UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 2020
   
o Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from ____ to ____

  

Commission File No. 000-28344

 

FIRST COMMUNITY CORPORATION
(Exact name of registrant as specified in its charter)
 
South Carolina 57-1010751

(State or other jurisdiction of incorporation

or organization)

(I.R.S. Employer Identification No.)

 

5455 Sunset Boulevard, Lexington, South Carolina 29072

(Address of principal executive offices) (Zip Code)

 

(803) 951-2265

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of exchange on which registered
Common stock, par value $1.00 per share FCCO The Nasdaq Capital Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x   No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     x Yes   o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o   Accelerated filer x
Non-accelerated filer   o   Smaller reporting company x
    Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On May 8, 2020, 7,462,247 shares of the issuer’s common stock, par value $1.00 per share, were issued and outstanding. 

 
 

TABLE OF CONTENTS

     
PART I – FINANCIAL INFORMATION 1
Item 1.   Financial Statements 1
  Consolidated Balance Sheets 1
  Consolidated Statements of Income 2
  Consolidated Statements of Comprehensive Income 3
  Consolidated Statements of Changes in Shareholders’ Equity 4
  Consolidated Statements of Cash Flows 5
  Notes to Consolidated Financial Statements 6
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 32
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 49
Item 4.   Controls and Procedures 49
     
PART II – OTHER INFORMATION 50
Item 1.  Legal Proceedings 50
Item 1A. Risk Factors 50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 51
Item 3. Defaults Upon Senior Securities 51
Item 4. Mine Safety Disclosures 52
Item 5. Other Information 52
Item 6. Exhibits 52
     
SIGNATURES 53
INDEX TO EXHIBITS  
EX-31.1 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER  
EX-31.2 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER  
EX-32 SECTION 1350 CERTIFICATIONS  

 
 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

FIRST COMMUNITY CORPORATION

CONSOLIDATED BALANCE SHEETS

 

   March 31,     
(Dollars in thousands, except par value)  2020   December 31, 
   (Unaudited)   2019 
ASSETS          
Cash and due from banks  $23,739   $14,951 
Interest-bearing bank balances   25,637    32,741 
Investment securities available-for-sale   288,881    286,800 
Other investments, at cost   2,062    1,992 
Loans held-for-sale   11,937    11,155 
Loans   749,529    737,028 
Less, allowance for loan losses   7,694    6,627 
Net loans   741,835    730,401 
Property, furniture and equipment - net   34,819    35,008 
Lease right-of-use assets   3,170    3,215 
Premises held-for-sale   591    591 
Bank owned life insurance   28,223    28,041 
Other real estate owned   1,481    1,410 
Intangible assets   1,378    1,483 
Goodwill   14,637    14,637 
Other assets   6,917    7,854 
Total assets  $1,185,307   $1,170,279 
LIABILITIES          
Deposits:          
Non-interest bearing demand  $291,669   $289,829 
Interest bearing   694,976    698,372 
Total deposits   986,645    988,201 
Securities sold under agreements to repurchase   46,041    33,296 
Federal Home Loan Bank advances       211 
Junior subordinated debt   14,964    14,964 
Lease liability   3,229    3,266 
Other liabilities   9,814    10,147 
Total liabilities   1,060,693    1,050,085 
                     SHAREHOLDERS’ EQUITY          
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; none issued and outstanding        
Common stock, par value $1.00 per share; 20,000,000 shares authorized; issued and outstanding 7,462,247 at March 31, 2020 7,440,026 at December 31, 2019   7,462    7,440 
Nonvested restricted stock   (465)   (151)
Additional paid in capital   90,916    90,488 
Retained earnings   20,830    19,927 
Accumulated other comprehensive income   5,871    2,490 
Total shareholders’ equity   124,614    120,194 
Total liabilities and shareholders’ equity  $1,185,307   $1,170,279 

 

See Notes to Consolidated Financial Statements

1
 

FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
         
(Dollars in thousands, except per share amounts)  Three Months ended March 31, 
   2020   2019 
Interest income:          
Loans, including fees  $8,827   $8,609 
Investment securities - taxable   1,437    1,217 
Investment securities - non taxable   289    439 
Other short term investments   152    103 
Other   5    6 
Total interest income   10,710    10,374 
Interest expense:          
Deposits   1,019    1,001 
Securities sold under agreement to repurchase   104    92 
Other borrowed money   170    261 
Total interest expense   1,293    1,354 
Net interest income   9,417    9,020 
Provision for loan losses   1,075    105 
Net interest income after provision for loan losses   8,342    8,915 
Non-interest income:          
Deposit service charges   399    411 
Mortgage banking income   982    844 
Investment advisory and non-deposit commissions   634    438 
Loss on sale of securities       (29)
Gain on sale of other assets   6     
Other   907    845 
Total non-interest income   2,928    2,509 
Non-interest expense:          
Salaries and employee benefits   5,653    5,170 
Occupancy   643    655 
Equipment   318    386 
Marketing and public relations   354    175 
FDIC Insurance assessment   42    74 
Other real estate expense   35    29 
Amortization of intangibles   105    132 
Other   1,888    1,702 
Total non-interest expense   9,038    8,323 
Net income before tax   2,232    3,101 
Income tax expense   438    606 
Net income  $1,794   $2,495 
           
Basic earnings per common share  $0.24   $0.33 
Diluted earnings per common share  $0.24   $0.32 

 

See Notes to Consolidated Financial Statements

2
 

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 

(Dollars in thousands)            
    Three months ended March 31,  
    2020     2019  
             
Net income   $ 1,794     $ 2,495  
                 
Other comprehensive income:                
Unrealized gain during the period on available-for-sale securities, net of tax expense of $899 and $609, respectively     3,381       2,282  
                 
Reclassification adjustment for loss on available-for-sale securities included in net income, net of tax benefit of $0 and $6, respectively           23  
                 
Other comprehensive income     3,381       2,305  
Comprehensive income   $ 5,175     $ 4,800  

 

See Notes to Consolidated Financial Statements

3
 

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months ended March 31, 2020 and March 31, 2019

(Unaudited)

 

                           Accumulated     
   Common       Common   Additional   Nonvested       Other     
(Dollars in thousands)  Shares   Common   Stock   Paid-in   Restricted   Retained   Comprehensive     
   Issued   Stock   Warrants   Capital   Stock   Earnings   Income (loss)   Total 
Balance, December 31, 2018   7,639   $7,639   $31   $95,048   $(149)  $12,262   $(2,334)  $112,497 
Net income                            2,495         2,495 
                                         
Other comprehensive income net of tax of $615                                 2,305    2,305 
Issuance of restricted stock   8    8         162    (170)              
Amortization of compensation on restricted stock                       33              33 
Shares retired   (8)   (8)        (148)                  (156)
Exercise of warrants   21    21    (14)   (7)                   
Dividends: Common ($0.11 per share)                            (840)        (840)
Dividend reinvestment plan   5    5         95                   100 
Balance, March 31, 2019   7,665   $7,665   $17   $95,150   $(286)  $13,917   $(29)  $116,434 
                                         
Balance, December 31, 2019   7,440   $7,440   $   $90,488   $(151)  $19,927   $2,490   $120,194 
Net income                            1,794         1,794 
                                         
Other comprehensive income net of tax of $899                                 3,381    3,381 
Issuance of common stock                  4                   4 
Issuance of restricted stock   18    18         348    (366)              
Amortization of compensation on restricted stock                       52              52 
Shares retired   (1)   (1)        (14)                  (15)
Exercise of warrants                                       
Dividends: Common ($0.12 per share)                            (891)        (891)
Dividend reinvestment plan   5    5         90                   95 
Balance, March 31, 2020   7,462   $7,462   $   $90,916   $(465)  $20,830   $5,871   $124,614 

 

See Notes to Consolidated Financial Statements

4
 

FIRST COMMUNITY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   Three months ended
March 31,
 
(Dollars in thousands)  2020   2019 
Cash flows from operating activities:          
Net income  $1,794   $2,495 
Adjustments to reconcile net income to net cash provided (used) from operating activities:          
       Depreciation   403    393 
       Net premium amortization   521    539 
       Provision for loan losses   1,075    105 
       Origination of loans held-for-sale   (34,427)   (25,345)
       Sale of loans held-for-sale   33,645    21,269 
       Amortization of intangibles   105    132 
       Accretion on acquired loans   (106)   (143)
       Loss on sale of securities       29 
       Increase in other assets   (80)   (3,273)
       (Decrease) Increase in other liabilities   (363)   1,634 
         Net cash provided (used) from operating activities   2,567    (2,165)
Cash flows from investing activities:          
    Purchase of investment securities available-for-sale   (11,882)   (5,419)
    Purchase of other investment securities   (70)   (207)
Maturity/call of investment securities available-for-sale   13,606    7,969 
Proceeds from sale of securities available-for-sale       7,137 
(Increase) decrease in loans   (12,495)   152 
Proceeds from sale of fixed assets       301 
Purchase of property and equipment   (214)   (1,178)
         Net cash (used) provided in investing activities   (11,055)   8,755 
Cash flows from financing activities:          
Decrease in deposit accounts   (1,555)   (5,735)
Increase in securities sold under agreements to repurchase   12,745    3,985 
Advances from the Federal Home Loan Bank   10,001    56,000 
Repayment of advances from Federal Home Loan Bank   (10,212)   (54,005)
Shares retired   (15)   (156)
Dividends paid:  Common Stock   (891)   (840)
Proceeds from issuance of Common Stock   4     
Dividend reinvestment plan   95    100 
        Net cash provided (used) from financing activities   10,172    (651)
Net increase in cash and cash equivalents   1,684    5,939 
Cash and cash equivalents at beginning of period   47,692    32,268 
Cash and cash equivalents at end of period  $49,376   $38,207 
Supplemental disclosure:          
Cash paid during the period for:          
Interest  $1,462   $1,293 
Income taxes  $   $ 
Non-cash investing and financing activities:          
Unrealized gain on securities  $5,871   $2,917 
Recognition of operating lease right of use asset  $   $2,846 
Recognition of operating lease liability  $   $2,849 
Transfer of investment securities held-to-maturity to available-for-sale  $   $16,144 
Transfer of loans to foreclosed property  $78     

  

See Notes to Consolidated Financial Statements

5
 

Notes to Consolidated Financial Statements (Unaudited)

 

Note 1—Nature of Business and Basis of Presentation

 

Basis of Presentation

 

In the opinion of management, the accompanying unaudited consolidated balance sheets, and the consolidated statements of income, comprehensive income, changes in shareholders’ equity, and the cash flows of First Community Corporation (the “Company”) and its wholly owned subsidiary, First Community Bank (the “Bank”), present fairly in all material respects the Company’s financial position at March 31, 2020 and December 31, 2019, and the Company’s results of operations and cash flows for the three months ended March 31, 2020 and 2019. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Form 10-Q. The information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 should be referred to in connection with these unaudited interim financial statements.

 

Risk and Uncertainties

 

In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in China, and has since spread to a number of other countries, including the United States. In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a National Public Health Emergency. The COVID-19 pandemic has severely restricted the level of economic activity in the Bank’s markets. In response to the COVID-19 pandemic, the governments of the states in which the Bank has retail offices, and of most other states, have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.

While the Bank’s business has been designated an essential business, which allows the Bank to continue to serve its customers, the Bank serves many customers that have been deemed, or who are employed by businesses that have been deemed, to be non-essential. And many of the Bank’s customers that have been categorized to date as essential businesses, or who are employed by businesses that have been categorized as essential businesses, have been adversely affected by the COVID-19 pandemic.

The impact of the COVID-19 pandemic is fluid and continues to evolve. The COVID-19 pandemic and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, lower equity market valuations and significant volatility and disruption in financial markets, and has had an adverse effect on the Company’s business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including, among others, the duration and scope of the pandemic, as well as governmental, regulatory and private sector responses to the pandemic, and the associated impacts on the economy, financial markets and the Company’s customers, employees and vendors.

The Company’s business, financial condition and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates and in the United States as a whole.

On March 3, 2020, the Federal Reserve reduced the target federal funds rate by 50 basis points, followed by an additional reduction of 100 basis points on March 16, 2020. These reductions in interest rates and other effects of the COVID-19 pandemic may adversely affect the Company’s financial condition and results of operations. As a result of the spread of COVID-19, economic uncertainties have arisen which are likely to negatively impact net interest income, provision for loan losses, and noninterest income. Other financial impact could occur though such potential impact is unknown at this time.

As of March 31, 2020, the Bank’s capital ratios were in excess of all regulatory requirements. While management believes that the Company has sufficient capital to withstand an extended economic recession brought about by the COVID-19 pandemic, the Bank’s reported and regulatory capital ratios could be adversely impacted by further credit losses.

6
 

We believe that we have ample liquidity to meet the needs of our customers and to manage through the COVID-19 pandemic through our low cost deposits; our ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks; and our ability to obtain advances secured by certain securities and loans from the Federal Home Loan Bank.  Furthermore, we are eligible to participate in the Paycheck Protection Program Liquidity Facility (“PPPLF”) to fund Paycheck Protection Program (PPP) loans if needed.

 

Beginning in early March 2020, the Company proactively reached out to its loan customers and offered deferrals for up to 90 days. As of March 31, 2020, the Company granted 183 deferral requests totaling $118.3 million of the Company’s loan portfolio related to the COVID-19 pandemic. As of May 4, 2020, the Company has granted 383 deferrals totaling approximately $202.4 million of the Company’s loan portfolio.

The Company has evaluated its exposure to certain industry segments most impacted by the COVID-19 pandemic as of March 31, 2020:

Industry Segments  Outstanding   % of Loan   Ave. Loan   Ave. Loan to 
(Dollars in millions)  Loan Balance   Portfolio   Size   Value 
Hotels  $26.8    3.6%  $1.9    67%
Restaurants  $17.6    2.4%  $0.6    64%
Assisted Living  $9.2    1.2%  $1.8    50%
Retail  $75.5    10.1%  $0.6    62%

 

Note 2—Earnings Per Common Share

 

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

 

(In thousands except average market price)

 

   Three months ended 
   March 31, 
   2020   2019 
Numerator (Net income available to common shareholders)  $1,794   $2,495 
Denominator          
Weighted average common shares outstanding for:          
Basic shares   7,421    7,634 
Dilutive securities:          
Deferred compensation   38    52 
Warrants/Restricted stock -Treasury stock method   9    39 
Diluted shares   7,468    7,725 
The average market price used in calculating assumed number of shares  $19.03   $19.90 

 

There were no options outstanding as of March 31, 2020 and 2019.

 

In the fourth quarter of 2011, we issued $2.5 million in 8.75% subordinated notes maturing December 16, 2019. On November 15, 2012, the subordinated notes were redeemed in full at par. In connection with the issuance of the subordinated debt, the Company issued warrants for 107,500 shares of common stock at $5.90 per share. There were 36,550 warrants outstanding at March 31, 2019 and these warrants are included in dilutive securities in the table above. All warrants were exercised by their expiration date of December 16, 2019.

7
 

Note 2—Earnings Per Common Share-continued

 

In 2006, the Company established a Non-Employee Director Deferred Compensation Plan, whereby a director may elect to defer all or any part of annual retainer and monthly meeting fees payable with respect to service on the board of directors or a committee of the board. Units of common stock are credited to the director’s account at the time compensation is earned and are included in dilutive securities in the table above. The non-employee director’s account balance is distributed by issuance of common stock at the time of retirement or resignation from the board of directors. At March 31, 2020 and December 31, 2019, there were 100,215 and 97,104 units in the plan, respectively. The accrued liability at March 31, 2020 and December 31, 2019 amounted to $1.2 million and $1.1 million, respectively, and is included in “Other liabilities” on the balance sheet.

 

Note 3—Investment Securities

 

The amortized cost and estimated fair values of investment securities are summarized below:

 

AVAILABLE-FOR-SALE:         Gross     Gross        
    Amortized     Unrealized     Unrealized        
(Dollars in thousands)   Cost     Gains     Losses     Fair Value  
March 31, 2020                                
US Treasury securities   $  3,498     $ 36     $     $ 3,534  
Government Sponsored Enterprises      987       28             1,015  
Mortgage-backed securities      176,507       5,818       1,491       180,834  
Small Business Administration pools      41,255       597       125       41,727  
State and local government      59,187       2,577       8       61,756  
Other securities      15                   15  
    $  281,449     $ 9,056     $ 1,624     $ 288,881  
                         
          Gross     Gross        
    Amortized     Unrealized     Unrealized        
(Dollars in thousands)   Cost     Gains     Losses     Fair Value  
December 31, 2019                                
US Treasury securities   $ 7,190     $ 16     $ 3     $ 7,203  
Government Sponsored Enterprises     984       17             1,001  
Mortgage-backed securities     182,736       1,490       640       183,586  
Small Business Administration pools     45,301       259       217       45,343  
State and local government     47,418       2,371       141       49,648  
Other securities     19                   19  
    $ 283,648     $ 4,153     $ 1,001     $ 286,800  

 

During the first quarter of 2019, the Company reclassified the portfolio of securities listed as held-to-maturity to available-for-sale. There were no investment securities listed as held-to-maturity as of March 31, 2020.

 

During the three months ended March 31, 2020 and 2019, the Company received proceeds of $0 and $7.1 million, respectively, from the sale of investment securities available-for-sale. For the three months ended March 31, 2020, there were no gross realized gains from the sale of investment securities available-for-sale and no gross realized losses. For the three months ended March 31, 2019, gross realized gains from the sale of investment securities available-for-sale amounted to $41 thousand and gross realized losses amounted to $70 thousand. 

8
 

Note 3—Investment Securities-continued

 

At March 31, 2020, other securities available-for-sale included the following at fair value: a mutual fund at $5.0 thousand, and foreign debt of $10.0 thousand. As required by Accounting Standards Update (“ASU”) 2016-01-Financial Instruments-Overall (Subtopic 825-10), the Company measured its equity investments at fair value with changes in the fair value recognized through net income. For the three months ended March 31, 2020 and 2019, a $3.8 thousand loss and a $1.0 thousand gain were recognized on a mutual fund, respectively. At December 31, 2019, corporate and other securities available-for-sale included the following at fair value: a mutual fund at $8.8 thousand and foreign debt of $10.0 thousand. Other investments, at cost, include Federal Home Loan Bank (“FHLB”) stock in the amount of $1.1 million and corporate stock in the amount of $1.0 million at March 31, 2020. The Company held $991.4 thousand of FHLB stock and $1.0 million in corporate stock at December 31, 2019.

 

The following tables show gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at March 31, 2020 and December 31, 2019.

  

(Dollars in thousands)   Less than 12 months     12 months or more     Total  
March 31, 2020   Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Available-for-sale securities:   Value     Loss     Value     Loss     Value     Loss  
                                     
Mortgage-backed securities   $ 36,949     $ 1,432     4,062     59     41,011     1,491  
Small Business Administration pools     3,038       18       8,845       107       11,883       125  
State and local government     2,226       8                   2,226       8  
Total    $ 42,213     $ 1,458     $ 12,907     $ 166     $ 55,120     $ 1,624  
                   
(Dollars in thousands)   Less than 12 months     12 months or more     Total  
December 31, 2019   Fair     Unrealized     Fair     Unrealized     Fair     Unrealized  
Available-for-sale securities:   Value     Loss     Value     Loss     Value     Loss  
                                     
US Treasury securities   $     $     $ 1,508     $ 3     $ 1,508     $ 3  
Mortgage-backed securities     57,175       485       12,419       155       69,594       640  
Small Business Administration pools     7,891       53       13,502       164       21,393       217  
State and local government     5,695       141                   5,695       141  
Total   $ 70,761     $ 679     $ 27,429     $ 322     $ 98,190     $ 1,001  

 

Government Sponsored Enterprise, Mortgage-Backed Securities: The Company owned mortgage-backed securities (“MBSs”), including collateralized mortgage obligations (“CMOs”), issued by government sponsored enterprises (“GSEs”) with an amortized cost of $176.5 million and $182.7 million and approximate fair value of $180.8 million and $183.6 million at March 31, 2020 and December 31, 2019, respectively. As of March 31, 2020, and December 31, 2019, all of the MBSs issued by GSEs were classified as “Available-for-Sale.” Unrealized losses on certain of these investments are not considered to be “other than temporary,” and we have the intent and ability to hold these until they mature or recover the current book value. The contractual cash flows of the investments are guaranteed by the GSEs. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company does not intend to sell these securities and it is more likely than not that the Company will not be required sell these securities before a recovery of its amortized cost, which may be maturity, the Company does not consider the investments to be other-than-temporarily impaired at March 31, 2020. 

9
 

Note 3—Investment Securities-continued

Non-agency Mortgage Backed Securities: The Company held private label mortgage-backed securities (“PLMBSs”), including CMOs, at March 31, 2020 with an amortized cost of $70.9 thousand and approximate fair value of $66.2 thousand. The Company held PLMBSs, including CMOs, at December 31, 2019 with an amortized cost of $73.5 thousand and approximate fair value of $73.5 thousand. Management monitors each of these securities on a quarterly basis to identify any deterioration in the credit quality, collateral values and credit support underlying the investments.

State and Local Governments and Other: Management monitors these securities on a quarterly basis to identify any deterioration in the credit quality. Included in the monitoring is a review of the credit rating, a financial analysis and certain demographic data on the underlying issuer. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2020.

The following sets forth the amortized cost and fair value of investment securities at March 31, 2020 by contractual maturity. Expected maturities differ from contractual maturities because borrowers may have the right to call or prepay the obligations with or without prepayment penalties. MBSs are based on average life at estimated prepayment speeds.

 

March 31, 2020   Available-for-sale  
    Amortized     Fair  
(Dollars in thousands)   Cost     Value  
Due in one year or less   $ 7,772     $ 7,842  
Due after one year through five years     122,950       125,292  
Due after five years through ten years     123,926       128,280  
Due after ten years     26,801       27,467  
Total   $ 281,449     $ 288,881  

 

Note 4—Loans

 

Loans summarized by category as of March 31, 2020, December 31, 2019 and March 31, 2019 are as follows:

    March 31,     December 31,     March 31,  
(Dollars in thousands)   2020     2019     2019  
Commercial, financial and agricultural   $ 50,313     $ 51,805     $ 52,289  
Real estate:                        
Construction     83,547       73,512       56,234  
Mortgage-residential     46,471       45,357       50,732  
Mortgage-commercial     530,180       527,447       519,420  
Consumer:                        
Home equity     28,641       28,891       30,092  
Other     10,377       10,016       9,653  
Total   $ 749,529     $ 737,028     $ 718,420  

10
 

Note 4—Loans-continued

 

The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the three months ended March 31, 2020 and March 31, 2019 and for the year ended December 31, 2019 is as follows:

 

(Dollars in thousands)                                                
                Real estate     Real estate     Consumer                    
          Real estate     Mortgage     Mortgage     Home     Consumer              
    Commercial     Construction     Residential     Commercial     equity     Other     Unallocated     Total  
March 31, 2020                                                                
Allowance for loan losses:                                                                
Beginning balance
December 31, 2019
  $ 427     $ 111     $ 367     $ 4,602     $ 240     $ 97     $ 783     $ 6,627  
Charge-offs                                   (23 )           (23 )
Recoveries                       6       1       8             15  
Provisions     62       37       73       923       36       30       (86 )     1,075  
Ending balance
March 31, 2020
  $ 489     $ 148     $ 440     $ 5,531     $ 277     $ 112     $ 697     $ 7,694  
                                                                 
Ending balances:                                                                
Individually evaluated for impairment   $     $     $     $ 5     $     $     $     $ 5  
                                                                 
Collectively evaluated for impairment     489       148       440       5,526       277       112       697       7,689  
                                                                 
March 31, 2020
Loans receivable:
                                                               
Ending balance-total   $ 50,313     $ 83,547     $ 46,471     $ 530,180     $ 28,641     $ 10,377     $     $ 749,529  
                                                                 
Ending balances:                                                                
Individually evaluated for impairment                 340       2,966       68                   3,374  
                                                                 
Collectively evaluated for impairment   $ 50,313     $ 83,547     $ 46,131     $ 527,214     $ 28,573     $ 10,377     $     $ 746,155  

11
 

Note 4—Loans-continued

 

(Dollars in thousands)                                                
                Real estate     Real estate     Consumer                    
          Real estate     Mortgage     Mortgage     Home     Consumer              
    Commercial     Construction     Residential     Commercial     equity     Other     Unallocated     Total  
March 31, 2019                                                                
Allowance for loan losses:                                                                
Beginning balance
December 31, 2018
  $ 430     $ 89     $ 431     $ 4,318     $ 261     $ 88     $ 646     $ 6,263  
Charge-offs     (2                       (1 )     (30 )           (33 )
Recoveries                       10             9             19  
Provisions     (10 )     7       (19 )     18       8       22       79       105  
Ending balance
March 31, 2019
  $ 418     $ 96     $ 412     $ 4,346     $ 268     $ 89     $ 725     $ 6,354  
                                                                 
Ending balances:                                                                
Individually evaluated for impairment   $     $     $     $ 14     $     $     $     $ 14  
                                                                 
Collectively evaluated for impairment     418       96       412       4,332       268       89       725       6,340  
                                                                 
March 31, 2019
Loans receivable:
                                                               
Ending balance-total   $ 52,289     $ 56,234     $ 50,732     $ 519,420     $ 30,092     $ 9,653     $     $ 718,420  
                                                                 
Ending balances:                                                                
Individually evaluated for impairment                 409       4,162       57       5             4,633  
                                                                 
Collectively evaluated for impairment   $ 52,289     $ 56,234     $ 50,323     $ 515,258     $ 30,035     $ 9,648     $     $ 713,787  

12
 

Note 4—Loans-continued

 

(Dollars in thousands)                                                
                Real estate     Real estate     Consumer                    
          Real estate     Mortgage     Mortgage     Home     Consumer              
    Commercial     Construction     Residential     Commercial     equity     Other     Unallocated     Total  
December 31, 2019                                                                
Allowance for loan losses:                                                                
Beginning balance
December 31, 2018
  $ 430     $ 89     $ 431     $ 4,318     $ 261     $ 88     $ 646     $ 6,263  
Charge-offs     (12 )           (12           (1 )     (120 )           (145 )
Recoveries     3                   307       15       45             370  
Provisions     6       22       (52     (23)       (35     84       137       139  
Ending balance
December 31, 2019
  $ 427     $ 111     $ 367     $ 4,602     $ 240     $ 97     $ 783     $ 6,627  
                                                                 
Ending balances:                                                                
Individually evaluated for impairment   $     $     $     $ 6     $     $     $     $ 6  
                                                                 
Collectively evaluated for impairment     427       111       367       4,596       240       97       783       6,621  
                                                                 
December 31, 2019
Loans receivable:
                                                               
Ending balance-total   $ 51,805     $ 73,512     $ 45,357     $ 527,447     $ 28,891     $ 10,016     $     $ 737,028  
                                                                 
Ending balances:                                                                
Individually evaluated for impairment     400             392       3,135       70                   3,997  
                                                                 
Collectively evaluated for impairment   $ 51,405     $ 73,512     $ 44,965     $ 524,312     $ 28,821     $ 10,016     $     $ 733,031  

 

13
 

Note 4—Loans-continued

Related party loans and lines of credit are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than the normal risk of collectability. The following table presents related party loan transactions for the three months ended March 31, 2020 and March 31, 2019:

(Dollars in thousands)   2020     2019  
Beginning Balance December 31,   $ 4,109     $ 5,937  
New Loans     55        
Less loan repayments     437       85  
Ending Balance March 31,   $ 3,727     $ 5,852  

 

The following table presents at March 31, 2020 and December 31, 2019 loans individually evaluated and considered impaired under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing troubled debt restructurings (“TDRs”).

 

(Dollars in thousands)   March 31,     December 31,  
    2020     2019  
Total loans considered impaired   $ 3,374     $ 3,997  
Loans considered impaired for which there is a related allowance for loan loss:                
Outstanding loan balance   $ 219     $ 256  
Related allowance   $ 5     $ 6  
Loans considered impaired and previously written down to fair value   $ 2,172     $ 2,275  
Average impaired loans   $ 3,437     $ 4,431  
Amount of interest earned during period of impairment   $ 82     $ 263  

14
 

Note 4—Loans-continued

 

The following tables are by loan category and present at March 31, 2020, March 31, 2019 and December 31, 2019, loans individually evaluated and considered impaired under FASB ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing TDRs. 

 

(Dollars in thousands)                     Three months ended  
          Unpaid           Average     Interest  
March 31, 2020   Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized  
With no allowance recorded:                                        
Commercial   $     $     $     $     $  
Real estate:                                        
Construction                              
Mortgage-residential     340       431             339       6  
Mortgage-commercial     2,747       5,161             2,797       72  
Consumer:                                        
Home Equity     68       72             69       1  
Other                              
                                         
With an allowance recorded:                                        
Commercial                              
Real estate:                                        
Construction                              
Mortgage-residential                              
Mortgage-commercial     219       219       5       232       3  
Consumer:                                        
Home Equity                              
Other                              
                                         
Total:                                        
Commercial                              
Real estate:                                        
Construction                              
Mortgage-residential     340       431             339       6  
Mortgage-commercial     2,966       5,380       5       3,029       75  
Consumer:                                        
Home Equity     68       72             69       1  
Other                              
    $ 3,374     $ 5,883     $ 5     $ 3,437     $ 82  

15
 

Note 4—Loans-continued

 

(Dollars in thousands)                     Three months ended  
          Unpaid           Average     Interest  
March 31, 2019   Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized  
With no allowance recorded:                                        
Commercial   $     $     $     $     $  
Real estate:                                        
Construction                              
Mortgage-residential     409       462             413       4  
Mortgage-commercial     3,715       6,708             4,048       61  
Consumer:                                        
Home Equity     57       59             59       1  
Other     5       5             5        
                                         
With an allowance recorded:                                        
Commercial                              
Real estate:                                        
Construction                              
Mortgage-residential                              
Mortgage-commercial     447       447       14       448       6  
Consumer:                                        
Home Equity                              
Other                              
                                         
Total:                                        
Commercial                              
Real estate:                                        
Construction                              
Mortgage-residential     409       462             413       4  
Mortgage-commercial     4,162       7,155       14       4,496       67  
Consumer:                                        
Home Equity     57       59             59       1  
Other     5       5             5        
    $ 4,633     $ 7,681     $ 14     $ 4,973     $ 72  

16
 

Note 4—Loans-continued

 

(Dollars in thousands)                              
December 31, 2019         Unpaid           Average     Interest  
    Recorded     Principal     Related     Recorded     Income  
    Investment     Balance     Allowance     Investment     Recognized  
With no allowance recorded:                                        
Commercial   $ 400     $ 400     $     $ 600     $ 49  
Real estate:                                        
Construction                              
Mortgage-residential     392       460             439       19  
Mortgage-commercial     2,879       5,539             2,961       170  
Consumer:                                        
Home Equity     70       73             76       2  
Other                              
                                         
With an allowance recorded:                                        
Commercial                              
Real estate:                                        
Construction                              
Mortgage-residential                              
Mortgage-commercial     256       256       6       355       23  
Consumer:                                        
Home Equity                              
Other                              
                                         
Total:                                        
Commercial     400       400             600       49  
Real estate:                                        
Construction                              
Mortgage-residential     392       460             439       19  
Mortgage-commercial     3,135       5,795       6       3,316       193  
Consumer:                                        
Home Equity     70       73             76       2  
Other                              
    $ 3,997     $ 6,728     $ 6     $ 4,431     $ 263  

17
 

Note 4—Loans-continued

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt, including current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a monthly basis. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

 

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered as pass rated loans. As of March 31, 2020 and December 31, 2019, and based on the most recent analysis performed, the risk category of loans by class of loans is shown in the table below. As of March 31, 2020 and December 31, 2019, no loans were classified as doubtful.

 

(Dollars in thousands)                              
March 31, 2020         Special                    
    Pass     Mention     Substandard     Doubtful     Total  
Commercial, financial & agricultural   $ 50,202     $ 111     $     $     $ 50,313  
Real estate:                                        
Construction     83,547                         83,547  
Mortgage – residential     45,301       285       885             46,471  
Mortgage – commercial     524,525       2,396       3,259             530,180  
Consumer:                                        
Home Equity     27,192       1,127       322             28,641  
Other            10,346       31                   10,377  
Total   $ 741,113     $ 3,950     $ 4,466     $     $ 749,529  

 

(Dollars in thousands)                              
December 31, 2019         Special                    
    Pass     Mention     Substandard     Doubtful     Total  
Commercial, financial & agricultural   $ 51,166     $ 239     $ 400     $     $ 51,805  
Real estate:                                        
Construction     73,512                         73,512  
Mortgage – residential     44,221       509       627             45,357  
Mortgage – commercial     521,072       2,996       3,379             527,447  
Consumer:                                        
Home Equity     27,450       1,157       284             28,891  
Other     9,981       35                   10,016  
Total   $ 727,402     $ 4,936     $ 4,690     $     $ 737,028  

18
 

Note 4—Loans-continued

 

At March 31, 2020 and December 31, 2019, non-accrual loans totaled $1.7 million and $2.3 million, respectively.

 

TDRs that are still accruing and included in impaired loans at March 31, 2020 and at December 31, 2019 amounted to $1.6 million and $1.7 million, respectively.

 

Loans greater than 90 days delinquent and still accruing interest were $168.1 thousand and $0.3 thousand at March 31, 2020 and December 31, 2019, respectively. 

 

Acquired credit-impaired loans are accounted for under the accounting guidance for loans and debt securities acquired with deteriorated credit quality, found in FASB ASC Topic 310-30, (Receivables—Loans and Debt Securities Acquired with Deteriorated Credit Quality), and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Loans acquired in business combinations with evidence of credit deterioration are considered impaired. Loans acquired through business combinations that do not meet the specific criteria of FASB ASC Topic 310-30, but for which a discount is attributable, at least in part to credit quality, are also accounted for under this guidance. Certain acquired loans, including performing loans and revolving lines of credit (consumer and commercial), are accounted for in accordance with FASB ASC Topic 310-20, where the discount is accreted through earnings based on estimated cash flows over the estimated life of the loan.

 

A summary of changes in the accretable yield for purchased credit-impaired loans for the three months ended March 31, 2020 and March 31, 2019 follows:

 

(Dollars in thousands)   Three Months
Ended
March 31, 2020
    Three Months
Ended
March 31, 2019
 
             
Accretable yield, beginning of period   $ 123     $ 153  
Additions            
Accretion     (7 )     (8 )
Reclassification of nonaccretable difference due to improvement in expected cash flows            
Other changes, net            
Accretable yield, end of period   $ 116     $ 145  

 

At March 31, 2020 and December 31, 2019, the recorded investment in purchased impaired loans was $112 thousand. The unpaid principal balance was $186 thousand and $190 thousand at March 31, 2020 and December 31, 2019, respectively. At March 31, 2020 and December 31, 2019, these loans were all secured by commercial real estate. 

19
 

Note 4—Loans-continued

 

The following tables are by loan category and present loans past due and on non-accrual status as of March 31, 2020 and December 31, 2019:  

(Dollars in thousands)               Greater than                          
    30-59 Days     60-89 Days     90 Days and           Total              
March 31, 2020   Past Due     Past Due     Accruing     Nonaccrual     Past Due     Current     Total Loans  
                                           
Commercial   $ 57     $     $     $     $ 57     $ 50,256     $ 50,313  
Real estate:                                                        
Construction                                   83,547       83,547  
Mortgage-residential     181             168       340       689       45,782       46,471  
Mortgage-commercial     294                   1,330       1,624       528,556       530,180  
Consumer:                                                        
Home equity           70             68       138       28,503       28,641  
Other     66       3                   69       10,308       10,377  
    $ 598     $ 73     $ 168     $ 1,738     $ 2,577     $ 746,952     $ 749,529  

 

(Dollars in thousands)               Greater than                          
    30-59 Days     60-89 Days     90 Days and           Total              
December 31, 2019   Past Due     Past Due     Accruing     Nonaccrual     Past Due     Current     Total Loans  
                                           
Commercial   $     $ 99     $     $ 400     $ 499     $ 51,306     $ 51,805  
Real estate:                                                        
Construction     113                         113       73,399       73,512  
Mortgage-residential     151                   392       543       44,814       45,357  
Mortgage-commercial     39                   1,467       1,506       525,941       527,447  
Consumer:                                                      
Home equity     2       9