natural disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics; events arising from local or larger scale political or social matters, including terrorist acts; and as described below, cyber attacks. 33 As noted above, our business relies on our digital technologies, computer and email systems, software and networks to conduct its operations.
For example, there could be electrical or telecommunication outages, natural disasters such as earthquakes, tornadoes, and hurricanes, disease pandemics, events arising from local or larger scale political or social matters, including terrorist acts, and as described below, cyber attacks. As noted above, our business relies on our digital technologies, computer and email systems, software, and networks to conduct its operations.
Charges to establish a valuation allowance with respect to our deferred tax asset could have a material adverse effect on our financial condition and results of operations. 37 Risks Related to an Investment in Our Common Stock Our ability to pay cash dividends is limited, and we may be unable to pay future dividends even if we desire to do so.
Charges to establish a valuation allowance with respect to our deferred tax asset could have a material adverse effect on our financial condition and results of operations. Risks Related to an Investment in Our Common Stock Our ability to pay cash dividends is limited, and we may be unable to pay future dividends even if we desire to do so.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. 31 We may be adversely affected by the soundness of other financial institutions.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in turn, could have a material adverse effect on our business, financial condition and results of operations. We may be adversely affected by the soundness of other financial institutions.
Information security risks for financial institutions such as ours have generally increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, and terrorists, activists, and other external parties.
Information security risks for financial institutions such as ours have increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, and terrorists, activists, and other external parties.
We must make judgments and interpretations about the application of these inherently complex tax laws when determining our provision for income taxes, our deferred tax assets and liabilities, and our valuation allowance. Changes to the tax laws, administrative rulings or court decisions could increase our provision for income taxes and reduce our net income.
We must make judgments and interpretations about the application of these inherently complex tax laws when determining our provision for income taxes, our deferred tax assets (DTAs) and liabilities, and our valuation allowance. Changes to the tax laws, administrative rulings or court decisions could increase our provision for income taxes and reduce our net income.
We also may lose key personnel from the acquired entity as a result of an acquisition. We may not discover all known and unknown factors when examining a company for acquisition during the due diligence period. These factors could produce unintended and unexpected consequences for us.
We also may lose key personnel from the acquired entity as a result of an acquisition. We may not discover all known and unknown factors when examining a company for acquisition during the due diligence period. These factors could produce unintended and unexpected consequences.
However, if we were to cease to have the ability and intent to hold these investments until maturity or the market prices do not recover, and we were to sell these securities at a loss, it could adversely affect our net income and possibly our capital.
However, if we were to cease to have the ability and intent to hold these investments until maturity or the market prices do not recover, and we were to sell these securities at a loss, it could adversely affect our net income and our capital.
Finally, the Change in Bank Control Act and the Bank Holding Company Act generally require filings and approvals prior to certain transactions that would result in a party acquiring control of the Company or the Bank. An investment in our common stock is not an insured deposit.
Finally, the Change in Bank Control Act and the Bank Holding Company Act generally require filings and approvals prior to certain transactions that would result in a party acquiring control of the Company or the Bank. 44 An investment in our common stock is not an insured deposit.
These types of third party relationships are subject to increasingly demanding regulatory requirements and attention by our federal bank regulators. Recent regulation requires us to enhance our due diligence, ongoing monitoring and control over our third party vendors and other ongoing third party business relationships.
These types of third party relationships are subject to increasingly demanding regulatory requirements and attention by our bank regulators. Recent regulation requires us to enhance our due diligence, ongoing monitoring and control over our third party vendors and other ongoing third party business relationships.
Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention. We regularly use third party vendors as part of our business. We also have substantial ongoing business relationships with other third parties.
Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention. We regularly use third party vendors as part of our business and have substantial ongoing business relationships with other third parties.
The banking regulators give commercial real estate lending greater scrutiny, and may require banks with higher levels of commercial real estate loans to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for losses and capital levels as a result of commercial real estate lending growth and exposures.
The banking regulators give commercial real estate lending greater scrutiny, and they may require banks with higher levels of commercial real estate loans to implement more stringent underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly higher levels of allowances for credit losses and capital levels as a result of commercial real estate lending growth and exposures.
Based on projections of future taxable income in periods in which deferred tax assets are expected to become deductible, management determined that the realization of our net deferred tax asset was more likely than not. As a result, we did not recognize a valuation allowance on our net deferred tax asset as of December 31, 2022.
Based on projections of future taxable income in periods in which deferred tax assets are expected to become deductible, management determined that the realization of our net deferred tax asset was more likely than not. As a result, we did not recognize a valuation allowance on our net deferred tax asset as of December 31, 2023.
Turmoil in the financial markets could impair the market value of our investment portfolio, which could adversely affect our net income and possibly our capital. 29 On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS).
Turmoil in the financial markets could impair the market value of our investment portfolio, which could adversely affect our net income and possibly our capital. 33 On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS).
If these borrowers do not have sufficient cash flows or resources to pay these loans as they come due or the value of the underlying collateral is insufficient to fully secure these loans, we may suffer losses on these loans that exceed our allowance for loan losses.
If these borrowers do not have sufficient cash flows or resources to pay these loans as they come due or the value of the underlying collateral is insufficient to fully secure these loans, we may suffer losses on these loans that exceed our allowance for credit losses.
Our results of operations depend in large part upon the level of our net interest income, which is the difference between interest income from interest-earning assets, such as loans and investment securities, which include mortgage-backed securities (“MBSs”), and interest expense on interest-bearing liabilities, such as deposits and other borrowings.
Our results of operations depend in large part upon the level of our net interest income, which is the difference between interest income from interest-earning assets, such as loans and investment securities, which include mortgage-backed securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings.
Furthermore, the deterioration of our borrowers’ businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations. 28 Our underwriting decisions may materially and adversely affect our business.
Furthermore, the deterioration of our borrowers’ businesses may hinder their ability to repay their loans with us, which could have a material adverse effect on our financial condition and results of operations. 32 Our underwriting decisions may materially and adversely affect our business.
Congressional committees with jurisdiction over the banking sector have pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other Environmental, Social, and Governance matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of the COVID-19 pandemic response and economic recovery.
Congressional committees with jurisdiction over the banking sector have pursued oversight and legislative initiatives in a variety of areas, including addressing climate-related risks, promoting diversity and equality within the banking industry and addressing other Environmental, Social, and Governance matters, improving competition in the banking sector and enhancing oversight of bank mergers and acquisitions, establishing a regulatory framework for digital assets and markets, and oversight of any pandemic response and economic recovery.
Loss of part or all of our deferred tax assets would have a material adverse effect on our financial condition and results of operations. Our ability to realize deferred tax assets may be reduced, which may adversely impact our results of operations.
Loss of part or all of our DTAs would have a material adverse effect on our financial condition and results of operations. 42 Our ability to realize deferred tax assets may be reduced, which may adversely impact our results of operations.
Our risk and exposure to these matters remains heightened because of the evolving nature of these threats. As a result, cyber security and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage or unauthorized access remain a focus for us.
Our risk and exposure to these matters remains heightened because of the evolving nature of these threats. As a result, cybersecurity and the continued development and enhancement of our controls, processes, and practices designed to protect our systems, computers, software, data, and networks from attack, damage or unauthorized access remain a focus for us.
If we suffer loan losses that exceed our allowance for loans losses, our financial condition, liquidity or results of operations could be materially and adversely affected. 27 We have a concentration of credit exposure in commercial real estate and challenges faced by the commercial real estate market could adversely affect our business, financial condition, and results of operations.
If we suffer credit losses that exceed our allowance for credit losses, our financial condition, liquidity, or results of operations could be materially and adversely affected. We have a concentration of credit exposure in commercial real estate and challenges faced by the commercial real estate market could adversely affect our business, financial condition, and results of operations.
While the Company’s business, balance sheet and depositor profile differs substantially from banking institutions that are the focus of the greatest scrutiny, the operating environment and public trading prices of financial services sector securities can be highly correlated, in particular in times of stress, which may adversely affect the trading price of the Company’s common stock and potentially its results of operations. 26 Credit and Interest Rate Risk Our decisions regarding credit risk and reserves for loan losses may materially and adversely affect our business.
While the Company’s business, balance sheet and depositor profile differs substantially from banking institutions that are the focus of the greatest scrutiny, the operating environment and public trading prices of financial services sector securities can be highly correlated, in particular in times of stress, which may adversely affect the trading price of the Company’s common stock and potentially its results of operations. 30 Credit and Interest Rate Risk Our decisions regarding credit risk and allowance for credit losses may materially and adversely affect our business.
We currently maintain substantial liquidity which supports our ability to hold these investments until they mature, or until there is a market price recovery.
We currently maintain adequate liquidity which supports our ability to hold these investments until they mature, or until there is a market price recovery.
Regardless of the underwriting criteria utilized, losses may be experienced as a result of various factors beyond our control, including among other things, changes in market conditions affecting the value of loan collateral and problems affecting the credit of our borrowers.
Regardless of the underwriting criteria utilized, losses may be experienced as a result of various factors beyond our control, including, changes in market conditions affecting the value of loan collateral and problems affecting the credit of our borrowers.
In addition, recently, concerns have arisen with respect to the financial condition of a number of banking organizations in the United States, in particular those with exposure to certain types of depositors and large portfolios of investment securities.
In addition, during 2023, concerns have arisen with respect to the financial condition of a number of banking organizations in the United States, in particular those with exposure to certain types of depositors and large portfolios of investment securities.
A downgrade of the U.S. credit rating could negatively impact our business, results of operations and financial condition. In August 2011, Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA+”.
A downgrade of the U.S. credit rating could negatively impact our business, results of operations and financial condition. In August 2011, Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating on the U.S. from “AAA” to “AA+”. Furthermore, in August 2023, Fitch Ratings downgraded its long-term credit rating on the U.S. from “AAA” to “AA+”.
As of December 31, 2022, we had net deferred tax assets of $11.7 million. Realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which existing deferred tax assets are expected to become deductible for federal income tax purposes.
As of December 31, 2023, we had net deferred tax assets of $11.0 million. Realization of deferred tax assets is dependent upon the generation of sufficient future taxable income during the periods in which existing deferred tax assets are expected to become deductible for federal income tax purposes.
In addition, our ability to continue to record our deferred tax assets is dependent on our ability to realize their value through future projected earnings. Future changes in tax laws or regulations could adversely affect our ability to record our deferred tax assets.
In addition, our ability to continue to record our DTAs is dependent on our ability to realize their value through future projected earnings. Future changes in tax laws or regulations could adversely affect our ability to record our DTAs.
Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2022, commercial business loans comprised 7.9% of our total loan portfolio.
Repayment of our commercial business loans is often dependent on the cash flows of the borrower, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2023, commercial business loans comprised 6.9% of our total loan portfolio.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China and the Russian invasion of Ukraine, all of which may have a destabilizing effect on financial markets and economic activity.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, a potential resurgence of economic and political tensions with China, the war in Ukraine, and the Middle East conflict, all of which may have a destabilizing effect on financial markets and economic activity.
The prospects for the enactment of major banking reform legislation remains unclear at this time. 36 Moreover, the turnover of the presidential administration resulted in certain changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC, and the Treasury Department, with certain significant leadership positions yet to be filled, including the Comptroller of the Currency.
The prospects for the enactment of major banking reform legislation remains unclear. Moreover, the turnover of the presidential administration in 2020 resulted in certain changes in the leadership and senior staffs of the federal banking agencies, the CFPB, CFTC, SEC, and the Treasury Department, with certain significant leadership positions yet to be permanently filled, including the Comptroller of the Currency.
Reputation risk, or the risk to our business, earnings and capital from negative public opinion surrounding the Bank and the financial institutions industry generally, is inherent in our business.
Negative public opinion surrounding the Bank and the financial institutions industry generally could damage our reputation and adversely impact our earnings. Reputation risk, or the risk to our business, earnings and capital from negative public opinion surrounding the Bank and the financial institutions industry generally, is inherent in our business.
As of December 31, 2022 and 2021, securities which have unrealized losses were not considered to be “other than temporarily impaired,” and we believe it is more likely than not we will be able to hold these until they mature or recover our current book value.
Securities which have unrealized losses were not considered to be credit loss impaired at December 31, 2023 or “other than temporarily impaired,” at December 31, 2022 and we believe it is more likely than not we will be able to hold these until they mature or recover our current book value.
These activities would involve a number of risks, including: · the potential inaccuracy of the estimates and judgments used to evaluate credit, operations, management, and market risks with respect to a target institution; · regulatory approvals could be delayed, impeded, restrictively conditioned or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related to anti-money laundering/Bank Secrecy Act compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations, CRA issues, and other similar laws and regulations; · the time and costs of evaluating new markets, hiring or retaining experienced local management, including those from competitors,, and opening new offices and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; · difficulty or unanticipated expense associated with converting the operating systems of the acquired or merged company into ours; 32 · the incurrence and possible impairment of goodwill and other intangible assets associated with an acquisition or merger and possible adverse effects on our results of operations; and · the risk of loss of key employees and customers of the Company or the acquired or merged company.
These activities would involve a number of risks, including: · the potential inaccuracy of the estimates and judgments used to evaluate credit, operations, management, and market risks with respect to a target institution; · regulatory approvals could be delayed, impeded, restrictively conditioned, or denied due to existing or new regulatory issues we have, or may have, with regulatory agencies, including, without limitation, issues related to anti-money laundering/Bank Secrecy Act compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive, or abusive acts or practices regulations, CRA issues, and other similar laws and regulations; · the time and costs of evaluating new markets, hiring or retaining experienced local management, including those from competitors, and opening new offices and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; · difficulty or unanticipated expense associated with converting the operating systems of the acquired or merged company; · the incurrence and possible impairment of goodwill and other intangible assets associated with an acquisition or merger and possible adverse effects on our results of operations; and · the risk of loss of key employees and customers of the Company or the acquired or merged company. 37 If we do not successfully manage these risks, our merger and acquisition activities could have a material adverse effect on our business, financial condition, and results of operations, including short-term and long-term liquidity, and our ability to successfully implement our strategic plan.
There are risks inherent in making any loan, including risks with respect to the period of time over which the loan may be repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the future value of collateral.
There are risks inherent in making any loan, including risks with respect to (i) the period of time over which the loan may be repaid, (ii) proper loan underwriting and guidelines, (iii) changes in economic and industry conditions, (iv) the credit risks of individual borrowers, and (v) risks resulting from uncertainties as to the future value of collateral.
On March 11, 2023, Signature Bank was similarly closed and placed into receivership and concurrently the Federal Reserve Board announced it will make available additional funding to eligible depository institutions to assist eligible banking organizations with potential liquidity needs.
On March 11, 2023, Signature Bank was similarly closed and placed into receivership and concurrently the Federal Reserve Board announced it will make available additional funding to eligible depository institutions to assist eligible banking organizations with potential liquidity needs. On May 1, 2023, First Republic Bank was closed and its assets were seized.
Our investment securities portfolio is a significant component of our total earning assets. Total investment securities averaged $570.6 million in 2022, as compared to $456.8 million in 2021. This represents 37.0% and 32.2% of the average earning assets for the years ended December 31, 2022 and 2021, respectively.
Our investment securities portfolio is a significant component of our total earning assets. Total investment securities averaged $541.1 million in 2023, as compared to $570.6 million in 2022. This represents 33.2% and 37.0% of the average earning assets for the years ended December 31, 2023 and 2022, respectively.
On March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation was appointed receiver of Silicon Valley Bank.
On March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation and the FDIC was appointed receiver of Silicon Valley Bank.
As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or other ongoing third party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations. 34 Negative public opinion surrounding the Bank and the financial institutions industry generally could damage our reputation and adversely impact our earnings.
As a result, if our regulators conclude that we have not exercised adequate oversight and control over our third party vendors or other ongoing third party business relationships or that such third parties have not performed appropriately, we could be subject to enforcement actions, including civil money penalties or other administrative or judicial penalties or fines as well as requirements for customer remediation, any of which could have a material adverse effect on our business, financial condition or results of operations.
If U.S. debt ceiling, budget deficit or debt concerns, domestic or international economic or political concerns, or other factors were to result in further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness, it could adversely affect the U.S. and global financial markets and economic conditions.
If U.S. debt ceiling, budget deficit or debt concerns, domestic or international economic or political concerns, or other factors were to result in further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness, it could adversely affect the U.S. and global financial markets and economic conditions by creating financial turmoil and uncertainty, which could weigh heavily on the global banking system.
Any increase in the amount of our provision or loans charged-off as required by these regulatory agencies could have a negative effect on our operating results. We may have higher loan losses than we have allowed for in our allowance for loan losses. Our actual loan losses could exceed our allowance for loan losses.
Any increase in the amount of our provision or loans charged-off could have a negative effect on our operating results. We may have higher credit losses than we have allowed for in our allowance for credit losses. Our actual credit losses could exceed our allowance for credit losses.
If branches of other banks become available for sale, we may acquire those offices. It may be difficult to adequately and profitably manage our growth through the establishment or purchase of additional banking offices and we can provide no assurance that any such banking offices will successfully attract enough deposits to offset the expenses of their operation.
It may be difficult to adequately and profitably manage our growth through the establishment or purchase of additional banking offices and we can provide no assurance that any such banking offices will successfully attract enough deposits to offset the expenses of their operation.
We are subject to Federal Reserve regulation. The Bank is subject to extensive regulation, supervision, and examination by our primary federal regulator, the FDIC, the regulating authority that insures customer deposits; and by our state regulator, the S.C. Board.
We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various regulatory agencies. We are subject to Federal Reserve regulation. The Bank is subject to extensive regulation, supervision, and examination by our primary federal regulator, the FDIC, the regulating authority that insures customer deposits; and by our state regulator, the S.C. Board.
Our ability to compete successfully depends on a number of factors, including, among other things: · our ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets; · our ability to expand our market position; · the scope, relevance, and pricing of the products and services we offer to meet our customers’ needs and demands; · the rate at which we introduce new products and services relative to our competitors; · customer satisfaction with our level of service; and · industry and general economic trends.
Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than we can. 35 Our ability to compete successfully depends on a number of factors, including, among other things: · our ability to develop, maintain, and build upon long-term customer relationships based on top quality service, high ethical standards, and safe, sound assets; · our ability to expand our market position; · the scope, relevance, and pricing of the products and services we offer to meet our customers’ needs and demands; · the rate at which we introduce new products and services relative to our competitors; · customer satisfaction with our level of service; and · industry and general economic trends.
In addition, supervisory limits on commercial loan-to-value exceptions are set at 30% of the Bank’s tier 1 capital plus allowance for loan and lease losses. At December 31, 2022, $16.6 million of our commercial loans, or 10.6% of the Bank’s regulatory capital, exceeded the supervisory loan-to-value ratio.
In addition, supervisory limits on commercial loan-to-value exceptions are set at 30% of the Bank’s tier 1 capital plus allowance for credit losses. At December 31, 2023, $18.7 million of our commercial loans, or 11.3% of the Bank’s regulatory capital, exceeded the supervisory loan-to-value ratio.
An investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company.
An investment in our common stock is inherently risky for the reasons described in this “Risk Factors” section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you may lose some or all of your investment.
Federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management.
Additions to the allowance for credit losses would result in a decrease of our net income, and possibly our capital. Federal and state regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further loan charge-offs, based on judgments different than those of our management.
The risk of nonpayment is affected by a number of factors, including: · the duration of the credit; · credit risks of a particular customer; · changes in economic and industry conditions; and · in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral.
The risk of nonpayment is affected by a number of factors, including: · the duration of the credit; · in the case of a collateralized loan, risks resulting from uncertainties about the future value of the collateral · credit risks of a particular customer; · changes in economic and industry conditions; and We attempt to maintain an appropriate allowance for credit losses to provide for potential losses in our loan portfolio.
In the 2015 Statement, the regulatory agencies, among other things, indicated their intent to continue “to pay special attention” to commercial real estate lending activities and concentrations going forward.
In December 2015, the regulatory agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”). In the 2015 Statement, the regulatory agencies, among other things, indicated their intent to continue “to pay special attention” to commercial real estate lending activities and concentrations going forward.
As of December 31, 2022, approximately $21.9 million of our loans, or 13.9% of the Bank’s regulatory capital (Tier 1 Capital plus allowance for loan and lease losses), had loan-to-value ratios that exceeded regulatory supervisory guidelines, of which two loans totaling approximately $481 thousand had loan-to-value ratios of 100% or more.
As of December 31, 2023, approximately $27.5 million of our loans, or 16.6% of the Bank’s regulatory capital (Tier 1 Capital plus allowance for credit losses), had loan-to-value ratios that exceeded regulatory supervisory guidelines, of which two loans totaling approximately $559 thousand had loan-to-value ratios of 100% or more.
Given the relatively low trading volume of our common stock, significant sales of our common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions.
Given the relatively low trading volume of our common stock, significant sales of our common stock in the public market, or the perception that those sales may occur, could cause the trading price of our common stock to decline or to be lower than it otherwise might be in the absence of those sales or perceptions. 43 Economic and other circumstances may require us to raise capital at times or in amounts that are unfavorable to us.
Failure to comply with laws, regulations or policies could also result in heightened regulatory scrutiny and in sanctions by regulatory agencies (such as a memorandum of understanding, a written supervisory agreement or a cease and desist order), civil money penalties and/or reputation damage.
A sufficient claim against us under these laws could have a material adverse effect on our results of operations. 40 Failure to comply with laws, regulations or policies could also result in heightened regulatory scrutiny and in sanctions by regulatory agencies (such as a memorandum of understanding, a written supervisory agreement or a cease and desist order), civil money penalties and/or reputation damage.
A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
A deterioration in economic conditions in the United States and our markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations. 34 The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve.
We cannot provide assurance that such financing will be available to us on acceptable terms or at all, or if we do raise additional capital that it will not be dilutive to existing shareholders. 38 If we determine, for any reason, that we need to raise capital, subject to applicable NASDAQ rules, our board generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuance of equity-based incentives under or outside of our equity compensation plans.
If we determine, for any reason, that we need to raise capital, subject to applicable NASDAQ rules, our board generally has the authority, without action by or vote of the shareholders, to issue all or part of any authorized but unissued shares of stock for any corporate purpose, including issuance of equity-based incentives under or outside of our equity compensation plans.
Our average loan size continues to increase and reliance on our historic allowance for loan losses may not be adequate. As of December 31, 2022, approximately 89.0% of our loan portfolio (excluding loans held for sale) is composed of construction (9.3%), commercial mortgage (71.8%) and commercial (7.9%) loans.
Our average loan size continues to increase and reliance on our historic allowance for credit losses may not be adequate. As of December 31, 2023, approximately 87.2% of our loan portfolio (excluding loans held for sale) is composed of construction (10.4%), commercial mortgage (69.9%) and commercial (6.9%) loans.
Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more difficult and expensive and will adversely impact the holding company’s cash flows, financial condition, results of operations and prospects.
Thus, any borrowing that must be done by the holding company in order to make the required capital injection becomes more difficult and expensive and will adversely impact the holding company’s cash flows, financial condition, results of operations and prospects. 41 We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities.
At December 31, 2021, the portfolio was 36.2% of earning assets compared to 38.2% of earning assets at December 31, 2021.
At December 31, 2023, the portfolio was 29.6% of earning assets compared to 36.2% of earning assets at December 31, 2022.
Our failure to compete for these personnel, or the loss of the services of several of such key personnel, could adversely affect our business strategy and materially and adversely affect our business, results of operations, and financial condition.
Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel. Our failure to compete for these personnel, or the loss of the services of several of such key personnel, could adversely affect our business strategy and materially and adversely affect our business, results of operations, and financial condition.
As a result, if you acquire our common stock, you may lose some or all of your investment. 39 General Risk Factors Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
General Risk Factors Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the related provision for loan losses and an increase in charge-offs, all of which could have a material adverse effect on our financial condition and results of operations.
An increase in non-performing loans could result in a loss of earnings from these loans, an increase in the related provision for credit losses and an increase in charge-offs, all of which could have a material adverse effect on our financial condition and results of operations. 31 Our commercial real estate loans have grown 12.8%, or $100.9 million, since December 31, 2022.
As of December 31, 2022, we had approximately $788.9 million in loans outstanding to borrowers whereby the collateral securing the loan was commercial real estate, representing approximately 80.4% of our total loans outstanding as of that date. Approximately $267.2 million or 27.2% of our total loans and 33.9% of our commercial real estate loans are secured by owner-occupied properties.
As of December 31, 2023, we had approximately $889.8 million in loans outstanding to borrowers whereby the collateral securing the loan was commercial real estate, representing approximately 78.5% of our total loans outstanding as of that date. Approximately $273.7 million, or 24.1% of our total loans, and 30.8% of our commercial real estate loans are secured by owner-occupied properties.
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 $15.7 million ($12.4 million net of tax) at December 31, 2022.
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.
Michael C. Crapps, our president and chief executive officer, has extensive and long-standing ties within our primary market area and substantial experience with our operations, and he has contributed significantly to our business. If we lose the services of Mr. Crapps, he would be difficult to replace and our business and development could be materially and adversely affected.
Michael C. Crapps, our president and chief executive officer, and Mr. Nissen, the Bank’s president and, effective July 1, 2024, also the Bank’s chief executive officer, each have extensive and long-standing ties within our primary market area and substantial experience with our operations, and each has contributed significantly to our business. If we lose the services of Mr.
Risks Related to Our Industry Inflationary pressures and rising prices may affect our results of operations and financial condition. Inflation has continued rising in 2022 at levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout 2023.
Risks Related to Our Industry Inflationary pressures and rising prices may affect our results of operations and financial condition. In 2021 through 2022, inflation rose to levels not seen for over 40 years, reaching 7.0% and 6.5%, respectively. In 2023, the annual inflation rate decreased to 3.4% but inflationary pressures are currently expected to remain elevated throughout 2024.
We are at risk of increased losses from fraud. Criminals committing fraud increasingly are using more sophisticated techniques and in some cases are part of larger criminal rings, which allow them to be more effective.
The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. 39 We are at risk of increased losses from fraud. Criminals committing fraud increasingly are using more sophisticated techniques and in some cases are part of larger criminal rings, which allow them to be more effective.
However slim the majorities, though, the net result was a split Congress, which in the past leads to less sweeping policy changes.
In 2023, Republicans gained control of the U.S. House of Representatives, while Democrats retained control of the U.S. Senate. However slim the majorities, though, the net result was a split Congress, which in the past leads to less sweeping policy changes.
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. 36 We use brokered deposits which may be an unstable and/or expensive deposit source to fund earning asset growth.
While we have disaster recovery and other policies, plans and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed.
Third parties with whom we do business or that facilitate our business activities, including financial intermediaries, or vendors that provide service or security solutions for our operations, and other unaffiliated third parties, could also be sources of operational and information security risk to us, including from breakdowns or failures of their own systems or capacity constraints. 38 While we have disaster recovery and other policies, plans and procedures designed to prevent or limit the effect of the failure, interruption or security breach of our information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed.
Legal, Accounting, Regulatory and Compliance Risks We are subject to extensive regulation that could restrict our activities, have an adverse impact on our operations, and impose financial requirements or limitations on the conduct of our business. We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by various regulatory agencies.
Although we take steps to minimize reputation risk, this risk will always be present given the nature of our business. Legal, Accounting, Regulatory and Compliance Risks We are subject to extensive regulation that could restrict our activities, have an adverse impact on our operations, and impose financial requirements or limitations on the conduct of our business.
These changes have impacted the rulemaking, supervision, examination and enforcement priorities and policies of the agencies and likely will continue to do so over the next several years. The potential impact of any changes in agency personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be predicted at this time.
These changes have impacted the rulemaking, supervision, examination and enforcement priorities and policies of the agencies and likely will continue to do so over the next several years.
From time to time, FASB, the SEC and our bank regulators change the financial accounting and reporting standards, or the interpretation thereof, and guidance that govern the preparation and disclosure of external financial statements.
From time to time, FASB, the SEC and our regulators change the financial accounting and reporting standards, or the interpretation thereof, and guidance that govern the preparation and disclosure of external financial statements. Such changes are beyond our control, can be hard to predict and could materially impact how we report and disclose our financial condition and results of operations.
The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit, and other activities. A sufficient claim against us under these laws could have a material adverse effect on our results of operations.
The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit, and other activities.
In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, which under some circumstances could potentially result in a need to revise or restate prior period financial statements. 35 New accounting standards will likely require us to increase our allowance for loan losses and may have a material adverse effect on our financial condition and results of operations.
In some cases, we could be required to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, which could potentially result in a need to revise or restate prior period financial statements. The Federal Reserve may require us to commit capital resources to support the Bank.
Our success also depends, in part, on our continued ability to attract and retain experienced loan originators, as well as other management personnel. Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel.
Crapps or Mr. Nissen, each would be difficult to replace, and our business and development could be materially and adversely affected. Our success also depends, in part, on our continued ability to attract and retain experienced loan originators, as well as other management personnel.
Our total non-owner-occupied commercial real estate loans represented 272% of the Bank’s total risk-based capital at December 31, 2022, and our construction and land development loans represented 56% of the Bank’s total risk-based capital at December 31, 2022. In December 2015, the regulatory agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).
Our total non-owner-occupied commercial real estate loans represented 313% of the Bank’s total risk-based capital at December 31, 2023, and our construction and land development loans represented 74% of the Bank’s total risk-based capital at December 31, 2023. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 47% from December 31, 2020 to December 31, 2023.
A downgrade of the U.S. government’s credit rating or any failure by the U.S. government to satisfy its debt obligations could create financial turmoil and uncertainty, which could weigh heavily on the global banking system. It is possible that any such impact could have a material adverse effect on our business, results of operations and financial condition. 40 Item 1B.
It is possible that any such impact could have a material adverse effect on our business, results of operations and financial condition. 45 Item 1B. Unresolved Staff Comments. Not applicable.
Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.
The potential impact of the 2024 election on any additional changes in agency personnel, policies, and priorities on the financial services sector, including the Company and the Bank, cannot be predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.

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Item 2. Properties

Properties — owned and leased real estate

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Added
We intend to close one office in downtown Augusta, Georgia on June 27, 2024 and have provided the required notices to the FDIC and the S.C. Board .

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings. In the ordinary course of operations, we may be a party to various legal proceedings from time to time. We do not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material effect on our business, results of operations, or financial condition. Item 4. Mine Safety Disclosures.
Biggest changeItem 3. Legal Proceedings. In the ordinary course of operations, we may be a party to various legal proceedings from time to time. We do not believe that there is any pending or threatened proceeding against us, which, if determined adversely, would have a material effect on our business, results of operations, or financial condition.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHigh Low Dividends 2022 Quarter ended March 31, 2022 $ 22.00 $ 20.00 $ 0.13 Quarter ended June 30, 2022 $ 21.36 $ 17.55 $ 0.13 Quarter ended September 30, 2022 $ 19.70 $ 17.25 $ 0.13 Quarter ended December 31, 2022 $ 22.00 $ 16.97 $ 0.13 2021 Quarter ended March 31, 2021 $ 22.00 $ 16.18 $ 0.12 Quarter ended June 30, 2021 $ 20.85 $ 18.00 $ 0.12 Quarter ended September 30, 2021 $ 21.49 $ 18.57 $ 0.12 Quarter ended December 31, 2021 $ 23.42 $ 19.21 $ 0.12 Dividend Policy We currently intend to continue to pay quarterly cash dividends on our common stock, subject to approval by our board of directors, although we may elect not to pay dividends or to change the amount of such dividends.
Biggest changeHigh Low Dividends 2023 Quarter ended March 31, 2023 $ 22.25 $ 18.30 $ 0.14 Quarter ended June 30, 2023 $ 21.50 $ 16.30 $ 0.14 Quarter ended September 30, 2023 $ 20.00 $ 16.77 $ 0.14 Quarter ended December 31, 2023 $ 22.00 $ 17.00 $ 0.14 2022 Quarter ended March 31, 2022 $ 22.00 $ 20.00 $ 0.13 Quarter ended June 30, 2022 $ 21.36 $ 17.55 $ 0.13 Quarter ended September 30, 2022 $ 19.70 $ 17.25 $ 0.13 Quarter ended December 31, 2022 $ 22.00 $ 16.97 $ 0.13 Dividend Policy We currently intend to continue to pay quarterly cash dividends on our common stock, subject to approval by our board of directors, although we may elect not to pay dividends or to change the amount of such dividends.
In general, a director’s vested account balance will be distributed in a lump sum of our common stock on the 30th day following the participants separation from service. During the year ended December 31, 2022, we credited an aggregate of 7,723 deferred stock units to accounts for directors who elected to defer monthly fees or annual retainer fees for 2022.
In general, a director’s vested account balance will be distributed in a lump sum of our common stock on the 30th day following the participants separation from service. During the year ended December 31, 2023, we credited an aggregate of 9,644 deferred stock units to accounts for directors who elected to defer monthly fees or annual retainer fees for 2023.
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. 42 Repurchases of Equity Securities On April 12, 2021, we announced that our Board of Directors approved the repurchase of up to 375,000 shares of our common stock (the “2021 Repurchase Plan”).
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. 48 Repurchases of Equity Securities On April 20, 2022, we announced that our board of directors approved the repurchase of up to 375,000 shares of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities. As of February 28, 2023, there were approximately 1,838 shareholders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities. As of February 29, 2024, there were approximately 1,776 shareholders of record of our common stock.
The 2022 Repurchase Plan expires at the market close on December 31, 2023. Item 6. [Reserved].
No repurchases were made under the such repurchase plan before it expired at the market close on December 31, 2023. Item 6. [Reserved].
Removed
No repurchases were made under the 2021 Repurchase Plan prior to its expiration at the market close on March 31, 2022.
Removed
On April 20, 2022, we announced that our Board of Directors approved the repurchase of up to 375,000 shares of our common stock (the “2022 Repurchase Plan”), which represented approximately 5% of our 7,577,912 shares outstanding as of December 31, 2022. No repurchases have been made under the 2022 Repurchase Plan.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

174 edited+75 added−130 removed111 unchanged
Biggest changeYear ended December 31, 2022 2021 2020 (Dollars in thousands) Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Assets Earning assets PPP loans $ 336 $ 49 14.58 % $ 36,837 $ 3,340 9.07 % $ 32,312 $ 1,073 3.32 % Non-PPP loans 920,043 39,185 4.26 % 852,136 36,331 4.26 % 802,779 35,964 4.48 % Total loans (1) $ 920,379 $ 39,234 4.26 % $ 888,973 $ 39,671 4.46 % $ 835,091 $ 37,037 4.44 % Non-Taxable Securities 52,501 1,525 2.90 % 54,771 1,564 2.86 % 48,957 1,454 2.97 % Taxable Securities 518,051 9,725 1.88 % 402,034 6,155 1.53 % 251,937 5,011 1.99 % Int Bearing Deposits in Other Banks 50,435 633 1.26 % 72,823 130 0.18 % 62,313 275 0.44 % Fed Funds Sold 15 — 0.00 % 564 — 0.00 % 590 1 0.14 % Total earning assets $ 1,541,381 $ 51,117 3.32 % $ 1,419,165 $ 47,520 3.35 % $ 1,198,888 $ 43,778 3.65 % Cash and due from banks 27,034 23,668 15,552 Premises and equipment 32,274 33,780 34,769 Goodwill and other intangible assets 15,476 15,649 15,922 Other assets 48,031 38,846 39,540 Allowance for loan losses (11,250 ) (10,750 ) (8,590 ) Total assets $ 1,652,946 $ 1,520,358 $ 1,296,081 Liabilities Interest-bearing liabilities Interest-bearing transaction accounts $ 336,115 $ 273 0.08 % $ 303,633 $ 196 0.06 % $ 246,385 $ 284 0.12 % Money market accounts 308,473 943 0.31 % 273,005 471 0.17 % 217,018 820 0.38 % Savings deposits 157,626 102 0.06 % 134,980 78 0.06 % 113,255 84 0.07 % Time deposits 146,112 531 0.36 % 158,053 995 0.63 % 166,791 1,833 1.10 % Fed Funds Purchased 1,496 53 3.54 % — — 0.00 % 7 — 0.00 % Securities Sold Under Agreements to Repurchase 74,805 227 0.30 % 62,194 85 0.14 % 49,537 190 0.38 % Other Short-Term Debt 9,457 370 3.91 % — — 0.00 % 2,020 8 0.40 % Other Long-Term Debt 14,964 675 4.51 % 14,964 416 2.78 % 14,964 536 3.58 % Total interest-bearing liabilities $ 1,049,048 $ 3,174 0.30 % $ 946,829 $ 2,241 0.24 % $ 809,977 $ 3,755 0.46 % Demand deposits 469,292 423,056 343,999 Other liabilities 12,725 12,607 13,242 Shareholders’ equity $ 121,881 $ 137,866 $ 128,863 Total liabilities and shareholders’ equity $ 1,652,946 $ 1,520,358 $ 1,296,081 Cost of deposits, including demand deposits 0.13 % 0.13 % 0.28 % Cost of funds, including demand deposits 0.21 % 0.16 % 0.33 % Net interest spread 3.01 % 3.11 % 3.19 % Net interest income/margin $ 47,943 3.11 % $ 45,279 3.19 % $ 40,023 3.34 % Net interest margin (tax equivalent) (2) $ 48,455 3.14 % $ 45,776 3.23 % $ 40,413 3.37 % (1) All loans and deposits are domestic.
Biggest changeYear ended December 31, 2023 2022 2021 (Dollars in thousands) Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Average Balance Income/ Expense Yield/ Rate Assets Earning assets PPP loans $ 183 $ 5 2.73 % $ 336 $ 49 14.58 % $ 36,837 $ 3,340 9.07 % Non-PPP loans 1,047,935 52,312 4.99 % 920,043 39,185 4.26 % 852,136 36,331 4.26 % Total loans (1) $ 1,048,118 $ 52,317 4.99 % $ 920,379 $ 39,234 4.26 % $ 888,973 $ 39,671 4.46 % Non-Taxable Securities 50,726 1,471 2.90 % 52,501 1,525 2.90 % 54,771 1,564 2.86 % Taxable Securities 490,352 16,715 3.41 % 518,051 9,725 1.88 % 402,034 6,155 1.53 % Int Bearing Deposits in Other Banks 42,859 2,191 5.11 % 50,435 633 1.26 % 72,823 130 0.18 % Fed Funds Sold 56 3 5.36 % 15 — 0.00 % 564 — 0.00 % Total earning assets $ 1,632,111 $ 72,697 4.45 % $ 1,541,381 $ 51,117 3.32 % $ 1,419,165 $ 47,520 3.35 % Cash and due from banks 25,278 27,034 23,668 Premises and equipment 31,145 32,274 33,780 Goodwill and other intangible assets 15,319 15,476 15,649 Other assets 54,840 48,031 38,846 Allowance for credit losses-investments (39 ) — — Allowance for credit losses-loans (11,677 ) (11,250 ) (10,750 ) Total assets $ 1,746,977 $ 1,652,946 $ 1,520,358 Liabilities Interest-bearing liabilities Interest-bearing transaction accounts $ 307,415 $ 1,760 0.57 % $ 336,115 $ 273 0.08 % $ 303,633 $ 196 0.06 % Money market accounts 361,994 9,721 2.69 % 308,473 943 0.31 % 273,005 471 0.17 % Savings deposits 133,010 307 0.23 % 157,626 102 0.06 % 134,980 78 0.06 % Time deposits 178,339 4,775 2.68 % 146,112 531 0.36 % 158,053 995 0.63 % Fed Funds Purchased 1,100 52 4.73 % 1,496 53 3.54 % — — 0.00 % Securities Sold Under Agreements to Repurchase 74,586 1,658 2.22 % 74,805 227 0.30 % 62,194 85 0.14 % FHLB Advances 86,614 4,345 5.02 % 9,457 370 3.91 % — — 0.00 % Other Long-Term Debt 14,964 1,187 7.93 % 14,964 675 4.51 % 14,964 416 2.78 % Total interest-bearing liabilities $ 1,158,022 $ 23,805 2.06 % $ 1,049,048 $ 3,174 0.30 % $ 946,829 $ 2,241 0.24 % Demand deposits 450,177 469,292 423,056 Allowance for credit losses-unfunded commitments 464 — — Other liabilities 14,837 12,725 12,607 Shareholders’ equity $ 123,477 $ 121,881 $ 137,866 Total liabilities and shareholders’ equity $ 1,746,977 $ 1,652,946 $ 1,520,358 Cost of deposits, including demand deposits 1.16 % 0.13 % 0.13 % Cost of funds, including demand deposits 1.48 % 0.21 % 0.16 % Net interest spread 2.39 % 3.01 % 3.11 % Net interest income/margin $ 48,892 3.00 % $ 47,943 3.11 % $ 45,279 3.19 % Net interest margin (tax equivalent) (2) $ 49,176 3.01 % $ 48,455 3.14 % $ 45,776 3.23 % (1) All loans and deposits are domestic.
The allowance is also subject to examination and testing for adequacy by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions. Such regulatory agencies could require us to adjust our allowance based on information available to them at the time of their examination.
The allowance is also subject to examination and testing for adequacy by regulatory agencies, which may consider such factors as the methodology used to determine adequacy and the size of the allowance relative to that of peer institutions. Such regulatory agencies could require us to adjust our allowance based on information available to them at the time of their examination.
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.
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.
We had 254 full-time employees at December 31, 2022 compared to 250 at December 31, 2021. · Occupancy expense increased $55 thousand to $3.0 million during the twelve months ended December 31, 2022 compared to $2.9 million during the same period in 2021 primarily related to major maintenance projects and our loan production office in York County, South Carolina (which converted to a full service branch on October 20, 2022) partially offset by lower janitorial services expense and lower bank premises taxes due to the sale of one bank owned property in 2022 and two bank owned properties in 2021. · Equipment expense increased $47 thousand to $1.3 million during the twelve months ended December 31, 2022 compared to $1.3 million during the same period in 2021 primarily due to increases in auto expense and ATM and security monitoring service agreements. · Marketing and public relations expense increased $86 thousand to $1.3 million during the twelve months ended December 31, 2022 compared to $1.2 million during the same period in 2021 due to larger media schedules including activity in our new York County, South Carolina market. · FDIC assessments declined $150 thousand to $468 thousand during the twelve months ended December 31, 2022 compared to $618 thousand during the same period in 2021 due to a reduction in our FDIC assessment rate. · Other real estate expenses increased $203 thousand to $308 thousand during the twelve months ended December 31, 2022 compared to $105 thousand during the same period in 2021 due to the accrual of $210 thousand in 2022 real estate taxes on one non-accrual loan and $69 thousand in write-downs on two other real estate owned properties during the twelve months ended December 31, 2022 compared to $50 thousand in write-downs during the same period in 2021. · Amortization of intangibles declined $43 thousand to $158 thousand during the twelve months ended December 31, 2022 compared to $201 thousand during the same period in 2021. · Other expense increased $991 thousand to $9.4 million during the twelve months ended December 31, 2022 compared to $8.4 million during the same period in 2021. o ATM/debit card and data processing expense increased $428 thousand primarily due to higher ATM debit card customer activity, core processing system expenses, and enhanced technology solutions. o Fraud expense increased $106 thousand primarily related to an isolated fraud incident. o Travel, meals, and entertainment increased $103 thousand due to more in-person meetings from eased COVID-19 restrictions. o Postage and courier expense increased $118 thousand partially due to higher fuel costs. o Legal and professional fees increased $299 thousand primarily due to higher legal, professional, recruiting, and consulting fees. o Loan processing and closing costs/fees declined $63 thousand primarily due to lower mortgage loan processing costs.
We had 254 full-time employees at December 31, 2022 compared to 250 at December 31, 2021. · Occupancy expense increased $55 thousand to $3.0 million during the twelve months ended December 31, 2022 compared to $2.9 million during the same period in 2021 primarily related to major maintenance projects and our loan production office in York County, South Carolina (which converted to a full service branch on October 20, 2022) partially offset by lower janitorial services expense and lower bank premises taxes due to the sale of one bank owned property in 2022 and two bank owned properties in 2021. · Equipment expense increased $47 thousand to $1.3 million during the twelve months ended December 31, 2022 compared to $1.3 million during the same period in 2021 primarily due to increases in auto expense and ATM and security monitoring service agreements. 70 · Marketing and public relations expense increased $86 thousand to $1.3 million during the twelve months ended December 31, 2022 compared to $1.2 million during the same period in 2021 due to larger media schedules including activity in our new York County, South Carolina market. · FDIC assessments declined $150 thousand to $468 thousand during the twelve months ended December 31, 2022 compared to $618 thousand during the same period in 2021 due to a reduction in our FDIC assessment rate. · Other real estate expenses increased $203 thousand to $308 thousand during the twelve months ended December 31, 2022 compared to $105 thousand during the same period in 2021 due to the accrual of $210 thousand in 2022 real estate taxes on one non-accrual loan and $69 thousand in write-downs on two other real estate owned properties during the twelve months ended December 31, 2022 compared to $50 thousand in write-downs during the same period in 2021. · Amortization of intangibles declined $43 thousand to $158 thousand during the twelve months ended December 31, 2022 compared to $201 thousand during the same period in 2021. · Other expense increased $991 thousand to $9.4 million during the twelve months ended December 31, 2022 compared to $8.4 million during the same period in 2021. o ATM/debit card and data processing expense increased $428 thousand primarily due to higher ATM debit card customer activity, core processing system expenses, and enhanced technology solutions. o Fraud expense increased $106 thousand primarily related to an isolated fraud incident. o Travel, meals, and entertainment increased $103 thousand due to more in-person meetings from eased COVID-19 restrictions. o Postage and courier expense increased $118 thousand partially due to higher fuel costs. o Legal and professional fees increased $299 thousand primarily due to higher legal, professional, recruiting, and consulting fees. o Loan processing and closing costs/fees declined $63 thousand primarily due to lower mortgage loan processing costs.
We recorded $7 thousand in other non-recurring income related to gains on insurance proceeds during the twelve months ended December 31, 2022. 47 · The reduction in provision for loan losses is primarily related to the following: a decrease in our COVID-19 qualitative factor in our allowance for loan losses methodology and net recoveries during the twelve months ended December 31, 2022 partially offset by increases in our economic conditions qualitative factor due to inflation, supply chain bottlenecks, labor shortages in certain industries, and the war in Ukraine; an increase in our changes in staff qualitative factor due to the addition of a new team and new market in York County, South Carolina in March 2022; an increase in our change in total of past due, rated, and non-accrual loans qualitative factor due to a $4.1 million loan being moved to non-accrual status in June 2022; and loan growth. · The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of $863 thousand, increased occupancy expense of $55 thousand, increased equipment expense of $47 thousand, increased marketing and public relations expense of $86 thousand, increased legal and professional fees of $299 thousand, increased ATM/debit card and data processing expense of $428 thousand, increased other real estate expense including other real estate write-downs of $203 thousand, increased fraud expense of $106 thousand, increased travel, meals, and entertainment expense of $103 thousand, and increased postage / courier expense of $118 thousand partially offset by lower FDIC assessments of $150 thousand, lower amortization of intangibles of $43 thousand, and lower loan processing costs of $63 thousand. · Our effective tax rate was 20.6% during the twelve months ended December 31, 2022 compared to 21.3% during the twelve months ended December 31, 2021. o The reduction in the effective tax rate was due to lower net income before tax and a $153 thousand non-recurring reduction to income tax expense during the twelve months ended December 31, 2022.
We recorded $7 thousand in other non-recurring income related to gains on insurance proceeds during the twelve months ended December 31, 2022. · The reduction in provision for credit losses is primarily related to the following: a decrease in our COVID-19 qualitative factor in our allowance for credit losses methodology and net recoveries during the twelve months ended December 31, 2022 partially offset by increases in our economic conditions qualitative factor due to inflation, supply chain bottlenecks, labor shortages in certain industries, and the war in Ukraine; an increase in our changes in staff qualitative factor due to the addition of a new team and new market in York County, South Carolina in March 2022; an increase in our change in total of past due, rated, and non-accrual loans qualitative factor due to a $4.1 million loan being moved to non-accrual status in June 2022; and loan growth. · The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of $863 thousand, increased occupancy expense of $55 thousand, increased equipment expense of $47 thousand, increased marketing and public relations expense of $86 thousand, increased legal and professional fees of $299 thousand, increased ATM/debit card and data processing expense of $428 thousand, increased other real estate expense including other real estate write-downs of $203 thousand, increased fraud expense of $106 thousand, increased travel, meals, and entertainment expense of $103 thousand, and increased postage / courier expense of $118 thousand partially offset by lower FDIC assessments of $150 thousand, lower amortization of intangibles of $43 thousand, and lower loan processing costs of $63 thousand. · Our effective tax rate was 20.6% during the twelve months ended December 31, 2022 compared to 21.3% during the twelve months ended December 31, 2021. o The reduction in the effective tax rate was due to lower net income before tax and a $153 thousand non-recurring reduction to income tax expense during the twelve months ended December 31, 2022.
Our determination of the allowance for loan losses is based on evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, the knowledge and depth of lending personnel, economic conditions (local and national) that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans.
Our determination of the allowance for credit losses is based on evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, the knowledge and depth of lending personnel, economic conditions (local and national) that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical credit loss experience, and a review of specific problem loans.
The $852 thousand decline in net income between the two periods is primarily due to a $2.3 million decline in non-interest income and a $2.1 million increase in non-interest expense partially offset by a $2.7 million increase in net interest income, a $487 thousand reduction in provision for loan losses, and a $384 thousand reduction in income tax expense. · The increase in net interest income results from an increase of $122.2 million in average earning assets partially offset by an eight basis points decline in the net interest margin between the two periods. · The decline in non-interest income is primarily related to declines in mortgage banking income of $2.4 million, lower gains on sale of other real estate of $122 thousand, lower gains on sale of other assets of $190 thousand, and lower other non-recurring income of $164 thousand partially offset by an increase in investment advisory fees and non-deposit commissions of $484 thousand. o The reduction in other non-recurring income was related to the collection of $147 thousand in summary judgments related to two loans charged off at a bank, which we subsequently acquired and $24 thousand in gains on insurance proceeds during the twelve months ended December 31, 2021.
The $852 thousand decline in net income between the two periods is primarily due to a $2.3 million decline in non-interest income and a $2.1 million increase in non-interest expense partially offset by a $2.7 million increase in net interest income, a $487 thousand reduction in provision for credit losses, and a $384 thousand reduction in income tax expense. · The increase in net interest income results from an increase of $122.2 million in average earning assets partially offset by an eight basis points decline in the net interest margin between the two periods. · The decline in non-interest income is primarily related to declines in mortgage banking income of $2.4 million, lower gains on sale of other real estate of $122 thousand, lower gains on sale of other assets of $190 thousand, and lower other non-recurring income of $164 thousand partially offset by an increase in investment advisory fees and non-deposit commissions of $484 thousand. o The reduction in other non-recurring income was related to the collection of $147 thousand in summary judgments related to two loans charged off at a bank, which we subsequently acquired and $24 thousand in gains on insurance proceeds during the twelve months ended December 31, 2021.
During the twelve months ended December 31, 2022, we experienced net loan recoveries of $361 thousand and net overdraft charge-offs of $52 thousand. 56 There were 12 loans totaling $4.9 million (0.50% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at December 31, 2022.
During the twelve months ended December 31, 2022, we experienced net loan recoveries of $361 thousand and net overdraft charge-offs of $52 thousand. There were 12 loans totaling $4.9 million (0.50% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at December 31, 2022.
We continue to focus on growing our pure deposits (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, IRAs, and customer cash management repurchase agreements) as these accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds.
We continue to focus on growing our pure deposits plus customer cash management repurchase agreements (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, IRAs, and customer cash management repurchase agreements) as these accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds.
The unrealized losses on our investment securities are related in 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 income (loss), which is included in shareholders’ equity.
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 income (loss), which is included in shareholders’ equity.
The target range of federal funds was 4.25% - 4.50% at December 31, 2022 compared to compared to 0.00% - 0.25% at December 31, 2021. 49 The yield on earning assets for the twelve months ended December 31, 2022 and 2021 were 3.32% and 3.35%, respectively.
The target range of federal funds was 4.25% - 4.50% at December 31, 2022 compared to compared to 0.00% - 0.25% at December 31, 2021. The yield on earning assets for the twelve months ended December 31, 2022 and 2021 were 3.32% and 3.35%, respectively.
This loan has a loan-to-value of 76.3% based on an appraisal received in May 2022. During 2020, we added a qualitative factor for the COVID-19 pandemic to our allowance for loan losses methodology.
This loan has a loan-to-value of 76.3% based on an appraisal received in May 2022. During 2020, we added a qualitative factor for the COVID-19 pandemic to our allowance for credit losses methodology.
We recorded $7 thousand in other non-recurring income related to gains on insurance proceeds during the twelve months ended December 31, 2022. 61 Non-interest income, other increased $93 thousand during the twelve months ended December 31, 2022 compared to the same period in 2021 primarily due to increases in ATM/debit card income of $37 thousand, recurring income on bank owned life insurance of $28 thousand, rental income of $11 thousand, wire transfer fees of $14 thousand, and bankcard fees of $14 thousand partially offset by lower customer check sales of $19 thousand.
We recorded $7 thousand in other non-recurring income related to gains on insurance proceeds during the twelve months ended December 31, 2022. 68 Non-interest income, other increased $93 thousand during the twelve months ended December 31, 2022 compared to the same period in 2021 primarily due to increases in ATM/debit card income of $37 thousand, recurring income on bank owned life insurance of $28 thousand, rental income of $11 thousand, wire transfer fees of $14 thousand, and bankcard fees of $14 thousand partially offset by lower customer check sales of $19 thousand.
Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. Investment Securities Our investment securities portfolio is a significant component of our total earning assets.
Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity. 73 Investment Securities Our investment securities portfolio is a significant component of our total earning assets.
Our provision for loan losses was a credit of $152 thousand for the twelve months ended December 31, 2022 compared to an expense of $335 thousand during the same period in 2021.
Our provision for credit losses was a credit of $152 thousand for the twelve months ended December 31, 2022 compared to an expense of $335 thousand during the same period in 2021.
(4) As a small bank holding company, we are generally not subject to the capital requirements at the holding company level unless otherwise advised by the Federal Reserve; however, our Bank remains subject to capital requirements. (5) Includes loans held for sale. 46 Certain financial information presented above is determined by methods other than in accordance with GAAP.
(4) As a small bank holding company, we are generally not subject to the capital requirements at the holding company level unless otherwise advised by the Federal Reserve; however, our Bank remains subject to capital requirements. (5) Includes loans held for sale. 52 Certain financial information presented above is determined by methods other than in accordance with GAAP.
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. 43 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.
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. 49 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.
The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate.
The allowance for credit losses represents an amount that we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for credit losses is based on assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate.
The decline in the allowance for loan losses as a percentage of total loans compared to December 31, 2021 is primarily related to a reduction in the loss emergence period assumption in our COVID-19 qualitative factor, which was added to our allowance for loan losses methodology during 2020 and is discussed below.
The decline in the allowance for credit losses as a percentage of total loans compared to December 31, 2021 is primarily related to a reduction in the loss emergence period assumption in our COVID-19 qualitative factor, which was added to our allowance for credit losses methodology during 2020 and is discussed below.
The decline in short-term investments in 2022 is primarily due to loan growth exceeding deposit growth, which resulted in short-term investments used to fund loan growth. We maintain the majority of our short-term overnight investments in our account at the Federal Reserve rather than in federal funds at various correspondent banks due to the lower regulatory capital risk weighting.
The decline in short-term investments in 2023 is primarily due to loan growth exceeding deposit growth, which resulted in short-term investments used to fund loan growth. We maintain the majority of our short-term overnight investments in our account at the Federal Reserve rather than in federal funds at various correspondent banks due to the lower regulatory capital risk weighting.
We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section, we have included a detailed discussion of this process, as well as several tables describing our allowance for loan losses and the allocation of this allowance among our various categories of loans.
We establish and maintain this allowance by charging a provision for credit losses against our operating earnings. In the following section, we have included a detailed discussion of this process, as well as several tables describing our allowance for credit losses and the allocation of this allowance among our various categories of loans.
Average loan balances include non-accrual loans and loans held for sale. (2) Based on a 21.0% marginal tax rate. 52 The following table presents the dollar amount of changes in interest income and interest expense attributable to changes in volume and the amount attributable to changes in rate.
Average loan balances include non-accrual loans and loans held for sale. (2) Based on a 21.0% marginal tax rate. 58 The following table presents the dollar amount of changes in interest income and interest expense attributable to changes in volume and the amount attributable to changes in rate.
(2) Securities based on amortized cost. 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 December 31, 2022 and 2021 over the subsequent 12 months.
(2) Securities based on amortized cost. 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 December 31, 2023 and at December 31, 2022 over the subsequent 12 months.
The following discussion describes our results of operations for 2022, as compared to 2021 and 2020, and also analyzes our financial condition as of December 31, 2022, as compared to December 31, 2021. Like most community banks, we derive most of our income from interest we receive on our loans and investments.
The following discussion describes our results of operations for 2023, as compared to 2022 and 2021, and also analyzes our financial condition as of December 31, 2023, as compared to December 31, 2022. Like most community banks, we derive most of our income from interest we receive on our loans and investments.
There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.
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 loss emergence period assumption in the COVID-19 qualitative factor was reduced to zero months at December 31, 2022 from 21 months at December 31, 2021. At December 31, 2022 and December 31, 2021, the COVID-19 qualitative factor represented zero dollars and $1.9 million, respectively, of our allowance for loan losses.
The loss emergence period assumption in the COVID-19 qualitative factor was reduced to zero months at December 31, 2022 from 21 months at December 31, 2021. At December 31, 2022 and December 31, 2021, the COVID-19 qualitative factor represented zero dollars and $1.9 million, respectively, of our allowance for credit losses.
There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.
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 unallocated portion of the allowance is established for losses that exist in the remainder of the portfolio and compensates for uncertainty in estimating the loan losses. The allocated portion of the allowance is based on historical loss experience as well as certain qualitative factors as explained above.
The unallocated portion of the allowance is established for losses that exist in the remainder of the portfolio and compensates for uncertainty in estimating the credit losses. The allocated portion of the allowance is based on historical loss experience as well as certain qualitative factors as explained above.
For example, the “Average Balances” table shows the average balance during 2022, 2021 and 2020 of each category of our assets and liabilities, as well as the yield we earned or the rate we paid with respect to each category.
For example, the “Average Balances” table shows the average balance during 2023, 2022 and 2021 of each category of our assets and liabilities, as well as the yield we earned or the rate we paid with respect to each category.
Our judgment as to the adequacy of the allowance for loan losses is based on assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate.
Our judgment as to the adequacy of the allowance for credit losses is based on assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate.
At December 31, 2022, the allowance for loan losses was $11.3 million, or 1.16% of total loans (excluding loans held-for-sale), compared to $11.2 million, or 1.29% of total loans (excluding loans held-for-sale) at December 31, 2021.
At December 31, 2022, the allowance for credit losses was $11.3 million, or 1.16% of total loans (excluding loans held-for-sale), compared to $11.2 million, or 1.29% of total loans (excluding loans held-for-sale) at December 31, 2021.
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.
We generally maintain adequate 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.
Neither the “gap” analysis or asset/liability modeling are precise indicators of our interest sensitivity position due to the many factors that affect net interest income including, the timing, magnitude and frequency of interest rate changes as well as changes in the volume and mix of earning assets and interest-bearing liabilities. 53 The following table illustrates our interest rate sensitivity at December 31, 2022.
Neither the “gap” analysis or asset/liability modeling are precise indicators of our interest sensitivity position due to the many factors that affect net interest income including, the timing, magnitude, and frequency of interest rate changes as well as changes in the volume and mix of earning assets and interest-bearing liabilities. 59 The following table illustrates our interest rate sensitivity at December 31, 2023.
Excluding PPP loans and loans held-for-sale, the allowance for loan losses was 1.16% of total loans at December 31, 2022 compared to 1.30% of total loans at December 31, 2021.
Excluding PPP loans and loans held-for-sale, the allowance for credit losses was 1.16% of total loans at December 31, 2022 compared to 1.30% of total loans at December 31, 2021.
Core deposits, which exclude time deposits of $100 thousand or more, provide a relatively stable funding source for the loan portfolio and other earning assets. Core deposits were $1.3 billion and $1.3 billion at December 31, 2022 and 2021, respectively.
Core deposits, which exclude time deposits of $100 thousand or more, provide a relatively stable funding source for the loan portfolio and other earning assets. Core deposits were $1.4 billion and $1.3 billion at December 31, 2023 and 2022, respectively.
These non-GAAP financial measures include “efficiency ratio,” “tangible book value at period end,” “return on average tangible common equity” and “tangible common shareholders’ equity to tangible assets.” The “efficiency ratio” is defined as non-interest expense divided by the sum of net interest income on a tax equivalent basis and non-interest income, excluding gains (losses) on sales of securities and other assets, write-downs on premises held-for-sale, non-recurring bank owned life insurance (BOLI) income, gains on insurance proceeds, and collection of summary judgments on loans charged off at a bank we acquired.
These non-GAAP financial measures include “efficiency ratio,” “tangible book value at period end,” “return on average tangible common equity” and “tangible common shareholders’ equity to tangible assets.” The “efficiency ratio” is defined as non-interest expense divided by the sum of net interest income on a tax equivalent basis and non-interest income, excluding gains (losses) on sales of securities and other assets, non-recurring bank owned life insurance (BOLI) income, gains on insurance proceeds, and collection of summary judgments on loans charged off at a bank we acquired.
FHLB stock is carried at cost, and periodically evaluated for impairment based on an assessment of the ultimate recovery of par value. Both cash and stock dividends are reported as interest income.
FHLB stock is carried at cost, and periodically evaluated for impairment based on an assessment of the ultimate recovery of par value. Both cash and stock dividends are reported as interest income. Dividends received on other investments, at cost are reported as interest income.
The repurchase agreements all mature within one to four days and are generally originated with customers that have other relationships with us and tend to provide a stable and predictable source of funding. Federal funds purchased averaged $1.5 million, zero and seven thousand dollars during 2022, 2021 and 2020, respectively.
The repurchase agreements all mature within one to four days and are generally originated with customers that have other relationships with us and tend to provide a stable and predictable source of funding. Federal funds purchased averaged $1.1 million, $1.5 million, and zero during 2023, 2022, and 2021, respectively.
The decline in accumulated other comprehensive income was due 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 income (loss), which is included in shareholders’ equity. On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS).
The increase in accumulated other comprehensive loss was due to a decline in market interest rates, which affects the fair value of our investment securities portfolio and accumulated other comprehensive (loss) income, which is included in shareholders’ equity. On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS).
The average rates paid during these periods were 3.54%, 0.00% and 0.00%, respectively. The balances of federal funds purchased were $22.0 million and zero at December 31, 2022 and 2021, respectively. As a member of the FHLB, the Bank has access to advances from the FHLB for various terms and amounts.
The average rates paid during these periods were 4.73%, 3.54%, and zero, respectively. The balances of federal funds purchased were zero and $22.0 million at December 31, 2023 and December 31, 2022, respectively. As a member of the FHLB, the Bank has access to advances from the FHLB for various terms and amounts.
Time deposits greater than $250 thousand, the FDIC deposit insurance coverage limit, amounted to $25.0 million and $27.9 million at December 31, 2022 and December 31, 2021, respectively. A stable base of deposits is expected to continue to be the primary source of funding to meet both our short-term and long-term liquidity needs in the future.
Time deposits greater than $250 thousand, the FDIC deposit insurance coverage limit, amounted to $17.1 million and $25.0 million at December 31, 2023 and December 31, 2022, respectively. A stable base of deposits is expected to continue to be the primary source of funding to meet both our short-term and long-term liquidity needs in the future.
As these ARM 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.
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 ratio is calculated by dividing non-interest expense by net interest income on a tax equivalent basis and non-interest income, excluding gains (losses) on sales of securities and other assets, write-downs on premises held-for-sale, non-recurring bank owned life insurance (BOLI) income, gains on insurance proceeds, and collection of summary judgments on loans charged-off at a bank we acquired.
The ratio is calculated by dividing non-interest expense by net interest income on a tax equivalent basis and non-interest income, excluding gains (losses) on sales of securities and other assets, non-recurring bank owned life insurance (BOLI) income, gains on insurance proceeds, and collection of summary judgments on loans charged-off at a bank we acquired.
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% and 15%, respectively, in a 100 and 200 basis point change in interest rates over a 12-month period.
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.
The reduction in mortgage production was primarily due to a higher interest rate environment and low housing inventory. With the headwinds of rising interest rates, we began to market an ARM product during the second quarter of 2022 to provide borrowers with an alternative to fixed-rate mortgages and to help offset anticipated mortgage production challenges.
The reduction in mortgage production was primarily due to a higher interest rate environment and low levels of home inventories. With the headwinds of rising interest rates, we began to market an adjustable rate mortgage (ARM) product during the second quarter of 2022 to provide borrowers with an alternative to fixed-rate mortgages and to help offset anticipated mortgage production challenges.
There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period.
There can be no assurance that charge-offs of financial assets 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.
Finally, we have included a number of tables that provide detail about our investment securities, our loans, our deposits and our borrowings. There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible.
Finally, we have included a number of tables that provide detail about our investment securities, our loans, our deposits and our borrowings. There are risks inherent in all loans, so we maintain an allowance for credit losses to absorb expected losses in 2023 and probable losses in 2022 and 2021 on existing loans that may become uncollectible.
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 Management Committee (the “ALCO”) to monitor and manage interest rate risk.
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.
We utilized $22 million of our federal funds purchased lines at December 31, 2022 compared to zero at December 31, 2021. The FHLB of Atlanta has approved a line of credit of up to 25% of the Bank’s assets, which, when utilized, is collateralized by a pledge against specific investment securities and/or eligible loans.
We utilized none of our federal funds purchased lines at December 31, 2023 compared to $22.0 million at December 31, 2022. 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.
In the very competitive financial services industry, we recognize the need to place a great deal of emphasis on expense management and continually evaluate and monitor growth in discretionary expense categories in order to control future increases. 62 Non-interest expense increased $2.1 million during the twelve months ended December 31, 2022 to $41.3 million compared to $39.2 million during the same period in 2021.
In the very competitive financial services industry, we recognize the need to place a great deal of emphasis on expense management and continually evaluate and monitor growth in discretionary expense categories in order to control future increases. Non-interest expense during the twelve months ended December 31, 2023 increased to $43.1 million from $41.3 million during the same period in 2022.
The table below provides a reconciliation of non-GAAP measures to GAAP for the three years ended December 31: 2022 2021 2020 Tangible book value per common share Tangible common equity per common share (non-GAAP) $ 13.59 $ 16.62 $ 16.08 Effect to adjust for intangible assets 2.03 2.06 2.10 Book value per common share (GAAP) $ 15.62 $ 18.68 $ 18.18 Return on average tangible common equity Return on average tangible common equity (non-GAAP) 13.73 % 12.65 % 8.94 % Effect to adjust for intangible assets (1.74 )% (1.43 )% (1.10 )% Return on average common equity (GAAP) 11.99 % 11.22 % 7.84 % Tangible common shareholders’ equity to tangible assets Tangible common equity to tangible assets (non-GAAP) 6.21 % 8.00 % 8.74 % Effect to adjust for intangible assets 0.87 % 0.90 % 1.03 % Common equity to assets (GAAP) 7.08 % 8.90 % 9.77 % Results of Operations Year Ended December 31, 2022 and 2021 Our net income for the twelve months ended December 31, 2022 was $14.6 million, or $1.92 diluted earnings per common share, as compared to $15.5 million, or $2.05 diluted earnings per common share, for the twelve months ended December 31, 2021.
The table below provides a reconciliation of non-GAAP measures to GAAP for the three years ended December 31: 2023 2022 2021 Tangible book value per common share Tangible common equity per common share (non-GAAP) $ 15.23 $ 13.59 $ 16.62 Effect to adjust for intangible assets 2.00 2.03 2.06 Book value per common share (GAAP) $ 17.23 $ 15.62 $ 18.68 Return on average tangible common equity Return on average tangible common equity (non-GAAP) 10.95 % 13.73 % 12.65 % Effect to adjust for intangible assets (1.36 )% (1.74 )% (1.43 )% Return on average common equity (GAAP) 9.59 % 11.99 % 11.22 % Tangible common shareholders’ equity to tangible assets Tangible common equity to tangible assets (non-GAAP) 6.39 % 6.21 % 8.00 % Effect to adjust for intangible assets 0.78 % 0.87 % 0.90 % Common equity to assets (GAAP) 7.17 % 7.08 % 8.90 % Results of Operations Year Ended December 31, 2023 and 2022 Our net income for the twelve months ended December 31, 2023 was $11.8 million, or $1.55 diluted earnings per common share, as compared to $14.6 million, or $1.92 diluted earnings per common share, for the twelve months ended December 31, 2022.
Borrowed funds consist of fed funds purchased, securities sold under agreements to repurchase, FHLB advances and long-term debt, which is a result of issuing $15.0 million in trust preferred securities. Short-term borrowings in the form of securities sold under agreements to repurchase averaged $74.8 million, $62.2 million and $49.5 million during 2022, 2021 and 2020, respectively.
Borrowed funds consist of fed funds purchased, securities sold under agreements to repurchase, FHLB advances and long-term debt. Our long-term debt is a result of issuing $15.0 million in trust preferred securities. Short-term borrowings in the form of securities sold under agreements to repurchase averaged $74.6 million, $74.8 million, and $62.2 million during 2023, 2022, and 2021, respectively.
We continue to focus on growing our pure deposits (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, and IRAs) as these accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds.
We continue to focus on growing our pure deposits plus customer cash management repurchase agreements (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, IRAs, and customer cash management repurchase agreements) as these accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds.
Our effective tax rate was 20.6% during the twelve months ended December 31, 2022 compared to 21.3% during the twelve months ended December 31, 2021 and compared to 19.8% during the twelve months ended December 31, 2020.
Our effective tax rate was 21.3% during the twelve months ended December 31, 2023 compared to 20.6% during the twelve months ended December 31, 2022 and compared to 21.3% during the twelve months ended December 31, 2021.
The remaining debt may be redeemed in full anytime with notice and matures on September 16, 2034. Trust preferred securities averaged $15.0 million during 2022, 2021 and 2020. The average rates paid during these periods were 4.51%, 2.78% and 3.58%, respectively. The balances of trust preferred securities were $15.0 million at December 31, 2022 and 2021.
The remaining debt may be redeemed in full anytime with notice and matures on September 16, 2034. Trust preferred securities averaged $15.0 million during 2023, 2022, and 2021. The average rates paid during these periods were 7.93%, 4.51%, and 2.78%, respectively. The balances of trust preferred securities were $15.0 million as of December 31, 2023 and December 31, 2022.
We believe that we have ample liquidity to meet the needs of our customers through our low cost deposits, our ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks, and our ability to obtain advances secured by certain securities and loans from the FHLB.
We believe that we have ample liquidity to meet the needs of our customers through our low cost deposits, our ability to issue brokered deposits, our ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks, our ability to borrow on a secured basis through the Federal Reserve Discount Window, and our ability to obtain advances secured by certain securities and loans from the FHLB.
Significant portions of these commercial mortgage loans are made to finance owner-occupied real estate. We continue to maintain a conservative philosophy regarding our underwriting guidelines, and believe it will reduce the risk elements of the loan portfolio through strategies that diversify the lending mix.
Significant portions of these commercial mortgage loans are made to finance owner-occupied real estate. We continue to maintain a conservative philosophy regarding our underwriting guidelines, and believe we will reduce the risk elements of the loan portfolio through strategies that diversify the lending mix. The repayment of loans in the loan portfolio as they mature is a source of liquidity.
At December 31, 2021, we had issued commitments to extend unused credit of $137.4 million, including $42.9 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.
At December 31, 2022, we had issued commitments to extend unused credit of $156.9 million, including $47.3 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.
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 $15.7 million ($12.4 million net of tax) at December 31, 2022.
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 $14.0 million ($11.1 million net of tax) at December 31, 2023.
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 $15.7 million ($12.4 million net of tax) at December 31, 2022.
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 $14.0 million ($11.1 million net of tax) at December 31, 2023.
Income taxes are provided for the tax effects of the transactions reported in our consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities, including available-for-sale securities, allowance for loan losses, write-downs of OREO properties, write-downs on premises held-for-sale, accumulated depreciation, net operating loss carry forwards, accretion income, deferred compensation, intangible assets, and pension plan and post-retirement benefits.
These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. 50 Income taxes are provided for the tax effects of the transactions reported in our consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities, including available-for-sale securities, allowance for credit losses, write-downs of OREO properties, write-downs on premises held-for-sale, accumulated depreciation, net operating loss carry forwards, accretion income, deferred compensation, intangible assets, and pension plan and post-retirement benefits.
We consider a loan impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due, including both principal and interest, according to the contractual terms of the loan agreement. Nonaccrual loans and accruing TDRs are considered impaired.
At December 31, 2022, we considered a loan impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due, including both principal and interest, according to the contractual terms of the loan agreement. Non-accrual loans and accruing TDRs were considered impaired.
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 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.
Other investments, at cost, include Federal Home Loan Bank (“FHLB”) stock in the amount of $2.9 million, corporate stock in the amount of $1.0 million, and a venture capital fund in the amount of $274.1 thousand at December 31, 2022.
Other investments, at cost, include Federal Home Loan Bank (“FHLB”) stock in the amount of $5.4 million, corporate stock in the amount of $1.0 million, and a venture capital fund in the amount of $354.1 thousand at December 31, 2023.
At December 31, 2021, the estimated weighted average life of our investment portfolio was 6.82 years, the effective duration was 3.58, and the weighted average tax equivalent book yield was 1.73%. We held no debt securities rated below investment grade at December 31, 2022 and December 31, 2021. The following table shows the Available-for Sale investment portfolio composition.
At December 31, 2022, the estimated weighted average life of our investment portfolio was 6.41 years, the modified duration was 4.32, and the weighted average tax equivalent book yield was 3.33%. We held no debt securities rated below investment grade at December 31, 2023 and December 31, 2022. The following table shows the Available-for Sale investment portfolio composition.
As a result of our current level of tax-exempt securities in our investment portfolio and our BOLI holdings, assuming the current corporate rate remains unchanged, our effective tax rate is expected to be approximately 21.25% to 21.75%. Financial Position Assets totaled $1.7 billion at December 31, 2022 and $1.6 billion at December 31, 2021.
As a result of our current level of tax-exempt securities in our investment portfolio and our BOLI holdings, assuming the current corporate rate remains unchanged, our effective tax rate is expected to be approximately 21.75% to 22.25%. Financial Position Assets increased $154.7 million, or 9.2%, to $1.8 billion at December 31, 2023 from $1.7 billion at December 31, 2022.
Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability.
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.
The Company held FHLB stock in the amount of $698.4 thousand, corporate stock in the amount of $1.0 million, and a venture capital fund in the amount of $86.7 thousand at December 31, 2021. These are e quity securities without readily determinable fair values. Investment in the FHLB of Atlanta is a condition of borrowing from the FHLB Atlanta.
The Company held FHLB stock in the amount of $2.9 million, corporate stock in the amount of $1.0 million, and a venture capital fund in the amount of $274.2 thousand at December 31, 2022. These are equity securities without readily determinable fair values. Investment in the FHLB of Atlanta is a condition of borrowing from the FHLB Atlanta.
The following table sets forth the deposits by category: December 31, 2022 2021 2020 (In thousands) Amount % of Deposits Amount % of Deposits Amount % of Deposits Demand deposit accounts $ 461,010 33.3 % $ 444,688 32.7 % $ 385,511 32.4 % Interest bearing checking accounts 334,540 24.1 % 331,638 24.4 % 278,077 23.4 % Money market accounts 295,223 21.3 % 287,419 21.1 % 242,128 20.4 % Savings accounts 161,770 11.7 % 143,765 10.5 % 123,032 10.3 % Time deposits less than $100,000 66,410 4.8 % 74,489 5.5 % 78,794 6.6 % Time deposits more than $100,000 66,429 4.8 % 79,292 5.8 % 81,871 6.9 % Total deposits $ 1,385,382 100.0 % $ 1,361,291 100.0 % $ 1,189,413 100.0 % Large certificate of deposit customers, whom we identify as those of $100 thousand or more, tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits.
The average balance for consumer accounts was $14,995 and the average balance for non-consumer accounts was $61,570. 75 The following table sets forth the deposits by category: December 31, 2023 2022 2021 (In thousands) Amount % of Deposits Amount % of Deposits Amount % of Deposits Demand deposit accounts $ 432,333 28.6 % $ 461,010 33.3 % $ 444,688 32.7 % Interest bearing checking accounts 302,935 20.0 % 334,540 24.1 % 331,638 24.4 % Money market accounts 404,499 26.8 % 295,223 21.3 % 287,419 21.1 % Savings accounts 118,623 7.9 % 161,770 11.7 % 143,765 10.5 % Time deposits less than $100,000 128,977 8.5 % 66,410 4.8 % 74,489 5.5 % Time deposits more than $100,000 123,634 8.2 % 66,429 4.8 % 79,292 5.8 % Total deposits $ 1,511,001 100.0 % $ 1,385,382 100.0 % $ 1,361,291 100.0 % Large certificate of deposit customers, whom we identify as those of $100 thousand or more, tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits.
On April 20, 2022, we announced that our Board of Directors approved the repurchase of up to 375,000 shares of our common stock (the “2022 Repurchase Plan”), which represented approximately 5% of our 7,577,912 shares outstanding as of December 31, 2022. No repurchases have been made under the 2022 Repurchase Plan.
On April 20, 2022, we announced that our board of directors approved the repurchase of up to 375,000 shares of our common stock (the “2022 Repurchase Plan”), which represented approximately 5% of our 7,606,172 shares outstanding as of December 31, 2023.
These regulatory policies could affect our ability to pay dividends or otherwise engage in capital distributions. 72 Because the Company is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, the Company’s ability to pay dividends depends on the ability of the Bank to pay dividends to the Company, which is also subject to regulatory restrictions.
Because the Company is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, the Company’s ability to pay dividends depends on the ability of the Bank to pay dividends to the Company, which is also subject to regulatory restrictions.
December 31, (Dollars in thousands) 2022 2021 2020 Securities available-for-sale at fair value: US Treasury Securities $ 55,982 $ 15,436 $ 1,502 Government sponsored enterprises 2,074 2,501 1,006 Small Business Administration pools 21,088 31,273 35,498 Mortgage-backed securities 244,599 397,729 229,929 State and local government — 109,848 88,603 Corporate and Other Securities 8,118 8,052 3,328 Total $ 331,861 $ 564,839 $ 359,866 The following table shows the Held-to-Maturity investment portfolio composition.
December 31, (Dollars in thousands) 2023 2022 2021 Securities available-for-sale at fair value: US Treasury Securities $ 18,346 $ 55,982 $ 15,436 Government sponsored enterprises 2,129 2,074 2,501 Small Business Administration pools 15,721 21,088 31,273 Mortgage-backed securities 238,159 244,599 397,729 State and local government — — 109,848 Corporate and Other Securities 7,871 8,118 8,052 Total $ 282,226 $ 331,861 $ 564,839 The following table shows the Held-to-Maturity investment portfolio composition.
The reduction in provision for loan losses is primarily related to a decrease in our COVID-19 qualitative factor in our allowance for loan losses methodology and net recoveries during the twelve months of 2022, partially offset by increases in our economic conditions, change in staff, and changes in past due, rated, and non-accrual loan qualitative factors and loan growth as discussed above. 55 The allowance for loan losses represents an amount that we believe will be adequate to absorb probable losses on existing loans that may become uncollectible.
The reduction in provision for credit losses is primarily related to a decrease in our COVID-19 qualitative factor in our allowance for credit losses methodology and net recoveries during the twelve months of 2022, partially offset by increases in our economic conditions, change in staff, and changes in past due, rated, and non-accrual loan qualitative factors and loan growth as discussed above.
Loans maturing after one year with: Variable Rate $ 103,854 Fixed Rate 803,583 $ 907,437 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.
Loans maturing after one year with: Variable Rate $ 116,761 Fixed Rate 916,151 $ 1,032,912 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.
The cost of funds, including demand deposits, was 16 basis points during the twelve months ended December 31, 2021 compared to 33 basis points during the same period in 2020.
The cost of deposits, including demand deposits, was 1.16% during the twelve months ended December 31, 2023 compared to 13 basis points during the same period in 2022. The cost of funds, including demand deposits, was 1.48% during the twelve months ended December 31, 2023 compared to 21 basis points during the same period in 2022.
At December 31, 2022, we had ten loans totaling $565 thousand that were delinquent 30 days to 89 days representing 0.06% of total loans compared to $235 thousand or 0.03% of total loans at December 31, 2021.
At December 31, 2022, we had ten loans totaling $565 thousand that were delinquent 30 days to 89 days representing 0.06% of total loans compared to $235 thousand or 0.03% of total loans at December 31, 2021. 64 The following table summarizes the activity related to our allowance for credit losses.
The loan-to-deposit ratio (including loans held-for-sale) at December 31, 2022 and December 31, 2021 was 70.9% and 64.0%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at December 31, 2022 and December 31, 2021 was 70.8% and 63.4%, respectively.
The loan-to-deposit ratio (including loans held-for-sale) at December 31, 2023 and December 31, 2022 was 75.3% and 70.9%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at December 31, 2023 and December 31, 2022 was 75.1% and 70.8%, respectively.
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. We had no brokered deposits and no listing services deposits at December 31, 2022 and December 31, 2021.
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.
At December 31, 2022, we had issued commitments to extend unused credit of $156.9 million, including $47.3 million in unused home equity lines of credit, through various types of lending arrangements.
At December 31, 2023, we had issued commitments to extend unused credit of $214.2 million, including $53.1 million in unused home equity lines of credit, through various types of lending arrangements.
A favorable tax settlement would result in a reduction in our effective income tax rate in the period of resolution. 45 Financial Highlights As of or For the Years Ended December 31, (Dollars in thousands except per share amounts) 2022 2021 2020 Balance Sheet Data: Total assets $ 1,672,946 $ 1,584,508 $ 1,395,382 Loans held for sale 1,779 7,120 45,020 Loans 980,857 863,702 844,157 Deposits 1,385,382 1,361,291 1,189,413 Total common shareholders’ equity 118,361 140,998 136,337 Total shareholders’ equity 118,361 140,998 136,337 Average shares outstanding, basic 7,528 7,491 7,446 Average shares outstanding, diluted 7,608 7,549 7,482 Results of Operations: Interest income $ 51,117 $ 47,520 $ 43,778 Interest expense 3,174 2,241 3,755 Net interest income 47,943 45,279 40,023 Provision for (release of) loan losses (152 ) 335 3,663 Net interest income after provision for (release of) loan losses 48,095 44,944 36,360 Non-interest income 11,569 13,904 13,769 Non-interest expenses 41,253 39,201 37,534 Income before taxes 18,411 19,647 12,595 Income tax expense 3,798 4,182 2,496 Net income 14,613 15,465 10,099 Net income available to common shareholders 14,613 15,465 10,099 Per Share Data: Basic earnings per common share $ 1.94 $ 2.06 $ 1.36 Diluted earnings per common share 1.92 2.05 1.35 Book value at period end 15.62 18.68 18.18 Tangible book value at period end (non-GAAP) 13.59 16.62 16.08 Dividends per common share 0.52 0.48 0.48 Asset Quality Ratios: Non-performing assets to total assets (3) 0.35 % 0.09 % 0.50 % Non-performing loans to period end loans 0.50 % 0.03 % 0.69 % Net charge-offs (recoveries) to average loans (0.03 )% (0.05 )% (0.01 )% Allowance for loan losses to period-end total loans 1.16 % 1.29 % 1.23 % Allowance for loan losses to non-performing assets 194.41 % 789.98 % 148.10 % Selected Ratios: Return on average assets 0.88 % 1.02 % 0.78 % Return on average common equity: 11.99 % 11.22 % 7.84 % Return on average tangible common equity (non-GAAP): 13.73 % 12.65 % 8.94 % Efficiency Ratio (non-GAAP) (1) 68.60 % 66.09 % 69.99 % Noninterest income to operating revenue (2) 19.44 % 23.49 % 25.60 % Net interest margin (tax equivalent) 3.14 % 3.23 % 3.37 % Equity to assets 7.08 % 8.90 % 9.77 % Tangible common shareholders’ equity to tangible assets (non-GAAP) 6.21 % 8.00 % 8.74 % Tier 1 risk-based capital (Bank) (4) 13.49 % 14.00 % 12.83 % Total risk-based capital (Bank) (4) 14.54 % 15.80 % 13.94 % Leverage (Bank) (4) 8.63 % 8.45 % 8.84 % Average loans to average deposits (5) 64.92 % 68.77 % 76.79 % (1) The efficiency ratio is a key performance indicator in our industry.
If our hedging strategy was to become ineffective, hedge accounting would no longer apply and the reported results of operations or financial condition could be materially affected. 51 Financial Highlights As of or For the Years Ended December 31, (Dollars in thousands except per share amounts) 2023 2022 2021 Balance Sheet Data: Total assets $ 1,827,688 $ 1,672,946 $ 1,584,508 Loans held for sale 4,433 1,779 7,120 Loans 1,134,019 980,857 863,702 Deposits 1,511,001 1,385,382 1,361,291 Total common shareholders’ equity 131,059 118,361 140,998 Total shareholders’ equity 131,059 118,361 140,998 Average shares outstanding, basic 7,568 7,528 7,491 Average shares outstanding, diluted 7,647 7,608 7,549 Results of Operations: Interest income $ 72,697 $ 51,117 $ 47,520 Interest expense 23,805 3,174 2,241 Net interest income 48,892 47,943 45,279 Provision for (release of) credit losses 1,129 (152 ) 335 Net interest income after provision for (release of) credit losses 47,763 48,095 44,944 Non-interest income 10,421 11,569 13,904 Non-interest expenses 43,144 41,253 39,201 Income before taxes 15,040 18,411 19,647 Income tax expense 3,197 3,798 4,182 Net income 11,843 14,613 15,465 Net income available to common shareholders 11,843 14,613 15,465 Per Share Data: Basic earnings per common share $ 1.56 $ 1.94 $ 2.06 Diluted earnings per common share 1.55 1.92 2.05 Book value at period end 17.23 15.62 18.68 Tangible book value at period end (non-GAAP) 15.23 13.59 16.62 Dividends per common share 0.56 0.52 0.48 Asset Quality Ratios: Non-performing assets to total assets (3) 0.05 % 0.35 % 0.09 % Non-performing loans to period end loans 0.02 % 0.50 % 0.03 % Net charge-offs (recoveries) to average loans 0.00 % (0.03 )% (0.05 )% Allowance for credit losses to period-end total loans 1.08 % 1.16 % 1.29 % Allowance for credit losses to non-performing assets 1,492.36 % 194.41 % 789.98 % Selected Ratios: Return on average assets 0.68 % 0.88 % 1.02 % Return on average common equity: 9.59 % 11.99 % 11.22 % Return on average tangible common equity (non-GAAP): 10.95 % 13.73 % 12.65 % Efficiency Ratio (non-GAAP) (1) 71.23 % 68.60 % 66.09 % Noninterest income to operating revenue (2) 17.57 % 19.44 % 23.49 % Net interest margin (tax equivalent) 3.01 % 3.14 % 3.23 % Equity to assets 7.17 % 7.08 % 8.90 % Tangible common shareholders’ equity to tangible assets (non-GAAP) 6.39 % 6.21 % 8.00 % Tier 1 risk-based capital (Bank) (4) 12.53 % 13.49 % 14.00 % Total risk-based capital (Bank) (4) 13.58 % 14.54 % 15.80 % Leverage (Bank) (4) 8.45 % 8.63 % 8.45 % Average loans to average deposits (5) 73.25 % 64.92 % 68.77 % (1) The efficiency ratio is a key performance indicator in our industry.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk 74 Item 8. Financial Statements and Supplementary Data 74 Consolidated Balance Sheets 78 Consolidated Statements of Income 79 Consolidated Statements of Comprehensive Income (Loss) 80 Consolidated Statements of Changes in Shareholders’ Equity 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 83
Biggest changeItem 7A. Quantitative and Qualitative Disclosures about Market Risk 80 Item 8. Financial Statements and Supplementary Data 80 Consolidated Balance Sheets 84 Consolidated Statements of Income 85 Consolidated Statements of Comprehensive Income (Loss) 86 Consolidated Statements of Changes in Shareholders’ Equity 87 Consolidated Statements of Cash Flows 88 Notes to Consolidated Financial Statements 89

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