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What changed in FIRST COMMUNITY CORP /SC/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of FIRST COMMUNITY CORP /SC/'s 2023 and 2024 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 2024 report.

+527 added−480 removedSource: 10-K (2025-03-14) vs 10-K (2024-03-21)

Top changes in FIRST COMMUNITY CORP /SC/'s 2024 10-K

527 paragraphs added · 480 removed · 364 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

98 edited+42 added−38 removed178 unchanged
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.
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.
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.
Department of Justice (“DOJ”) (in consultation with the Federal Reserve, the Office of the Comptroller of the Currency (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.
Dividends . As a bank holding company, the Company’s ability to declare and pay dividends is dependent on certain federal and state regulatory considerations, including the guidelines of the Federal Reserve. The Federal Reserve has issued a policy statement regarding the payment of dividends by bank holding companies.
As a bank holding company, the Company’s ability to declare and pay dividends is dependent on certain federal and state regulatory considerations, including the guidelines of the Federal Reserve. The Federal Reserve has issued a policy statement regarding the payment of dividends by bank holding companies.
On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, FDIC, and Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” On May 5, 2022, the OCC, FDIC, and Federal Reserve released a notice of proposed rulemaking regarding the CRA and invited public comment on the proposed rules.
On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, the FDIC, and the Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” On May 5, 2022, the OCC, FDIC, and Federal Reserve released a notice of proposed rulemaking regarding the CRA and invited public comment on the proposed rules.
Under the Gramm-Leach-Bliley Act, otherwise referred to as the GLBA, subject to certain conditions imposed by their respective banking regulators, national and state-chartered banks are permitted to form “financial subsidiaries” that may conduct financial or incidental activities, thereby permitting bank subsidiaries to engage in certain activities that previously were impermissible.
Financial Subsidiaries. Under the Gramm-Leach-Bliley Act, otherwise referred to as the GLBA, subject to certain conditions imposed by their respective banking regulators, national and state-chartered banks are permitted to form “financial subsidiaries” that may conduct financial or incidental activities, thereby permitting bank subsidiaries to engage in certain activities that previously were impermissible.
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.
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.
Our ability to pay dividends depends on, among other things, the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “First Community Bank—Dividends.” We are also able to raise capital for contribution to the Bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws.
Our ability to pay dividends depends on, among other things, the Bank’s ability to pay dividends to us, which is subject to regulatory restrictions as described below in “First Community Bank—Dividends.” We are also able to raise capital for contribution to the Bank by issuing securities without having to receive regulatory approval, subject to compliance with federal and state securities laws. 13 Dividends .
The FDIC also requires the Bank to prepare annual reports on the Bank’s financial condition and to conduct an annual audit of its financial affairs in compliance with its minimum standards and procedures. 19 All insured institutions must undergo regular on-site examinations by their appropriate banking agency.
The FDIC also requires the Bank to prepare annual reports on the Bank’s financial condition and to conduct an annual audit of its financial affairs in compliance with its minimum standards and procedures. All insured institutions must undergo regular on-site examinations by their appropriate banking agency.
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.
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.
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.
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. 7 Strong Work Ethic - Our employees take pride in the quality of the work that they do.
The fully phased-in capital conservation buffer of 2.500%, which became effective on January 1, 2019, resulted in the following effective minimum capital ratios for the Bank beginning in 2019: (i) a Common Equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%.
The fully phased-in capital conservation buffer of 2.5%, which became effective on January 1, 2019, resulted in the following effective minimum capital ratios for the Bank beginning in 2019: (i) a Common Equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%.
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.
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.
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.
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.
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.
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.
The final rule will take effect on April 1, 2024; however, compliance with the majority of the final rule’s provisions will not be required until January 1, 2026, and the data reporting requirements of the final rule will not take effect until January 1, 2027.
The final rule took effect on April 1, 2024; however, compliance with the majority of the final rule’s provisions will not be required until January 1, 2026, and the data reporting requirements of the final rule will not take effect until January 1, 2027.
(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.
(2) All deposit data is based on June 30, 2024 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.
We engage in a commercial banking business from our main office in Lexington, South Carolina and our 22 full-service offices located in: the Midlands of South Carolina, which includes Lexington County (6 offices), Richland County (4 offices), Newberry County (2 offices) and Kershaw County (1 office); the Upstate of South Carolina, which includes Greenville County (2 offices), Anderson County (1 office) and Pickens County (1 office); the Piedmont Region of South Carolina, which includes York County, South Carolina (1 office) and the Central Savannah River Area, which includes Aiken County, South Carolina (1 office); and in Augusta, Georgia, which includes Richmond County (2 offices) and Columbia County (1 office).
We engage in a commercial banking business from our main office in Lexington, South Carolina and our 21 full-service offices located in: the Midlands of South Carolina, which includes Lexington County (6 offices), Richland County (4 offices), Newberry County (2 offices) and Kershaw County (1 office); the Upstate of South Carolina, which includes Greenville County (2 offices), Anderson County (1 office) and Pickens County (1 office); the Piedmont Region of South Carolina, which includes York County, South Carolina (1 office) and the Central Savannah River Area, which includes Aiken County, South Carolina (1 office); and in Augusta, Georgia, which includes Richmond County (1 office) and Columbia County (1 office).
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
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. 23
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.
The Upstate region major employers include, among others, Prisma Health, Greenville County Schools, BMW Manufacturing Corp., Michelin North America, Milliken & Company, Bon Secours St. Francis Health System, AnMed Health Medical Center, Clemson University, Duke Energy Corp., GE Vernova, and the Greenville County Government.
Community Reinvestment Act. The Bank is subject to certain requirements and reporting obligations under the CRA, which requires federal banking regulators to evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate- income neighborhoods.
The Bank is subject to certain requirements and reporting obligations under the CRA, which requires federal banking regulators to evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate- income neighborhoods.
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.
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.
We made this opt-out election and, as a result, retained our pre-existing treatment for AOCI. Proposed new rules for U.S. implementation of capital requirements under Basel IV rules, more recently referred to as the “Basel III Endgame”, were issued by the U.S. federal banking agencies on July 27, 2023.
We made this opt-out election and, as a result, retained our pre-existing treatment for AOCI. Proposed new rules for U.S. implementation of capital requirements under Basel IV rules, more recently referred to as the “Basel III Endgame,” were issued by the U.S. federal banking agencies on July 27, 2023.
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.
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, Southeastern Freight Lines, and Michelin North America.
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 .
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. 15 As of December 31, 2024, the Bank was deemed to be “well capitalized.” Standards for Safety and Soundness .
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.
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. 14 Prompt Corrective Action.
Under the Bank Holding Company Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in, the following activities: · banking or managing or controlling banks; · furnishing services to or performing services for our subsidiaries; and · any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking; Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: · factoring accounts receivable; · making, acquiring, brokering or servicing loans and usual related activities; · leasing personal or real property; · operating a non-bank depository institution, such as a savings association; · trust company functions; · financial and investment advisory activities; · conducting discount securities brokerage activities; · underwriting and dealing in government obligations and money market instruments; · providing specified management consulting and counseling activities; · performing selected data processing services and support services; · acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and · performing selected insurance underwriting activities.
Under the Bank Holding Company Act, a bank holding company is generally permitted to engage in, or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in, the following activities: · banking or managing or controlling banks; · furnishing services to or performing services for our subsidiaries; and · any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking; Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: · factoring accounts receivable; · making, acquiring, brokering or servicing loans and usual related activities; · leasing personal or real property; · operating a non-bank depository institution, such as a savings association; · trust company functions; · financial and investment advisory activities; · conducting discount securities brokerage activities; · underwriting and dealing in government obligations and money market instruments; · providing specified management consulting and counseling activities; · performing selected data processing services and support services; · acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and · performing selected insurance underwriting activities. 12 As a bank holding company, we also can elect to be treated as a “financial holding company,” which would allow us to engage in a broader array of activities.
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.
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, 2024, the maximum amount we could lend to one borrower is $26.6 million.
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.
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.
We also offer a full range of commercial and personal loans. Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements), and the purchase of equipment and machinery. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, education, and personal investments.
Commercial loans include both secured and unsecured loans for working capital (including inventory and receivables), business expansion (including acquisition of real estate and improvements), and the purchase of equipment and machinery. Consumer loans include secured and unsecured loans for financing automobiles, home improvements, education, and personal investments. We also make real estate construction and acquisition loans.
In a May 2022 speech, the acting head of the OCC announced that he had asked his staff to work with DOJ and other federal banking agencies to review the agency’s frameworks to analyze bank mergers. In May 2022, the CFPB announced the establishment of an Office of Competition and Innovation.
In a May 2022 speech, the acting head of the OCC announced that he had asked his staff to work with DOJ and other federal banking agencies to review the agency’s frameworks to analyze bank mergers.
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 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 14, 2025, are as follows: Name (age) Position and Five Year History with Company With the Company Since Michael C. Crapps (66) Chief Executive Officer and President, Director 1994 J.
The CFPB’s focus on fees was emphasized through its ongoing enforcement activity, including a notable enforcement action taken against Bank of America that required the payment of more than $100 million to customers, with similar size fines paid to both the CFPB and the OCC.
The CFPB’s focus on fees was emphasized through its ongoing enforcement activity, including a notable enforcement action taken against Bank of America that required the payment of more than $100 million to customers, with similar size fines paid to both the CFPB and the OCC. In February 2025, President Trump took significant actions affecting the CFPB.
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.
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.
Based on the Bank’s loan portfolio as of December 31, 2023, its non-owner occupied commercial loans and its construction and land development loans were approximately 313% and 74% of total risk-based capital, respectively. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 47% from December 31, 2020 to December 31, 2023.
Based on the Bank’s loan portfolio as of December 31, 2024, its non-owner occupied commercial loans and its construction and land development loans were approximately 305% and 82% of total risk-based capital, respectively. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 46% from December 31, 2021 to December 31, 2024.
If there are no comparable transactions, a bank’s (or one of its subsidiaries’) affiliate transaction must be on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliated companies. These requirements apply to all transactions subject to Section 23A as well as to certain other transactions.
If there are no comparable transactions, a bank’s (or one of its subsidiaries’) affiliate transaction must be on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliated companies.
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.
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.
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. 22 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 affiliates of a bank include any holding company of the bank, any other company under common control with the bank (including any company controlled by the same shareholders who control the bank), any subsidiary of the bank that is itself a bank, any company in which the majority of the directors or trustees also constitute a majority of the directors or trustees of the bank or holding company of the bank, any company sponsored and advised on a contractual basis by the bank or an affiliate, and any mutual fund advised by a bank or any of the bank’s affiliates.
These requirements apply to all transactions subject to Section 23A as well as to certain other transactions. 11 The affiliates of a bank include any holding company of the bank, any other company under common control with the bank (including any company controlled by the same shareholders who control the bank), any subsidiary of the bank that is itself a bank, any company in which the majority of the directors or trustees also constitute a majority of the directors or trustees of the bank or holding company of the bank, any company sponsored and advised on a contractual basis by the bank or an affiliate, and any mutual fund advised by a bank or any of the bank’s affiliates.
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.
In December 2019, the FDIC and 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.
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.
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.
(Drew) Painter (46) Co-Chief Commercial and Retail Banking Officer, formerly Senior Vice President and Regional Market President 2003 On December 14, 2023, we announced promotions and additions to our Executive Leadership Team. Effective January 1, 2024, Joseph A. “Drew” Painter and Vaughan R. Dozier, Jr. became Executive Vice Presidents in the roles of Co-Chief Commercial and Retail Banking Officers.
(Drew) Painter (47) Co-Chief Commercial and Retail Banking Officer, formerly Senior Vice President and Regional Market President of First Community Bank 2003 On December 14, 2023, we announced promotions and additions to our Executive Leadership Team. Effective January 1, 2024, Joseph A. “Drew” Painter and Vaughan R.
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.
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.
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.
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.
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.
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.
Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
We expect this trend of state-level activity in those areas to continue and are continually monitoring developments in the states in which our customers are located. 21 Risks and exposures related to cybersecurity attacks, including litigation and enforcement risks, are expected to be elevated for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
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.
With the acquisition of Cornerstone Bancorp in 2017, we added a branch in each of Greenville, Pickens, and Anderson Counties of South Carolina. Greenville County is the largest county in South Carolina. We refer to this three-county area as the “Upstate” region of South Carolina.
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 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, 2024, we had 260 full-time, 10 part-time, and eight seasonal/on-call employees.
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.
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.
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 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.
The transaction accounts and time certificates are tailored to our principal market area at rates competitive to those offered in the area. In addition, we offer certain retirement account services, such as individual retirement accounts (“IRAs”). All deposit accounts are insured by the FDIC up to the maximum amount allowed by law (currently, $250,000, subject to aggregation rules).
The transaction accounts and time certificates are tailored to our principal market area at rates competitive to those offered in the area. In addition, we offer certain retirement account services, such as individual retirement accounts (“IRAs”).
Management has and will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank. Fair Lending Requirements. We are subject to certain fair lending requirements and reporting obligations involving lending operations.
The effective date will be extended each day the injunction remains in place, pending the resolution of the lawsuit. Management has and will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank. Fair Lending Requirements. We are subject to certain fair lending requirements and reporting obligations involving lending operations.
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.
The largest employers in our CSRA market area include the U.S. Army Cyber Center of Excellence & Fort Gordon, Augusta University, NSA Augusta, Wellstar MCG Health, Columbia County Board of Education, Richmond County School System, Piedmont Hospital, Amazon, Carlisle Tire & Wheel, CB&I AREVA MOX Services, Aiken Regional Medical Center, and the Department of Energy, Savannah River Site.
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.
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.
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 December 2012, the DOJ and CFPB entered into a Memorandum of Understanding under which the agencies have agreed to share information, coordinate investigations, and have generally committed to strengthen their coordination efforts. 17 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.
The Bank also supports the development of employees through external educational opportunities such as various bankers’ schools that offer multi-year development programs as well as short term training classes and industry conferences.
Furthermore, we have an internal CEO Conversation Group, which provides our current and emerging leaders with leadership conversations with our CEO. The Bank also supports the development of employees through external educational opportunities such as various bankers’ schools that offer multi-year development programs as well as short term training classes and industry conferences.
Under Basel III, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.
Under Basel III, 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.
Certain arrangements are permissible: a bank may offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products; and certain foreign transactions are exempt from the general rule. A bank holding company or any bank affiliate also is subject to anti-tying requirements in connection with electronic benefit transfer services.
Certain arrangements are permissible: a bank may offer combined-balance products and may otherwise offer more favorable terms if a customer obtains two or more traditional bank products; and certain foreign transactions are exempt from the general rule.
Shawn Jordan (56) Chief Financial Officer, formerly Executive Vice President 2019 Vaughan R. Dozier, Jr. (43) Co-Chief Commercial and Retail Banking Officer, formerly Senior Vice President and Regional Market President 2008 Joseph A.
(Jack) Walker (59) Chief Credit Officer 2009 D. Shawn Jordan (57) Chief Financial Officer 2019 Vaughan R. Dozier, Jr. (44) Co-Chief Commercial and Retail Banking Officer, formerly Senior Vice President and Regional Market President of First Community Bank 2008 Joseph A.
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.
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.
The Office of Foreign Assets Control (“OFAC”), which is a division of the U.S. Department of the Treasury (the “Treasury”), is responsible for helping to ensure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress.
Department of the Treasury (the “Treasury”), is responsible for helping to ensure that United States entities do not engage in transactions with “enemies” of the United States, as defined by various Executive Orders and Acts of Congress. OFAC publishes lists of names of persons and organizations with which the Bank is prohibited from engaging in business.
In October 2023, FATF removed Albania, Cayman Islands, Jordan, and Panama from its lists of Jurisdictions under Increased Monitoring and added Bulgaria. Privacy and Data Security. There are a number of state and federal laws and regulations that govern financial privacy and cybersecurity.
Globally, the Financial Action Task Force (“FATF”) updates its high-risk jurisdiction lists, affecting due diligence requirements for international transactions. In October 2023, FATF removed Albania, Cayman Islands, Jordan, and Panama from its monitoring list and added Bulgaria. Privacy and Data Security. There are a number of state and federal laws and regulations that govern financial privacy and cybersecurity.
We also offer retirement benefits with a 401(k) plan with matching and profit sharing.
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.
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.
As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.
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.
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.
Size gives larger banks certain advantages in competing for business from large corporations. These advantages include higher lending limits and the ability to offer services in other areas of South Carolina and Georgia. As a result, we do not generally attempt to compete for the banking relationships of large corporations, but concentrate our efforts on small-to-medium sized businesses and individuals.
Size gives larger banks certain advantages in competing for business from large corporations. These advantages include higher lending limits and the ability to offer services in other areas of South Carolina and Georgia.
The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol.
The Federal Reserve’s standards for determining whether one company has control over another established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control.
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.
The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category. 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. 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.
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.
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.
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 third largest county in South Carolina.
Regulatory capital rules known as the Basel III rules or Basel III, impose minimum capital requirements for bank holding companies and banks. Basel III was released in the form of enforceable regulations by each of the applicable federal bank regulatory agencies.
Basel III was released in the form of enforceable regulations by each of the applicable federal bank regulatory agencies.
OFAC publishes lists of names of persons and organizations with which the Bank is prohibited from engaging in business. If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report, and notify the FBI.
If the Bank finds a name on any transaction, account or wire transfer that is on an OFAC list, it must freeze such account, file a suspicious activity report, and notify the FBI. The Bank has appointed an OFAC compliance officer to oversee the inspection of its accounts and the filing of any notifications.
Bank regulators take into account compliance with consumer protection laws when considering approval of a proposed expansionary proposals. 23 Enforcement Powers.
These moves have been met with legal challenges and public debate regarding the future of the agency. 19 Bank regulators take into account compliance with consumer protection laws when considering approval of a proposed expansionary proposals. Enforcement Powers.
We offer a wide range of traditional banking products and services for professionals and small-to medium-sized businesses, including consumer and commercial, mortgage, brokerage and investment, and insurance services. We also offer online banking to our customers. We have grown organically and through acquisitions. Our stock trades on The NASDAQ Capital Market under the symbol “FCCO”.
We also offer online banking to our customers. We have grown organically and through acquisitions. Our stock trades on The NASDAQ Capital Market under the symbol “FCCO”.
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. In 2016, federal agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions. The proposal would create four tiers of institutions based on asset size.
In 2016, federal agencies proposed regulations which could significantly change the regulation of incentive compensation programs at financial institutions. The proposal would create four tiers of institutions based on asset size. Institutions in the top two tiers would be subject to rules much more detailed and proscriptive than are currently in effect.
Further, the CFPB proposed rulemaking related to Residential Property Assessed Clean Entergy Financing, quality control standards for automated valuation models, and personal financial data rights (discussed in more detail above).
In March 2024, the CFPB finalized a rule that addresses late fees charged by card issuers that together with their affiliates have one million or more open credit card accounts. Further, the CFPB proposed rulemaking related to Residential Property Assessed Clean Energy Financing, quality control standards for automated valuation models, and personal financial data rights (discussed in more detail above).
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.
As of June 30, 2024, there were 27 financial institutions operating approximately 158 offices in the Midlands market, 21 financial institutions operating 90 branches in the CSRA market, 41 financial institutions operating 230 branches in the Upstate market, and 18 financial institutions operating 47 branches in the Piedmont market.
Better capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital. The FDIC’s regulations set forth five capital categories, each with specific regulatory consequences. The categories are: · Well Capitalized—The institution exceeds the required minimum level for each relevant capital measure.
Regulators are also empowered to place in receivership or require the sale of a bank to another depository institution when a bank’s leverage ratio reaches two percent. Better capitalized institutions are generally subject to less onerous regulation and supervision than banks with lesser amounts of capital. The FDIC’s regulations set forth five capital categories, each with specific regulatory consequences.
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.
According to S&P Global Market Intelligence, 2025 median household incomes for each of the counties in the regions noted above were as follows: Richland County, SC $ 64,520 Lexington County, SC $ 74,805 Newberry County, SC $ 62,392 Kershaw County, SC $ 62,464 Greenville County, SC $ 73,698 Anderson County, SC $ 63,945 Pickens County, SC $ 58,326 Aiken County, SC $ 67,850 Richmond County, GA $ 51,339 Columbia County, GA $ 95,838 York County, SC $ 89,527 The county estimates noted above compare to 2025 statewide median household income estimates of $67,758 and $75,118 for South Carolina and Georgia, respectively.
Prompt Corrective Action. The FDICIA established a “prompt corrective action” program in which every bank is placed in one of five regulatory categories, depending primarily on its regulatory capital levels.
The FDICIA established a “prompt corrective action” program in which every bank is placed in one of five regulatory categories, depending primarily on its regulatory capital levels. The FDIC and the other federal banking regulators are permitted to take increasingly severe action as a bank’s capital position or financial condition declines below the “Adequately Capitalized” level described below.
If a pattern or practice of lending discrimination is alleged by a regulator, then the matter may be referred by the agency to the DOJ for investigation. In December 2012, the DOJ and CFPB entered into a Memorandum of Understanding under which the agencies have agreed to share information, coordinate investigations, and have generally committed to strengthen their coordination efforts.
If a pattern or practice of lending discrimination is alleged by a regulator, then the matter may be referred by the agency to the DOJ for investigation.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeImposition of limits by the bank regulators on commercial and multi-family real estate lending activities could curtail our growth and adversely affect our earnings. In 2006, the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”).
Biggest changeWe perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within the Bank’s loan portfolio monthly. 25 Imposition of limits by the bank regulators on commercial and multi-family real estate lending activities could curtail our growth and adversely affect our earnings.
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.
Although we take steps to minimize reputation risk, this risk will always be present given the nature of our business. 33 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.
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.
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. We use brokered deposits which may be an unstable and/or expensive deposit source to fund earning asset growth.
The high-profile bank failures in 2023 involving Silicon Valley Bank, Signature Bank, and First Republic Bank caused general uncertainty and concern regarding the liquidity adequacy of the banking sector.
The high-profile bank failures in 2023 and 2024 involving Silicon Valley Bank, Signature Bank, First Republic Bank, and Republic First Bank caused general uncertainty and concern regarding the liquidity adequacy of the banking sector.
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.
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. 36 Economic and other circumstances may require us to raise capital at times or in amounts that are unfavorable to us.
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.
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, 2024.
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.
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. 37 An investment in our common stock is not an insured deposit.
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.
Loss of part or all of our DTAs would have a material adverse effect on our financial condition and results of operations. 35 Our ability to realize deferred tax assets may be reduced, which may adversely impact our results of operations.
We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within the Bank’s loan portfolio monthly.
We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within our loan portfolio monthly.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, high unemployment, natural disasters, epidemics and pandemics (such as COVID-19), or a combination of these or other factors.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, increases in inflation or interest rates, high unemployment, natural disasters, epidemics and pandemics, or a combination of these or other factors.
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.
As of December 31, 2024, we had net deferred tax assets of $12.0 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.
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.
Securities which have unrealized losses were not considered to be credit loss impaired at December 31, 2024 or at December 31, 2023 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.
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.
Under the Biden Administration, Congressional committees with jurisdiction over the banking sector 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 pandemic responses and economic recovery.
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.
In December 2015, the regulatory agencies released a statement on prudent risk management for commercial real estate lending that indicated, among other things, the intent to continue “to pay special attention” to commercial real estate lending activities and concentrations going forward.
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.
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.
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.
Michael C. Crapps, our president and chief executive officer, and Mr. Nissen, the Bank’s president and 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. Crapps or Mr.
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.
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, 2024, $5.5 million of our commercial loans, or 3.1% of the Bank’s regulatory capital, exceeded the supervisory loan-to-value ratio.
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.
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, 2024, commercial business loans comprised 7.1% of our total loan portfolio.
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.
The potential impact of the unified Republican government on additional changes in agency structure, personnel, policies and priorities on the financial services sector, including the Company and the Bank, cannot be fully predicted at this time. Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us.
While we generally underwrite the loans in our portfolio in accordance with our own internal underwriting guidelines and regulatory supervisory guidelines, in certain circumstances we have made loans which exceed either our internal underwriting guidelines, supervisory guidelines, or both.
Our underwriting decisions may materially and adversely affect our business. While we generally underwrite the loans in our portfolio in accordance with our own internal underwriting guidelines and regulatory supervisory guidelines, in certain circumstances we have made loans which exceed either our internal underwriting guidelines, supervisory guidelines, or both.
With the risk of any additional bank failures, we may face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity, and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
Further, with the risk of any additional bank failures, we may face the potential for reputational risk, deposit outflows, increased costs and competition for liquidity, and increased credit risk which, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations. 28 Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.
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.
Our investment securities portfolio is a significant component of our total earning assets. Total investment securities averaged $491.0 million in 2024, as compared to $541.1 million in 2023. This represents 27.5% and 33.2% of the average earning assets for the years ended December 31, 2024 and 2023, respectively.
Making loans and other extensions of credit is an essential element of our business. Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, our loans and other extensions of credit may not be repaid.
Although we seek to mitigate risks inherent in lending by adhering to specific underwriting practices, our loans and other extensions of credit may not be repaid.
Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition. Our deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC and are subject to deposit insurance assessments to maintain deposit insurance. As an FDIC-insured institution, we are required to pay quarterly deposit insurance premium assessments to the FDIC.
Our deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC and are subject to deposit insurance assessments to maintain deposit insurance. As an FDIC-insured institution, we are required to pay quarterly deposit insurance premium assessments to the FDIC.
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.
As of December 31, 2024, approximately $16.6 million of our loans, or 9.3% 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 three loans totaling approximately $606 thousand had loan-to-value ratios of 100% or more.
Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure could receive increased supervisory scrutiny where (i) total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an institution’s total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months, or (ii) construction and land development loans exceed 100% of total risk-based capital.
The 2006 “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”) provides that a bank’s commercial real estate lending exposure could receive increased supervisory scrutiny where (i) total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, represent 300% or more of an institution’s total risk-based capital, and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months, or (ii) construction and land development loans exceed 100% of total risk-based capital.
The Bank is subject to strict capital requirements, which could be amended to be more stringent, in the future. The Bank is subject to regulatory requirements specifying minimum amounts and types of capital that we must maintain and an additional capital conservation buffer. From time to time, the regulators change these regulatory capital adequacy guidelines.
The Bank is subject to regulatory requirements specifying minimum amounts and types of capital that we must maintain and an additional capital conservation buffer. From time to time, the regulators change these regulatory capital adequacy guidelines.
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.
Our total non-owner-occupied commercial real estate loans represented 305% of the Bank’s total risk-based capital at December 31, 2024, and our construction and land development loans represented 82% of the Bank’s total risk-based capital at December 31, 2024. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 46% from December 31, 2021 to December 31, 2024.
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.
As of December 31, 2024, we had approximately $921.0 million in loans outstanding to borrowers whereby the collateral securing the loan was commercial real estate, representing approximately 75.5% of our total loans outstanding as of that date. Approximately $283.7 million, or 23.2% of our total loans, and 30.8% of our commercial real estate loans are secured by owner-occupied properties.
Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible.
In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved, and price and profitability targets may not prove feasible.
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.
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.
Many external factors may interfere with the effects of these plans or cause them to be changed, sometimes quickly. Such factors include significant economic trends or events as well as significant international monetary policies and events. These economic strategies have had, and will continue to have, a significant impact on our business and on many of our customers.
Many external factors may interfere with the effects of these plans or cause them to be changed, sometimes quickly. Such factors include significant economic trends or events as well as significant international monetary policies and events.
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.
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. 27 The Bank is subject to strict capital requirements, which could be amended to be more stringent, in the future.
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.
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. Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel.
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.
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.
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.
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.
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.
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. 34 The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve.
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.
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.
Our average loan size continues to increase and reliance on our historic allowance for credit losses may not be adequate. As of December 31, 2024, approximately 84.8% of our loan portfolio (excluding loans held for sale) is composed of construction (12.5%), commercial mortgage (65.2%) and commercial (7.1%) loans.
The number of loans in our portfolio with loan-to-value ratios in excess of supervisory guidelines, our internal guidelines, or both could increase the risk of delinquencies and defaults in our portfolio, which could have a material adverse effect on our financial condition and results of operations.
The number of loans in our portfolio with loan-to-value ratios in excess of supervisory guidelines, our internal guidelines, or both could increase the risk of delinquencies and defaults in our portfolio, which could have a material adverse effect on our financial condition and results of operations. 26 We depend on the accuracy and completeness of information about clients and counterparties and our financial condition could be adversely affected if we rely on misleading information.
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.
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.
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.
Fraud-related costs—including regulatory scrutiny, legal liability, and business disruption—could materially impact our operations. 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.
Operational Risks A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers or other third parties, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses.
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. 31 Operational Risks A failure in or breach of our operational or security systems or infrastructure, or those of our third party vendors and other service providers or other third parties, including as a result of cyber attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs, and cause losses.
In addition, the Dodd-Frank Act directs the federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as a source of strength for the institution. Under these requirements, in the future, we could be required to provide financial assistance to our Bank if the Bank experiences financial distress.
In addition, the Dodd-Frank Act directs the federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as a source of strength for the institution.
There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources.
New lines of business or new products and services may subject us to additional risk. From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed.
A capital injection may be required at times when we do not have the resources to provide it, and therefore we may be required to borrow the funds.
Under these requirements, in the future, we could be required to provide financial assistance to our Bank if the Bank experiences financial distress. 34 A capital injection may be required at times when we do not have the resources to provide it, and therefore we may be required to borrow the funds.
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.
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.
We may also expand into new markets, like we did in York County, South Carolina in 2022, or lines of business or offer new products or services.
From time to time, we may seek to acquire other financial institutions or parts of those institutions. We may also expand into new markets, like we did in York County, South Carolina, which we refer to as the Piedmont Region, in 2022, or lines of business or offer new products or services.
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.
Moreover, a portion of these loans have been made by us in recent years and the borrowers may not have experienced a complete business or economic cycle. 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.
Failure to successfully keep pace with technological changes could have a material adverse impact on our business, financial condition, and results of operations. New lines of business or new products and services may subject us to additional risk. From time to time, we may implement new lines of business or offer new products and services within existing lines of business.
Failure to successfully keep pace with technological changes could have a material adverse impact on our business, financial condition, and results of operations.
Risks Related to Our Strategy We may be adversely affected by risks associated with future mergers and acquisitions, including execution risk, which could disrupt our business and dilute shareholder value. From time to time, we may seek to acquire other financial institutions or parts of those institutions.
Any future regulatory changes or capital constraints could increase our funding costs and impact liquidity. 30 Risks Related to Our Strategy We may be adversely affected by risks associated with future mergers and acquisitions, including execution risk, which could disrupt our business and dilute shareholder value.
Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risks of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Though we endeavor to mitigate these threats through product improvements, use of encryption and authentication technology and customer and employee education, such cyber-attacks against us, our merchants, our third-party service providers and our customers remain a serious issue. 32 Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risks of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk. Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
Sustained higher interest rates by the Federal Reserve may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
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.
The pretax unrealized net holding loss on the available for sale securities on the date of transfer totaled approximately $16.7 million and continued to be reported as a component of accumulated other comprehensive loss. This net unrealized loss is being amortized to interest income over the remaining life of the securities as a yield adjustment.
The Bank’s activities are also regulated under consumer protection laws applicable to our lending, deposit, and other activities.
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.
Additional bank failures could have an adverse effect on our financial condition and results of operations, either directly or through an adverse impact on certain of our customers.
In 2024 and into 2025, continued concerns regarding the stability of certain regional banks and potential liquidity risks have further contributed to market volatility and investor caution. Additional bank failures could have an adverse effect on our financial condition and results of operations, either directly or through an adverse impact on certain of our customers.
Investments at cost totaled $6.8 million, or approximately 1.3% of our total investments at December 31, 2023. The effective duration on our total investment securities portfolio was 3.8 at December 31, 2023.
The effective duration on our total investment securities portfolio was 3.5 at December 31, 2024.
While this sale created a one-time pre-tax loss of $1.2 million, it provided additional liquidity which is being used to pay down borrowings and fund loan growth. The weighted average book yield of the securities sold was 1.75% and the projected earn back period is 1.6 years.
During the three months ended September 2023, we sold $39.9 million of book value U.S. Treasuries in our available-for-sale investment securities portfolio. While this sale created a one-time pre-tax loss of $1.2 million, it provided additional liquidity which was used to pay down borrowings and fund loan growth.
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.
The prospects for the enactment of major banking reform legislation remain unclear at this time. Furthermore, leadership changes within federal banking agencies and financial regulators continue to shape the regulatory environment. Since the change in presidential administration in 2020, key positions across agencies—including the Comptroller of the Currency, CFPB, CFTC, SEC, and the U.S. Treasury—experienced significant turnover.
For example, we may become subject to new or heightened regulatory requirements and stakeholder expectations regarding climate change, including those relating operational resiliency, disclosure, and financial reporting. The risks associated with climate change are rapidly changing and evolving, making them difficult to assess due to limited data and other uncertainties.
The risks associated with climate change are rapidly changing and evolving, making them difficult to assess due to limited data and other uncertainties.
Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks.
In mid-2024, as inflation began to moderate, the Federal Reserve signaled a gradual recalibration of its policy stance, though it remains cautious amid ongoing economic uncertainty. Effects on the yield curve often are most pronounced at the short end of the curve, which is of particular importance to us and other banks.
We are exposed to risks of physical impacts of climate change and risks arising from the process of transitioning to a less carbon-dependent economy.
Additionally, state-level regulations and international standards may impose differing ESG requirements, leading to potential operational complexities. Climate change could have a material adverse impact on us and our customers. We are exposed to risks of physical impacts of climate change and risks arising from the process of transitioning to a less carbon-dependent economy.
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).
On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS). These securities were transferred at fair value at the time of the transfer, which became the new cost basis for the securities held to maturity.
The 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.
The occurrence of any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. Increased fraud risk could adversely impact our business Fraud schemes are becoming more sophisticated, often involving criminal networks and techniques such as check fraud, ATM skimming, phishing, and identity theft.
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+”.
A downgrade of the U.S. credit rating could negatively impact our business, results of operations and financial condition. Recent developments have heightened concerns about the U.S. credit rating and its potential impact on our business.
The remaining pretax unrealized net holding loss on these investments was $14.0 million ($11.1 million net of tax) and $15.7 million ($12.4 million net of tax) at December 31, 2023 and 2022, respectively. During the three months ended September 2023, we sold $39.9 million of book value U.S. Treasuries in our available-for-sale investment securities portfolio.
There were no gains or losses recognized as a result of this transfer. The remaining pretax unrealized net holding loss on these investments was $12.3 million ($9.7 million net of tax) and $14.0 million ($11.1 million net of tax) at December 31, 2024 and 2023, respectively.
As exemplified by the 2023 bank failures in the U.S., such strategies also can affect the U.S. and world-wide financial systems in ways that may be difficult to predict. Adverse developments affecting the financial services industry, such as the 2023 bank failures or concerns involving liquidity, may have a material adverse effect on our operations.
Moreover, unexpected shifts in domestic or international economic policies, or abrupt changes in market conditions, could lead to rapid alterations in the yield curve and further impact the broader financial system. Adverse developments affecting the financial services industry, such as the 2023 and 2024 bank failures or concerns involving liquidity, may have a material adverse effect on our operations.
At December 31, 2023, the portfolio was 29.6% of earning assets compared to 36.2% of earning assets at December 31, 2022.
At December 31, 2024, the portfolio was 26.6% of earning assets compared to 29.6% of earning assets at 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.
Removed
As economic conditions relating to the COVID-19 pandemic have improved, the Federal Reserve has shifted its focus to limiting inflationary and other potentially adverse effects of the extensive pandemic-related government stimulus, which signals the potential for a continued period of economic uncertainty even though the pandemic has subsided.
Added
In 2024 and early 2025, continued regional economic uncertainty—exacerbated by persistent inflation, supply chain disruptions, and subdued consumer spending—has further increased the risks in our primary markets.
Removed
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.
Added
In 2023 and 2024, concerns about the financial condition of certain U.S. banking institutions led to multiple bank failures, including Silicon Valley Bank, Signature Bank, First Republic Bank, and most recently, Republic First Bank in April 2024. The FDIC intervened in each case, transferring assets to acquiring institutions.
Removed
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.
Added
While our business and depositor profile differ from these banks, financial sector volatility, particularly in times of stress, may impact our stock price and operations. The long-term regulatory and market consequences of these failures remain uncertain but could include increased FDIC assessments and further bank closures.
Removed
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.
Added
To date, these events have not materially affected our deposit balances. 24 Credit and Interest Rate Risk Our decisions regarding credit risk and allowance for credit losses may materially and adversely affect our business. Making loans and other extensions of credit is an essential element of our business.
Removed
Regulatory agencies have closed no further banks with assets greater than $150 million since the closure of First Republic Bank.
Added
Our commercial real estate loans have grown 3.5%, or $31.2 million, since December 31, 2023.
Removed
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.
Added
We have expertise and a long history in originating and managing commercial real estate loans. We have a strong credit underwriting process, which includes management and board oversight.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Information Security Officer reports summaries of key issues, including significant cybersecurity and/or privacy incidents, to the Audit & Compliance Committee of our board of directors on a quarterly basis (or more frequently as may be required by the Incident Response Plan).The Audit & Compliance Committee of our board of directors is responsible for overseeing our information security and technology programs, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks.
Biggest changeTwo executive leadership team members oversee this committee. 39 The Information Security Officer reports summaries of key issues, including significant cybersecurity and/or privacy incidents, to the Audit & Compliance Committee of our board of directors on a quarterly basis (or more frequently as may be required by the Incident Response Plan).The Audit & Compliance Committee of our board of directors is responsible for overseeing our information security and technology programs, including management’s actions to identify, assess, mitigate, and remediate or prevent material cybersecurity issues and risks.
Our internal systems, processes, and controls are designed to mitigate loss from cyber attacks. To date, cybersecurity threats have not materially affected our company, but we remain diligent, nonetheless. For further discussion of risks from cybersecurity threats, see the section captioned “Our Information Systems May Experience Failure, Interruption or Breach in Security” in Item 1A.
Our internal systems, processes, and controls are designed to mitigate loss from cyber attacks. To date, cybersecurity threats have not materially affected our company, but we remain diligent, nonetheless. For further discussion of risks from cybersecurity threats, see the section captioned “Our Information Systems May Experience Failure, Interruption or Breach in Security” in Item 1A. Risk Factors.
Risk Factors. 46 Governance Our Information Security Officer is accountable for oversight, risk assessment and reporting on our information security program, leveraging the Director of Information Technology Infrastructure and other resources as needed. Responsibilities include cybersecurity risk assessment, defense operations, incident response, vulnerability assessment, threat intelligence, identity access governance, third-party risk management, board training, employee training, and business resilience.
Governance Our Information Security Officer is accountable for oversight, risk assessment and reporting on our information security program, leveraging the Director of Information Technology Infrastructure and other resources as needed. Responsibilities include cybersecurity risk assessment, defense operations, incident response, vulnerability assessment, threat intelligence, identity access governance, third-party risk management, board training, employee training, and business resilience.
This committee is chaired jointly by the Information Security Officer and Director of Information Technology Infrastructure and made up of key departmental managers from throughout the entire company. Two executive leadership team members oversee this committee.
This committee is chaired jointly by the Information Security Officer and Director of Information Technology Infrastructure and made up of key departmental managers from throughout the entire company.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe 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 .
Biggest changeWe closed one office in downtown Augusta, Georgia on June 27, 2024.
In addition, we currently operate 22 full-service offices located in the South Carolina counties of Lexington County (6 offices), Richland County (4 offices), Newberry County (2 offices), Kershaw County (1 office), Aiken County (1 office), Greenville County (2 offices), Anderson County (1 office), Pickens County (1 office), York County (1 office), and in the Georgia counties of Richmond County (2 offices) and Columbia County (1 office).
In addition, we currently operate 21 full-service offices located in the South Carolina counties of Lexington County (6 offices), Richland County (4 offices), Newberry County (2 offices), Kershaw County (1 office), Aiken County (1 office), Greenville County (2 offices), Anderson County (1 office), Pickens County (1 office), York County (1 office), and in the Georgia counties of Richmond County (1 office) and Columbia County (1 office).

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.
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+2 added−2 removed9 unchanged
Biggest changeThe 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.
Biggest changeThese deferred stock units include dividend equivalents in the form of additional stock units. The deferred stock units were issued pursuant to an exemption from registration under the Securities Act of 1933 in reliance upon Section 4(a)(2) of the Securities Act of 1933.
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.
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, 2024, we credited an aggregate of 8,533 deferred stock units to accounts for directors who elected to defer monthly fees or annual retainer fees for 2024.
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.
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities. As of February 28, 2025, there were approximately 1,716 shareholders of record of our common stock.
High 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.
High Low Dividends 2024 Quarter ended March 31, 2024 $ 21.90 $ 16.00 $ 0.14 Quarter ended June 30, 2024 $ 18.33 $ 15.40 $ 0.14 Quarter ended September 30, 2024 $ 23.30 $ 16.06 $ 0.15 Quarter ended December 31, 2024 $ 26.48 $ 20.49 $ 0.15 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 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.
Unregistered Sales of Equity Securities Pursuant to our Amended and Restated Non-Employee Director Deferred Compensation Plan, non-employee directors may elect to defer all or any part of annual retainer fees payable in respect of the following calendar year to the director for his or her service on the board of directors or any committee of the board of directors.
In addition, the Bank must maintain a capital conservation buffer, above its regulatory minimum capital requirements, consisting entirely of Common Equity Tier 1 capital, in order to avoid restrictions with respect to its payment of dividends to the Company. 41 Unregistered Sales of Equity Securities Pursuant to our Amended and Restated Non-Employee Director Deferred Compensation Plan, non-employee directors may elect to defer all or any part of annual retainer fees payable in respect of the following calendar year to the director for his or her service on the board of directors or any committee of the board of directors.
No repurchases were made under the such repurchase plan before it expired at the market close on December 31, 2023. Item 6. [Reserved].
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. No repurchases were made under such repurchase plan before it expired at the market close on December 31, 2023.
Removed
In addition, the Bank must maintain a capital conservation buffer, above its regulatory minimum capital requirements, consisting entirely of Common Equity Tier 1 capital, in order to avoid restrictions with respect to its payment of dividends to the Company.
Added
On May 14, 2024, we announced that our board of directors approved a plan to utilize up to $7.1 million of capital to repurchase shares of our common stock (the “2024 Repurchase Plan”), which represented approximately 5.3% of our shareholders’ equity at the time of the announcement. No repurchases have been made under the 2024 Repurchase Plan.
Removed
These deferred stock units include dividend equivalents in the form of additional stock units.
Added
The 2024 Repurchase Plan expires at the market close on May 13, 2025. Item 6. [Reserved].

Item 7. Management's Discussion & Analysis

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

184 edited+62 added−34 removed142 unchanged
Biggest changeWe had 268 full-time employees, 14 part-time employees, and five seasonal/on-call employees at December 31, 2023 compared to 254 full-time employees, seven part-time employees, and eight seasonal/on-call employees at December 31, 2022. · Occupancy expense increased $155 thousand to $3.2 million during the twelve months ended December 31, 2023 compared to $3.0 million during the same period in 2022 primarily related to the opening of our York County, South Carolina office in 2022, the expansion of our Southlake operations and support location in Lexington, South Carolina, and higher maintenance expense partially offset by lower janitorial expense. · Equipment expense increased $223 thousand to $1.6 million during the twelve months ended December 31, 2023 compared to $1.3 million during the same period in 2022 primarily due to higher equipment maintenance and repair, equipment depreciation, and auto expense. 69 · Marketing and public relations increased $237 thousand to $1.5 million during the twelve months ended December 31, 2023 from $1.3 million during the same period in 2022 primarily due to media production and campaigns. · FDIC assessments increased $436 thousand to $904 thousand during the twelve months ended December 31, 2023 compared to $468 thousand during the same period in 2022 due to an increase in our FDIC assessment rate. · Other real estate expenses declined $420 thousand to $112 thousand in contra expenses or credits during the twelve months ended December 31, 2023 compared to $308 thousand in expenses during the same period in 2022 primarily due to a reversal in accruals for real estate taxes on a non-accrual loan, which were either paid by the borrower or recovered as a result of the sale of the real estate. · Other expense increased $753 thousand to $10.1 million during the twelve months ended December 31, 2023 compared to $9.4 million during the same period in 2022, which included o Computer service expense, which includes core banking and electronic processing and services, ATM/debit card processing, software subscriptions and services and wire processing fees, increased $344 thousand primarily due to higher customer activity and enhanced technology solutions. o Debit card and fraud losses increased $137 thousand due to an extraordinary spike in mail check fraud losses during the third quarter of 2023.
Biggest changeWe had 268 full-time employees, 14 part-time employees, and five seasonal/on-call employees at December 31, 2023 compared to 254 full-time employees, seven part-time employees, and eight seasonal/on-call employees at December 31, 2022. · Occupancy expense increased $155 thousand to $3.2 million during the twelve months ended December 31, 2023 compared to $3.0 million during the same period in 2022 primarily related to the opening of our York County, South Carolina office in 2022, the expansion of our Southlake operations and support location in Lexington, South Carolina, and higher maintenance expense partially offset by lower janitorial expense. · Equipment expense increased $223 thousand to $1.6 million during the twelve months ended December 31, 2023 compared to $1.3 million during the same period in 2022 primarily due to higher equipment maintenance and repair, equipment depreciation, and auto expense. · Marketing and public relations increased $237 thousand to $1.5 million during the twelve months ended December 31, 2023 from $1.3 million during the same period in 2022 primarily due to media production and campaigns. · FDIC assessments increased $436 thousand to $904 thousand during the twelve months ended December 31, 2023 compared to $468 thousand during the same period in 2022 due to an increase in our FDIC assessment rate. · Other real estate expenses declined $420 thousand to $112 thousand in contra expenses or credits during the twelve months ended December 31, 2023 compared to $308 thousand in expenses during the same period in 2022 primarily due to a reversal in accruals for real estate taxes on a non-accrual loan, which were either paid by the borrower or recovered as a result of the sale of the real estate. · Other expense increased $753 thousand to $10.1 million during the twelve months ended December 31, 2023 compared to $9.4 million during the same period in 2022, which included o Computer service expense, which includes core banking and electronic processing and services, ATM/debit card processing, software subscriptions and services and wire processing fees, increased $344 thousand primarily due to higher customer activity and enhanced technology solutions. o Debit card and fraud losses increased $137 thousand due to an extraordinary spike in mail check fraud losses during the third quarter of 2023. o Telephone expense increased $131 thousand primarily due to a change in our telecommunications vendor, which resulted in paying two vendors for a period of time. o Director fees increased $113 thousand primarily due to an increase in director compensation, which includes an increase in director stock awards. o Loan processing and closing costs increased $65 thousand due to an increase in loans. o Correspondent services increased $51 thousand. o Legal and professional fees declined $135 thousand primarily due to lower legal expense. o Investment advisory services declined $80 thousand. 65 The following table sets forth for the periods indicated the primary components of noninterest expense: Year ended December 31, (In thousands) 2024 2023 2022 Salaries and employee benefits $ 29,263 $ 25,864 $ 25,357 Occupancy 3,094 3,157 3,002 Equipment 1,451 1,566 1,343 Marketing and public relations 1,511 1,496 1,259 FDIC Insurance assessments 1,177 904 468 Other real estate expense (income) 103 (112 ) 308 Amortization of intangibles 158 158 158 Core banking and electronic processing and services 2,736 2,512 2,469 ATM/debit card processing 1,280 1,074 885 Software subscriptions and services 1,260 1,008 896 Supplies 151 134 134 Telephone 517 485 354 Courier 296 284 279 Correspondent services 303 354 303 Insurance 406 381 358 Debit card and Fraud losses 199 422 285 Investment advisory services 344 329 409 Loan processing and closing costs 236 331 266 Director fees 603 601 488 Legal and Professional fees 1,205 1,042 1,177 Shareholder expense 277 197 221 Other 895 957 834 $ 47,465 $ 43,144 $ 41,253 * Core banking and electronic processing and services includes core processing, bill payment, online banking, remote deposit capture, wire processing services and postage costs for mailing customer notices and statements.
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.
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.
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.
There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for credit losses as estimated at any point in time or that provisions for credit losses will not be significant to a particular accounting period.
The allowance 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.
Total mortgage production during the twelve months ended December 31, 2023 was $135.7 million, $49.7 million of the production was originated to be sold in the secondary market, $32.5 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $53.5 million of the loan production was commitments for new construction residential real estate loans.
Total mortgage production during the twelve months ended December 31, 2023 was $135.7 million, $49.7 million of the production was originated to be sold in the secondary market, $32.5 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $53.5 million of the loan production was commitments for new construction residential real estate loans.
As these ARM and new construction residential real estate loans are being held on our balance sheet as loans held-for-investment, the result is additive to loan growth and interest income but results in less gain on sale fee income, which is reported in noninterest income as mortgage banking income.
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 $2.8 million decline in net income between the two periods is primarily due to a $1.1 million decline in non-interest income, a $1.9 million increase in total non-interest expense and a $1.3 million increase in provision for credit losses, partially offset by a $949 thousand increase in net interest income and a $601 thousand reduction in income tax expense. · The increase in net interest income results from an increase of $90.7 million in average earning assets partially offset by an 11 basis points decline in the net interest margin between the two periods. · The $1.1 million provision for credit losses during the twelve months ended December 31, 2023 is primarily related to a $153.2 million increase in loans held-for-investment and a $50.9 million increase in unfunded commitments net of unconditionally cancellable commitments partially offset by a reduction of five basis points in our qualitative factors (four basis points in our changes in total of past due, rated, and non-accrual / changes in total of 30-89 days past due and other loans especially mentioned qualitative factor and one basis point in our reasonable and supportable forecast alternative scenarios qualitative factor). · The $152 thousand in release of credit losses during the twelve months ended December 31, 2022 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. 53 · The decline in non-interest income is primarily related to a decline in mortgage banking income of $494 thousand and a 2023 $1.2 million loss on sale of securities partially offset by an increase of $196 thousand in gains on sale of other real estate owned, $114 thousand in other non-recurring non-interest income, and $177 thousand in other non-interest income. o The increase in other non-recurring income was largely related to the bank owned life insurance claim of $93 thousand and gains on insurance proceeds of $28 thousand during the twelve months ended December 31, 2023.
The $2.8 million decline in net income between the two periods is primarily due to a $1.1 million decline in non-interest income, a $1.9 million increase in total non-interest expense and a $1.3 million increase in provision for credit losses, partially offset by a $949 thousand increase in net interest income and a $601 thousand reduction in income tax expense. · The increase in net interest income results from an increase of $90.7 million in average earning assets partially offset by an 11 basis points decline in the net interest margin between the two periods. · The $1.1 million provision for credit losses during the twelve months ended December 31, 2023 is primarily related to a $153.2 million increase in loans held-for-investment and a $50.9 million increase in unfunded commitments net of unconditionally cancellable commitments partially offset by a reduction of five basis points in our qualitative factors (four basis points in our changes in total of past due, rated, and non-accrual / changes in total of 30-89 days past due and other loans especially mentioned qualitative factor and one basis point in our reasonable and supportable forecast alternative scenarios qualitative factor). · The $152 thousand in release of credit losses during the twelve months ended December 31, 2022 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 decline in non-interest income is primarily related to a decline in mortgage banking income of $494 thousand and a 2023 $1.2 million loss on sale of securities partially offset by an increase of $196 thousand in gains on sale of other real estate owned, $114 thousand in other non-recurring non-interest income, and $177 thousand in other non-interest income. o The increase in other non-recurring income was largely related to the bank owned life insurance claim of $93 thousand and gains on insurance proceeds of $28 thousand during the twelve months ended December 31, 2023.
In comparison, we experienced net loan recoveries of $361 thousand and net overdraft charge-offs of $52 thousand during the twelve months ended December 31, 2022. There were four loans totaling $242 thousand (0.02% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at December 31, 2023.
In comparison, we experienced net loan recoveries of $361 thousand and net overdraft charge-offs of $52 thousand during the twelve months ended December 31, 2022. 57 There were four loans totaling $242 thousand (0.02% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at December 31, 2023.
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.
During the twelve months ended December 31, 2022, we experienced net loan recoveries of $361 thousand and net overdraft charge-offs of $52 thousand. 59 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.
Such agencies may require us to recognize additions to the allowance for credit losses based on their judgments about information available to them at the time of their examination. Income Taxes, Deferred Tax Assets, and Deferred Tax Liabilities We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate.
Such agencies may require us to recognize additions to the allowance for credit losses based on their judgments about information available to them at the time of their examination. 43 Income Taxes, Deferred Tax Assets, and Deferred Tax Liabilities We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate.
At December 31, 2023 and 2022, FHLB advance maturities were as follows: December 31, 2023 (In thousands) Within Three Months After Three Through Six Months After Six Through Twelve Months After Twelve Months Total FHLB Advances $ 30,000 $ 10,000 $ 50,000 $ — $ 90,000 December 31, 2022 (In thousands) Within Three Months After Three Through Six Months After Six Through Twelve Months After Twelve Months Total FHLB Advances $ 50,000 $ — $ — $ — $ 50,000 The $90 million in FHLB advances at December 31, 2023 had maturity dates between March 13, 2024 and December 9, 2023 with interest rates between 4.83% and 5.25%.
At December 31, 2023, the FHLB advance maturities were as follows: December 31, 2023 (In thousands) Within Three Months After Three Through Six Months After Six Through Twelve Months After Twelve Months Total FHLB Advances $ 30,000 $ 10,000 $ 50,000 $ — $ 90,000 The $90 million in FHLB advances at December 31, 2023 had maturity dates between March 13, 2024 and December 9, 2023 with interest rates between 4.83% and 5.25%.
At December 31, 2023, we had $498 thousand in loans that were delinquent 30 days to 89 days representing 0.04% of total loans compared to $564 thousand or 0.06% of total loans at December 31, 2022. 62 Year Ended December 31, 2022 and 2021 We accounted for our allowance for loan losses under the incurred loss model during 2022 and 2021.
At December 31, 2023, we had $498 thousand in loans that were delinquent 30 days to 89 days representing 0.04% of total loans compared to $564 thousand or 0.06% of total loans at December 31, 2022. Year Ended December 31, 2022 We accounted for our allowance for loan losses under the incurred loss model during 2022 and 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.
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. The following table summarizes the activity related to our allowance for credit losses.
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.
Average loan balances include non-accrual loans and loans held for sale. (2) Based on a 21.0% marginal tax rate. 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.
The allowance for credit losses on loans as a percentage of total loans held-for-investment was 1.08% at December 31, 2023, 1.15% at January 1, 2023, and 1.16% at December 31, 2022. 61 The total ACL is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments.
The allowance for credit losses on loans as a percentage of total loans held-for-investment was 1.08% at December 31, 2023, 1.15% at January 1, 2023, and 1.16% at December 31, 2022. The total ACL is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments.
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.
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.
At December 31, 2023, we held an allowance for credit losses for our held-to-maturity investment securities, our loans held-for-investment and our unfunded commitments that are not unconditionally cancelable.
At December 31, 2024 and 2023, we held an allowance for credit losses for our held-to-maturity investment securities, our loans held-for-investment and our unfunded commitments that are not unconditionally cancelable.
The target range of federal funds was 5.25% - 5.50% at December 31, 2023 compared to 4.25% - 4.50% at December 31, 2022. o Effective May 5, 2023, we entered into Pay-Fixed Swap Agreement for a notional amount of $150.0 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate loans included in the closed loan portfolio.
The target range of federal funds was 4.25% - 4.50% at December 31, 2024 compared to 5.25% - 5.50% at December 31, 2023. o Effective May 5, 2023, we entered into Pay-Fixed Swap Agreement for a notional amount of $150.0 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate loans included in the closed loan portfolio.
(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.
(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. 45 Certain financial information presented above is determined by methods other than in accordance with GAAP.
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.
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 2024 and probable losses in 2023 and 2022 on existing loans that may become uncollectible.
(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.
(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, 2024 and at December 31, 2023 over the subsequent 12 months.
We operate from our main office in Lexington, South Carolina, and our 22 full-service offices located in the South Carolina counties of Lexington County (6 offices), Richland County (4 offices), Newberry County (2 offices), Kershaw County (1 office), Aiken County (1 office), Greenville County (2 offices), Anderson County (1 office), Pickens County (1 office), and York County (1 office); and in the Georgia counties of Richmond County (2 offices) and Columbia County (1 office).
We operate from our main office in Lexington, South Carolina, and our 21 full-service offices located in the South Carolina counties of Lexington County (6 offices), Richland County (4 offices), Newberry County (2 offices), Kershaw County (1 office), Aiken County (1 office), Greenville County (2 offices), Anderson County (1 office), Pickens County (1 office), and York County (1 office); and in the Georgia counties of Richmond County (1 office) and Columbia County (1 office).
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.
The following discussion describes our results of operations for 2024, as compared to 2023 and 2022, and also analyzes our financial condition as of December 31, 2024, as compared to December 31, 2023. Like most community banks, we derive most of our income from interest we receive on our loans and investments.
The allowance for credit losses represents management’s best estimate for our expected losses at December 31, 2023 and probable losses at December 31, 2022 and 2021, but significant downturns in circumstances relating to asset quality and economic conditions could result in a requirement for additional allowance for credit losses.
The allowance for credit losses represents management’s best estimate for our expected losses at December 31, 2024 and 2023 and probable losses at December 31, 2022, but significant downturns in circumstances relating to asset quality and economic conditions could result in a requirement for additional allowance for credit losses.
During the third quarter of 2023, we sold $39.9 million of book value U.S. Treasuries in our available-for-sale investment securities portfolio. While this sale created a one-time pre-tax loss of $1.2 million, it provided additional liquidity which is being used to pay down borrowings and fund loan growth.
During the third quarter of 2023, we sold $39.9 million of book value U.S. Treasuries in our available-for-sale investment securities portfolio. While this sale created a one-time pre-tax loss of $1.2 million, it provided additional liquidity which was used to pay down borrowings and fund loan growth.
Any remaining portion representing the excess of a loan’s or pool’s cash flows expected to be collected over the fair value is accreted (accretable difference) into interest income. At December 31, 2022 and December 31, 2021, the remaining credit component on loans attributable to acquired loans in the Cornerstone and Savannah River transactions was $81 thousand and $130 thousand, respectively.
Any remaining portion representing the excess of a loan’s or pool’s cash flows expected to be collected over the fair value is accreted (accretable difference) into interest income. At December 31, 2022, the remaining credit component on loans attributable to acquired loans in the Cornerstone and Savannah River transactions was $81 thousand.
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.
For example, the “Average Balances” table shows the average balance during 2024, 2023 and 2022 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.
The allowance for credit losses represents an amount which we believe will be adequate to absorb expected losses (2023) and probable losses (2022 and 2021) on existing financial assets that may become uncollectible.
The allowance for credit losses represents an amount which we believe will be adequate to absorb expected losses (2024 and 2023) and probable losses (2022) on existing financial assets that may become uncollectible.
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.
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.
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.
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, 2024.
We were primarily liability sensitive at December 31, 2023 and at December 31, 2022. Compared to December 31, 2022, we increased our non-maturity deposit interest rate betas in increasing rate environments, which increased our liability sensitivity. This was partially offset by the previously mentioned $150.0 million Pay-Fixed Swap Agreement that we entered into effective May 5, 2023.
We were liability sensitive at December 31, 2024 and primarily liability sensitive at December 31, 2023. In 2023, we increased our non-maturity deposit interest rate betas in increasing rate environments, which increased our liability sensitivity at December 31, 2023. This was partially offset by the previously mentioned $150.0 million Pay-Fixed Swap Agreement that we entered into effective May 5, 2023.
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.
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 $77.2 million, $74.6 million, and $74.8 million during 2024, 2023, and 2022, respectively.
As of December 31, 2023 and December 31, 2022, approximately 91.7% and 91.2%, respectively, of the loan portfolio had real estate collateral. When loans, whether commercial or personal, are granted, they are based on the borrower’s ability to generate repayment cash flows from income sources sufficient to service the debt.
As of December 31, 2024 and December 31, 2023, approximately 91.4% and 91.7%, respectively, of the loan portfolio had real estate collateral. When loans, whether commercial or personal, are granted, they are based on the borrower’s ability to generate repayment cash flows from income sources sufficient to service the debt.
The effective tax rates were affected by a $122 thousand non-recurring reduction to income tax during the twelve months ended December 31, 2023 and by a $153 thousand non-recurring reduction to income tax expense during the twelve months ended December 31, 2022.
The effective tax rates were affected by a $149 thousand non-recurring reduction to income tax during the twelve months ended December 31, 2024, by a $122 thousand non-recurring reduction to income tax expense during the twelve months ended December 31, 2023, and by a $153 thousand non-recurring reduction to income taxes during the twelve months ended December 31, 2022.
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 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 $12 thousand, $1.1 million, and $1.5 million during 2024, 2023, and 2022, respectively.
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. 79 The Bank maintains federal funds purchased lines in the total amount of $85.0 million with four financial institutions and $10.0 million through the Federal Reserve Discount Window.
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. 73 The Bank maintains federal funds purchased lines in the total amount of $77.5 million with three financial institutions and $10.0 million through the Federal Reserve Discount Window.
Earning asset yield growth, which included the benefit of a pay-fixed/receive-floating interest rate swap (the “Pay-Fixed Swap Agreement”) described below, was more than offset by the rising price of funding, leading to the net interest margin compression. o Investment securities represented 33.2% of average total earning assets for the twelve month ended December 31, 2023 compared to 37.0% during the same period in 2022. o Short-term investments represented 2.6% of average total earning assets for the twelve months ended December 31, 2023 compared to 3.3% during the same period in 2022. o Loans represented 64.2% of average total earning assets for the twelve months ended December 31, 2023 compared to 59.7% during the same period in 2022. o During 2022 and 2023, market interest rates increased significantly due to an increase in inflation.
Earning asset yield growth, which included the benefit of the Pay-Fixed Swap Agreement, was more than offset by the rising price of funding, leading to the net interest margin compression. o Investment securities represented 33.2% of average total earning assets for the twelve month ended December 31, 2023 compared to 37.0% during the same period in 2022. o Short-term investments represented 2.6% of average total earning assets for the twelve months ended December 31, 2023 compared to 3.3% during the same period in 2022. o Loans represented 64.2% of average total earning assets for the twelve months ended December 31, 2023 compared to 59.7% during the same period in 2022. o During 2022 and 2023, market interest rates increased significantly due to an increase in inflation.
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.
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 2024, 2023, and 2022. The average rates paid during these periods were 8.13%, 7.93%, and 4.51%, respectively. The balances of trust preferred securities were $15.0 million as of December 31, 2024 and December 31, 2023.
To secure a cost-effective stable funding source, during the third quarter of 2023, we issued $48.2 million in brokered certificates of deposit ranging in terms from six months to three years, with the three year term callable after six months. Brokered certificates of deposit totaled $48.1 million at December 31, 2023.
To secure a cost-effective stable funding source, during the third quarter of 2023, we issued $48.2 million in brokered certificates of deposit ranging in terms from six months to three years, with the three year term callable after six months.
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.
We utilized none of our federal funds purchased lines at December 31, 2024 or 2023. 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.
The following table sets forth the loans maturing within specified intervals at December 31, 2023.
The following table sets forth the loans maturing within specified intervals at December 31, 2024.
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.
The average rates paid during these periods were 4.99%, 4.73%, and 3.54%, respectively. The balances of federal funds purchased were zero at December 31, 2024 and December 31, 2023. As a member of the FHLB, the Bank has access to advances from the FHLB for various terms and amounts.
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.
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 22.25% to 22.75%. Financial Position Assets increased $130.3 million, or 7.1%, to $2.0 billion at December 31, 2024 from $1.8 billion at December 31, 2023.
Until the cessation of LIBOR on June 30, 2023, the securities accrued and paid distributions quarterly at a rate of three month LIBOR plus 257 basis points, thereafter, such distributions to be paid quarterly transitioned to an adjusted Secured Overnight Financing Rate (SOFR) index in accordance with the Federal Reserve’s final rule implementing the Adjustable Interest Rate Act.
Until the cessation of LIBOR on June 30, 2023, the securities accrued and paid distributions quarterly at a rate of three month LIBOR plus 257 basis points, thereafter, such distributions to be paid quarterly transitioned to an adjusted Secured Overnight Financing Rate (SOFR) index in accordance with the Federal Reserve’s final rule implementing the Adjustable Interest Rate Act, which is three-month CME Term SOFR plus 257 basis points plus a tenor spread adjustment of 0.26161%.
The following table depicts, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.
The following table depicts, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities.
During the twelve months ended December 31, 2023, these pure deposits plus customer cash management repurchase agreements averaged 89.9% of total deposits plus customer cash management repurchase agreements as compared to 92.2% during the same period of 2022.
During the twelve months ended December 31, 2023, these pure deposits plus customer cash management repurchase agreements averaged 89.9% of total deposits plus customer cash management repurchase agreements as compared to 92.2% during the same period of 2022. Average Balances, Income Expenses and Rates.
Simulation modeling is performed to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income. We model the impact on net interest income for several different changes, to include a flattening, steepening and parallel shift in the yield curve.
Simulation modeling is performed to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income. We model the impact on net interest income for several different changes in the yield curve.
For each of these scenarios, we model the impact on net interest income in an increasing and decreasing rate environment of 100, 200, 300, and 400 basis points. We also periodically stress certain assumptions such as loan prepayment rates, deposit decay rates and interest rate betas to evaluate our overall sensitivity to changes in interest rates.
We model the impact on net interest income in an increasing and decreasing rate environment of 100, 200, 300, and 400 basis points. We also periodically stress certain assumptions such as loan prepayment rates, average lives, interest rate betas, and deposit migration to evaluate our overall sensitivity to changes in interest rates.
We had $90.0 million in FHLB advances at December 31, 2023 compared to $50.0 million at December 31, 2022. The FHLB advances at December 31, 2023 had maturity dates between March 13, 2024 and November 3, 2026 with interest rates between 4.81% and 5.26%.
We had zero and $90.0 million in FHLB advances at December 31, 2024 and 2023, respectively. The FHLB advances at December 31, 2023 had maturity dates between March 13, 2024 and November 3, 2026 with interest rates between 4.81% and 5.26%.
The allowance for credit losses represents our best estimate of credit losses on financial assets. The allowance for credit losses is assessed at least quarterly and adjustments are recorded in the provision for credit losses. These losses are estimated using historical loss rates and a projection of reasonable and supportable macroeconomic forecast, combined with additional qualitative factors.
The allowance for credit losses is assessed at least quarterly and adjustments are recorded in the provision for credit losses. These losses are estimated using historical loss rates and a projection of reasonable and supportable macroeconomic forecast, combined with additional qualitative factors.
The increase in mortgage production was primarily due to higher ARM and construction residential real estate loan production partially offset by lower secondary market production. Payoffs and paydowns declined to $87.0 million during the twelve months ended December 31, 2023 compared to $177.1 million during the same period in 2022.
The increase in mortgage production was primarily due to higher secondary market and ARM production partially offset by lower construction residential real estate loan production. Payoffs and paydowns increased to $113.2 million during the twelve months ended December 31, 2024 compared to $87.0 million during the same period in 2023.
Our pure deposits, which are defined as total deposits less certificates of deposits, increased $4.7 million, or 0.4%, to $1.3 billion at December 31, 2023 from $1.3 billion at December 31, 2022. We continue to focus on growing our pure deposits as a percentage of total deposits in order to better manage our overall cost of funds.
Our pure deposits, which are defined as total deposits less certificates of deposits, increased $146.3 million, or 11.9%, to $1.4 billion at December 31, 2024 from $1.2 billion at December 31, 2023. We continue to focus on growing our pure deposits as a percentage of total deposits in order to better manage our overall cost of funds.
Combined, we have total remaining credit availability, subject to collateral requirements, in excess of $453.9 million as compared to uninsured deposits excluding deposits of states or political subdivisions in the U.S., which are secured or collateralized, of $353.8 million as previously noted.
Combined, we have total remaining credit availability, subject to collateral requirements, in excess of $573.1 million as compared to uninsured deposits excluding deposits of states or political subdivisions in the U.S., which are secured or collateralized, of $437.1 million as previously noted.
We recorded $7 thousand in other non-recurring income related to gains on insurance proceeds during the twelve months ended December 31, 2022. o The increase in other non-interest income was primarily related to increases of $65 thousand in ATM debit card income, $48 thousand in rental income, and $26 thousand in bankcard fees. · The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of $507 thousand, increased occupancy expense of $155 thousand, increased equipment expense of $223 thousand, increased marketing and public relations expense of $237 thousand, increased FDIC Insurance assessments of $436 thousand, increased ATM/debit card processing of $189 thousand, increased software subscriptions and services of $112 thousand, increased telephone expense of $131 thousand, increased debit card and fraud losses of $137 thousand, increased director fees of $113 thousand, and increased other expense of $123 thousand, partially offset by lower other real estate expense of $420 thousand, lower investment advisory services expense of $80 thousand and lower legal and professional fees of $135 thousand. · 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. o The effective tax rates were affected by a $122 thousand non-recurring reduction to income tax during the twelve months ended December 31, 2023 and by a $153 thousand non-recurring reduction to income tax expense during the twelve months ended December 31, 2022. 54 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.
We recorded $7 thousand in other non-recurring income related to gains on insurance proceeds during the twelve months ended December 31, 2022. o The increase in other non-interest income was primarily related to increases of $65 thousand in ATM debit card income, $48 thousand in rental income, and $26 thousand in bankcard fees. · The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of $507 thousand, increased occupancy expense of $155 thousand, increased equipment expense of $223 thousand, increased marketing and public relations expense of $237 thousand, increased FDIC Insurance assessments of $436 thousand, increased ATM/debit card processing of $189 thousand, increased software subscriptions and services of $112 thousand, increased telephone expense of $131 thousand, increased debit card and fraud losses of $137 thousand, increased director fees of $113 thousand, and increased other expense of $123 thousand, partially offset by lower other real estate expense of $420 thousand, lower investment advisory services expense of $80 thousand and lower legal and professional fees of $135 thousand. · 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. o The effective tax rates were affected by a $122 thousand non-recurring reduction to income tax during the twelve months ended December 31, 2023 and by a $153 thousand non-recurring reduction to income tax expense during the twelve months ended December 31, 2022. 48 Net Interest Income Net interest income is our primary source of revenue.
At December 31, 2023, the estimated weighted average life of our total investment portfolio was 6.26 years, the modified duration was 4.8, the effective duration was 3.9, and the weighted average tax equivalent book yield was 3.86%.
At December 31, 2023, the estimated weighted average life of our total investment portfolio was 6.19 years, the modified duration was 4.7, the effective duration was 3.8, and the weighted average tax equivalent book yield was 3.84%.
Generally, we limit the loan-to-value ratio to 80%. The principal components of our loan portfolio at December 31, 2023 and 2022 were commercial mortgage loans in the amount of $791.9 million and $709.2 million, respectively, representing 69.8% and 72.3% of the portfolio, respectively, excluding loans held for sale.
Generally, we limit the loan-to-value ratio to 80%. The principal components of our loan portfolio at December 31, 2024 and 2023 were commercial mortgage loans in the amount of $796.4 million and $791.9 million, respectively, representing 65.3% and 69.8% of the portfolio, respectively, excluding loans held for sale.
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.
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.
The portfolio is segregated into similar risk components for which historical loss ratios are calculated and adjusted for identified changes in current portfolio characteristics. Historical loss ratios are calculated by product type and by regulatory credit risk classification (See Note 4 to the Consolidated Financial Statements).
We perform an analysis quarterly to assess the risk within the loan portfolio. The portfolio is segregated into similar risk components for which historical loss ratios are calculated and adjusted for identified changes in current portfolio characteristics. Historical loss ratios are calculated by product type and by regulatory credit risk classification (See Note 4 to the Consolidated Financial Statements).
Average loans represented 59.7% of average earning assets during the twelve months ended December 31, 2022 compared to 62.6% of average earning assets during the same period in 2021. Our loan (including loans held-for-sale) to deposit ratio on average during 2022 was 64.9%, as compared to 68.8% during 2021.
Average loans represented 64.2% of average earning assets during the twelve months ended December 31, 2023 compared to 59.7% of average earning assets during the same period in 2022. Our loan (including loans held-for-sale) to deposit ratio on average during 2023 was 73.2%, as compared to 64.9% during 2022.
Present Value of Equity Sensitivity Change in present value of equity Hypothetical percentage change in PVE December 31, 2023 December 31, 2022 +400bp -1.49 % +1.43 % +300bp +0.44 % +2.61 % +200bp +1.54 % +3.13 % +100bp +1.59 % +2.33 % Flat — — -100bp -3.91 % -3.83 % -200bp -10.63 % -10.00 % -300bp -23.39 % -18.44 % -400bp -47.74 % -25.23 % Provision and Allowance for Credit Losses Year Ended December 31, 2023 and 2022 On January 1, 2023, we adopted CECL, which resulted in a day one reduction of $14 thousand to the allowance for credit losses on loans offset by increases of $398 thousand to the allowance for credit losses on unfunded commitments and $43.5 thousand to the allowance for credit losses on held-to-maturity investments.
Present Value of Equity Sensitivity Change in present value of equity Hypothetical percentage change in PVE December 31, 2024 December 31, 2023 +400bp -3.72 % +1.49 % +300bp -1.47 % +0.44 % +200bp +0.23 % +1.54 % +100bp +0.92 % +1.59 % Flat — — -100bp -2.31 % -3.91 % -200bp -6.80 % -10.63 % -300bp -14.97 % -23.39 % -400bp -27.07 % -47.74 % Provision and Allowance for Credit Losses Year Ended December 31, 2024 and 2023 On January 1, 2023, we adopted CECL, which resulted in a day one reduction of $14 thousand to the allowance for credit losses on loans offset by increases of $398 thousand to the allowance for credit losses on unfunded commitments and $43.5 thousand to the allowance for credit losses on held-to-maturity investments.
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.
The target range of federal funds was 5.25% - 5.50% at December 31, 2023 compared to compared to 4.25% - 4.50% at December 31, 2022. The yield on earning assets for the twelve months ended December 31, 2023 and 2022 were 4.45% and 3.32%, respectively.
This interest rate swap positively impacted interest on loans by $1.6 million during the twelve months ended December 31, 2023. Loan yields and net interest margin both benefited during the twelve months ended December 31, 2023 with an increase of 16 basis points and 10 basis points, respectively.
This interest rate swap positively impacted interest on loans by $2.4 million and $1.6 million during the twelve months ended December 31, 2024 and 2023, respectively. During the twelve months ended December 31, 2024, the swap benefited loan yields with an increase of 21 basis points and net interest margin with an increase of 14 basis points.
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 $12.3 million ($9.7 million net of tax) at December 31, 2024.
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.
We held 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 $354.2 thousand at December 31, 2023. These are equity securities without readily determinable fair values. Investment in the FHLB of Atlanta is a condition of borrowing from the FHLB Atlanta.
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.
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. 44 Financial Highlights As of or For the Years Ended December 31, (Dollars in thousands except per share amounts) 2024 2023 2022 Balance Sheet Data: Total assets $ 1,958,021 $ 1,827,688 $ 1,672,946 Loans held for sale 9,662 4,433 1,779 Loans 1,220,542 1,134,019 980,857 Deposits 1,675,901 1,511,001 1,385,382 Total common shareholders’ equity 144,494 131,059 118,361 Total shareholders’ equity 144,494 131,059 118,361 Average shares outstanding, basic 7,617 7,568 7,528 Average shares outstanding, diluted 7,702 7,647 7,608 Results of Operations: Interest income $ 89,422 $ 72,697 $ 51,117 Interest expense 37,382 23,805 3,174 Net interest income 52,040 48,892 47,943 Provision for (release of) credit losses 809 1,129 (152 ) Net interest income after provision for (release of) credit losses 51,231 47,763 48,095 Non-interest income 14,004 10,421 11,569 Non-interest expenses 47,465 43,144 41,253 Income before taxes 17,770 15,040 18,411 Income tax expense 3,815 3,197 3,798 Net income 13,955 11,843 14,613 Net income available to common shareholders 13,955 11,843 14,613 Per Share Data: Basic earnings per common share $ 1.83 $ 1.56 $ 1.94 Diluted earnings per common share 1.81 1.55 1.92 Book value at period end 18.90 17.23 15.62 Tangible book value at period end (non-GAAP) 16.93 15.23 13.59 Dividends per common share 0.58 0.56 0.52 Asset Quality Ratios: Non-performing assets to total assets (3) 0.04 % 0.05 % 0.35 % Non-performing loans to period end loans 0.02 % 0.02 % 0.50 % Net charge-offs (recoveries) to average loans 0.01 % 0.00 % (0.03 )% Allowance for credit losses to period-end total loans 1.08 % 1.08 % 1.16 % Allowance for credit losses to non-performing assets 1,683.70 % 1,492.36 % 194.41 % Selected Ratios: Return on average assets 0.74 % 0.68 % 0.88 % Return on average common equity: 10.17 % 9.59 % 11.99 % Return on average tangible common equity (non-GAAP): 11.44 % 10.95 % 13.73 % Efficiency Ratio (non-GAAP) (1) 71.56 % 71.23 % 68.60 % Noninterest income to operating revenue (2) 21.20 % 17.57 % 19.44 % Net interest margin (tax equivalent) 2.92 % 3.01 % 3.14 % Equity to assets 7.38 % 7.17 % 7.08 % Tangible common shareholders’ equity to tangible assets (non-GAAP) 6.66 % 6.39 % 6.21 % Tier 1 risk-based capital (Bank) (4) 12.87 % 12.53 % 13.49 % Total risk-based capital (Bank) (4) 13.94 % 13.58 % 14.54 % Leverage (Bank) (4) 8.40 % 8.45 % 8.63 % Average loans to average deposits (5) 74.35 % 73.25 % 64.92 % (1) The efficiency ratio is a key performance indicator in our industry.
During 2023 and 2022, loans accounted for 64.2% and 59.7% of average earning assets, respectively. The loan portfolio (including held-for-sale) averaged $1.0 billion in 2023 as compared to $920.4 million in 2022. Quality loan portfolio growth continued to be a strategic focus of ours in 2023.
During 2024 and 2023, loans accounted for 66.3% and 64.2% of average earning assets, respectively. The loan portfolio (including held-for-sale) averaged $1.2 billion in 2024 as compared to $1.0 billion in 2023. Quality loan portfolio growth continued to be a strategic focus of ours in 2024.
The cost of interest-bearing liabilities was 30 basis points during the twelve months ended December 31, 2022 compared to 24 basis points during the same period in 2021. The cost of deposits, including demand deposits, was 13 basis points during the twelve months ended December 31, 2022 compared to 13 basis points during the same period in 2021.
The cost of interest-bearing liabilities was 2.06% during the twelve months ended December 31, 2023 compared to 30 basis points during the same period in 2022. 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.
Based on the Bank’s loan portfolio as of December 31, 2023, its non-owner occupied commercial real estate loans and its construction and land development loans were approximately 313% and 74% of total risk-based capital, respectively. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 47% from December 31, 2020 to December 31, 2023.
Based on the Bank’s loan portfolio as of December 31, 2024, its non-owner occupied commercial real estate loans and its construction and land development loans were approximately 305% and 82% of total risk-based capital, respectively. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 46% from December 31, 2021 to December 31, 2024.
The average rates paid during these periods were 2.22%, 0.30%, and 0.14%, respectively. The balances of securities sold under agreements to repurchase were $62.9 million and $68.7 million at December 31, 2023 and December 31, 2022, respectively.
The average rates paid during these periods were 2.83%, 2.22%, and 0.30%, respectively. The balances of securities sold under agreements to repurchase were $103.1 million and $62.9 million at December 31, 2024 and December 31, 2023, respectively.
Net Interest Income Net interest income is our primary source of revenue. Net interest income is the difference between income earned on assets and interest paid on deposits and borrowings used to support such assets.
Net interest income is the difference between income earned on assets and interest paid on deposits and borrowings used to support such assets.
Loans (excluding loans held-for-sale) increased $153.2 million, or 15.6%, to $1.1 billion at December 31, 2023 from $980.9 million at December 31, 2022. Total loan production, excluding mortgage secondary market and new construction residential real estate, was $198.8 million during the twelve months ended December 31, 2023 compared to $280.1 million during the same period in 2022.
Loans (excluding loans held-for-sale) increased $86.5 million, or 7.6%, to $1.2 billion at December 31, 2024 from $1.1 billion at December 31, 2023. Total loan production, excluding mortgage secondary market and new construction residential real estate, was $179.3 million during the twelve months ended December 31, 2024 compared to $198.8 million during the same period in 2023.
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.
Other investments, at cost, include Federal Home Loan Bank (“FHLB”) stock in the amount of $1.3 million, corporate stock in the amount of $1.0 million, and a venture capital fund in the amount of $399.2 thousand at December 31, 2024.
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. Currently, we are offering 5/1, 7/1, and 10/1 ARM loans that are originated for our loans held-for-investment portfolio.
During 2022, we began to market an adjustable rate mortgage (ARM) product to provide borrowers with an alternative to fixed-rate mortgages and to help offset anticipated mortgage production challenges. Currently, we are offering 5/6, 7/6, and 10/6 ARM loans that are originated for our loans held-for-investment portfolio.
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.
The increase in short-term investments in 2024 is primarily due to deposit growth exceeding loan growth, which resulted in additional cash on hand for short-term investments. 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.
Furthermore, our investment performance for the twelve months ended December 31, 2023 was 28.2% compared to 24.2% for the S&P 500. 67 The $977 thousand in non-recurring contra non-interest income during the twelve months ended December 31, 2023 includes the previously mentioned loss on sale of securities of $1.2 million, gains on sale of other real estate owned of $151 thousand, a bank owned life insurance claim of $93 thousand, and gains on insurance proceeds of $28 thousand.
The $977 thousand in non-recurring contra non-interest income during the twelve months ended December 31, 2023 includes the previously mentioned loss on sale of securities of $1.2 million, gains on sale of other real estate owned of $151 thousand, a bank owned life insurance claim of $93 thousand, and gains on insurance proceeds of $28 thousand.
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.
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. We evaluate each customer’s credit worthiness on a case-by-case basis.
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. 63 We perform an analysis quarterly to assess the risk within the loan portfolio.
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.
At December 31, 2023, we have remaining credit availability under this facility in excess of $358.9 million, subject to collateral requirements.
At December 31, 2024, we have remaining credit availability under this facility in excess of $485.6 million, subject to collateral requirements.
During the second 12-month period after 100 basis point, 200 basis point, 300 basis point, and 400 basis point simultaneous and parallel reduction in interest rates along the entire yield curve, our net interest income is projected to increase 0.51% and decline 0.03%, 3.19%, and 4.41%, respectively, at December 31, 2023, and to decline 4.92%, 12.86%, 21.14%, and 26.33%, respectively, at December 31, 2022.
During the second 12-month period after 100 basis point, 200 basis point, 300 basis point, and 400 basis point simultaneous and parallel reduction in interest rates along the entire yield curve, our net interest income is projected to increase 1.80%, 2.91%, and 1.46% and decline 1.75%, respectively, at December 31, 2024, and to increase 0.51% and decline 0.03%, 3.19%, and 4.41%, respectively, at December 31, 2023.
The growth in assets was due to increases of $153.2 million in loans held-for-investment, $53.9 million in interest-bearing bank balances and $2.7 million in loans held-for-sale partially offset by a decline of $58.6 million in investment securities.
The growth in assets was due to increases of $86.5 million in loans held-for-investment, $56.7 million in interest-bearing bank balances and $5.2 million in loans held-for-sale partially offset by a decline of $14.5 million in investment securities.

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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 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
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 Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 121 Item 9A. Controls and Procedures 121 Item 9B. Other Information 122 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 122 PART III 123 Item 10. Directors, Executive Officers and Corporate Governance 123 Item 11. Executive Compensation 123 Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters 123 Item 13. Certain Relationships and Related Transactions, and Director Independence 123 Item 14. Principal Accountant Fees and Services 123 PART IV 124 Item 15.
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Exhibits, Financial Statement Schedules 124 SIGNATURES 127 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report, including information included or incorporated by reference in this report, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
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Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and the business of our company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance.
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Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control.
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The words “may,” “approximately,” “is likely,” “would,” “could,” “should,” “will,” “expect,” “anticipate,” “predict,” “project,” “potential,” “continue,” “assume,” “believe,” “intend,” “plan,” “forecast,” “goal,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements.
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Potential risks and uncertainties that could cause our actual results to differ materially from those anticipated in our forward-looking statements include, without limitation, those described under the heading “Risk Factors” in this Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the U.S.
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Securities and Exchange Commission (the “SEC”) and the following: · credit losses as a result of, among other potential factors, changes in real estate values, interest rates, unemployment, or in customer payment behavior or other factors; · the amount of our loan portfolio collateralized by real estate and weaknesses in the real estate market; · restrictions or conditions imposed by our regulators on our operations; · the adequacy of the level of our allowance for credit losses and the amount of credit loss provisions required in future periods; · examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, write-down assets, or take other actions; · risks associated with actual or potential information gatherings, investigations or legal proceedings by customers, regulatory agencies or others; · reduced earnings due to higher credit impairment charges resulting from decline in the value of our securities portfolio, specifically as a result of increasing default rates, and loss severities on the underlying real estate collateral; · increases in competitive pressure in the banking and financial services industries; · changes in the interest rate environment, which are affected by many factors beyond our control, including inflation, recession, unemployment, money supply, domestic and international events and changes in the United States and other financial markets, and that could reduce anticipated or actual margins; temporarily reduce the market value of our available-for-sale investment securities and temporarily reduce accumulated other comprehensive income or increase accumulated other comprehensive loss, which temporarily could reduce shareholders’ equity; · enterprise risk management may not be effective in mitigating risk and reducing the potential for losses; · changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry, including as a result of the presidential administration and congressional elections; · general economic conditions resulting in, among other things, a deterioration in credit quality; · changes occurring in business conditions and inflation, including the impact of inflation on us, including a decrease in demand for new mortgage loan and commercial real estate loan originations and refinancings, an increase in competition for deposits, and an increase in non-interest expense, which may have an adverse impact on our financial performance; · changes in access to funding or increased regulatory requirements with regard to funding, which could impair our liquidity; · FDIC assessment which has increased, and may continue to increase, our cost of doing business; · cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events; · changes in deposit flows, which may be negatively affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, and returns available to customers on alternative investments; · changes in technology, including the increasing use of artificial intelligence; · our current and future products, services, applications and functionality and plans to promote them; · changes in monetary and tax policies, including potential changes in tax laws and regulations; · changes in accounting standards, policies, estimates and practices as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board; · our assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results; · the rate of delinquencies and amounts of loans charged-off; · the rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio; · our ability to maintain appropriate levels of capital, including levels of capital required under the capital rules implementing Basel III; 1 · our ability to successfully execute our business strategy; · our ability to attract and retain key personnel; · our ability to retain our existing customers, including our deposit relationships; · our use of brokered deposits may be an unstable and/or expensive deposit source to fund earning asset growth; · our ability to obtain brokered deposits as an additional funding source could be limited; · · adverse changes in asset quality and resulting credit risk-related losses and expenses; risks associated with complex and changing regulatory environments, including, among others, with respect to data privacy, artificial intelligence, information security, climate change or other environmental, social and governance matters, and labor matters, relating to our operations; · the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, war or terrorist activities, such as the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs, and disruptions caused by widespread cybersecurity incidents; · disruptions due to flooding, fires, severe weather or other natural disasters; and · other risks and uncertainties described under “Risk Factors” below.
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Because of these and other risks and uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements.
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For additional information with respect to factors that could cause actual results to differ from the expectations stated in the forward-looking statements, see “Risk Factors” under Part I, Item 1A of this Annual Report on Form 10-K. In addition, our past results of operations do not necessarily indicate our future results.
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Therefore, we caution you not to place undue reliance on our forward-looking information and statements. All forward-looking statements in this report are based on information available to us as of the date of this report. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that these expectations will be achieved.
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We undertake no obligation to publicly update or otherwise revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. 2 Summary of Material Risks An investment in our securities involves risks, including those summarized below.
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For a more complete discussion of the material risks facing our business, see Item 1A—Risk Factors. Economic and Geographic-Related Risks · Our business may be adversely affected by economic conditions.
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C redit and Interest Rate Risks · Our decisions regarding credit risk and allowance for credit losses may significantly harm our business. · We may have higher credit losses than we have allowed for in our allowance for credit losses. · Our concentration of credit exposure in commercial real estate means that challenges in this market could harm our business, financial condition, and results of operations. · Limits imposed by bank regulators on commercial and multi-family real estate lending could restrict our growth and harm our earnings. · 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. · Our focus on lending to small to mid-sized community-based businesses may increase our credit risk. · Our underwriting decisions may materially and adversely affect our business. · Our financial condition could suffer if we rely on misleading information from our clients or counterparties. · If we fail to effectively manage credit risk, our business and financial condition will suffer. · Changes in prevailing interest rates may reduce our profitability.
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Capital and Liquidity Risks · Changes in the financial markets could impair the value of our investment portfolio. · The Bank must adhere to strict capital requirements, which could become even stricter in the future.
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Risks Related to Our Industry · Inflationary pressures and rising prices may affect our results of operations and financial condition. · The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve. · Adverse developments affecting the financial services industry, such as bank failures or concerns involving liquidity, may have a material adverse effect on our operations · Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition. · We could experience a loss due to competition with other financial institutions or nonbank companies. · We may be adversely affected by the soundness of other financial institutions. · Failure to keep pace with technological changes could adversely affect our business. · New lines of business or new products and services may subject us to additional risk. · Consumers may decide not to use banks to complete their financial transactions. · We use brokered deposits, which may be an unstable and costly source of funding for asset growth. · Our ability to obtain brokered deposits as an additional funding source may become limited. · Consumers may decide not to use banks to complete their financial transactions.
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Risks Related to Our Strategy · We may be adversely affected by risks associated with future mergers and acquisitions, including execution risk, which could disrupt our business and dilute shareholder value. · We may be exposed to difficulties in combining the operations of acquired businesses into our own operations, which may prevent us from achieving the expected benefits from our acquisition activities. · New or acquired banking office facilities and other facilities may not be profitable.
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Risks Related to Our Human Capital · We are dependent on key individuals, and the loss of one or more of these individuals could limit our growth and adversely affect our prospects. 3 Operational Risks · System or infrastructure failures, including cyber-attacks, could disrupt our operations, lead to the disclosure of confidential information, harm our reputation, or increase costs and losses. · Our information systems may experience failure, interruption or breach in security. · Increased fraud risk could adversely impact our business. · Our use of third party vendors and our other ongoing third party business relationships are subject to increasing regulatory requirements and attention. · If we fail to maintain our reputation, our performance may be harmed.
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L egal, 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. · Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase our risk of liability with respect to such loans and could increase our cost of doing business. · Failure to comply with federal and state fair lending laws could result in significant penalties for us. · Changes in accounting standards could materially affect our financial statements. · The Federal Reserve may require us to commit capital resources to support the Bank. · We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities. · We are involved in various claims and lawsuits related to our business.
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Litigation is uncertain, making it difficult to determine the expenses and ultimate exposure for many of these matters. · We may become involved in suits, legal proceedings, investigations, and proceedings by governmental and self-regulatory agencies, which could have adverse consequences. · Changes in tax laws and regulations or their interpretations could negatively impact us. · A reduction in our ability to realize deferred tax assets could negatively affect our operating results.
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R isks Related to an Investment In our Common Stock · Our ability to pay cash dividends is limited, and future dividends may not be able to be paid even if we desire to. · Our stock price may be volatile, which could result in losses to our investors and litigation against us. · Future sales of stock by shareholders, or the expectation of such sales, could lower our stock price. · We may need to raise capital under unfavorable terms due to economic or other circumstances.
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Issuing common stock could dilute existing shareholders’ ownership and book value per share, potentially impacting our ability to obtain additional capital. · Provisions of our articles of incorporation and bylaws, South Carolina law, and state and federal banking regulations, could delay or prevent a takeover by a third party. · An investment in our common stock is not an insured deposit.
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General Risks · Regulatory shifts and evolving stakeholder expectations on ESG practices may create compliance uncertainties, reputational risks, and operational complexities. · Climate change could have a material adverse impact on us and our customers. · Our historical operating results may not be indicative of our future operating results. · A downgrade of the U.S. credit rating could harm our business, results of operations, and financial condition. 4 PART I

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