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First munity (FCCO) - 2025 Q2 - Quarterly Report
First munity First munity (US:FCCO)2025-08-08 18:19

markdown [PART I – FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited consolidated financial statements for First Community Corporation and its subsidiary [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Metric (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Total Assets | $2,046,265 | $1,958,021 | +$88,244 | | Total Liabilities | $1,890,765 | $1,813,527 | +$77,238 | | Total Shareholders' Equity | $155,500 | $144,494 | +$11,006 | | Net Loans Held-for-Investment | $1,246,725 | $1,207,407 | +$39,318 | | Total Deposits | $1,754,041 | $1,675,901 | +$78,140 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Three Months Ended June 30 | Metric (in thousands, except per share) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------- | | Total interest income | $24,173 | $21,931 | +$2,242 | | Total interest expense | $8,849 | $9,237 | -$388 | | Net interest income | $15,324 | $12,694 | +$2,630 | | (Release of) provision for credit losses | ($237) | $454 | -$691 | | Total non-interest income | $4,206 | $3,642 | +$564 | | Total non-interest expense | $13,083 | $11,843 | +$1,240 | | Net income | $5,186 | $3,265 | +$1,921 | | Basic earnings per common share | $0.68 | $0.43 | +$0.25 | | Diluted earnings per common share | $0.67 | $0.42 | +$0.25 | Six Months Ended June 30 | Metric (in thousands, except per share) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------- | | Total interest income | $47,255 | $43,187 | +$4,068 | | Total interest expense | $17,541 | $18,416 | -$875 | | Net interest income | $29,714 | $24,771 | +$4,943 | | Provision for credit losses | $200 | $583 | -$383 | | Total non-interest income | $8,188 | $6,826 | +$1,362 | | Total non-interest expense | $25,837 | $23,648 | +$2,189 | | Net income | $9,183 | $5,862 | +$3,321 | | Basic earnings per common share | $1.20 | $0.77 | +$0.43 | | Diluted earnings per common share | $1.18 | $0.76 | +$0.42 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Three Months Ended June 30 | Metric (in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | YoY Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | | Net income | $5,186 | $3,265 | +$1,921 | | Other comprehensive income | $1,110 | $154 | +$956 | | Comprehensive income | $6,296 | $3,419 | +$2,877 | Six Months Ended June 30 | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | | Net income | $9,183 | $5,862 | +$3,321 | | Other comprehensive income | $3,596 | $903 | +$2,693 | | Comprehensive income | $12,779 | $6,765 | +$6,014 | [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Metric (in thousands) | Metric (in thousands) | Balance Dec 31, 2024 | Net Income | Other Comprehensive Income | Dividends | Balance Jun 30, 2025 | | :-------------------- | :------------------- | :--------- | :------------------------- | :-------- | :------------------- | | Total Shareholders' Equity | $144,494 | $9,183 | $3,596 | ($2,296) | $155,500 | - Total shareholders' equity increased to **$155,500 thousand** at June 30, 2025, from **$144,494 thousand** at December 31, 2024, driven by net income, other comprehensive income, and stock-based compensation/dividend reinvestment, partially offset by common stock dividends[17](index=17&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Metric (in thousands) | Metric (in thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | YoY Change | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | | Net cash from operating activities | $6,203 | $4,410 | +$1,793 | | Net cash from investing activities | ($49,460) | ($35,899) | -$13,561 | | Net cash from financing activities | $76,897 | $48,305 | +$28,592 | | Net increase in cash and cash equivalents | $33,640 | $16,816 | +$16,824 | | Cash and cash equivalents at end of period | $183,468 | $111,511 | +$71,957 | - Net cash used in investing activities increased to **$49,460 thousand** in 2025 from **$35,899 thousand** in 2024, primarily due to increased loan origination and investment security purchases[20](index=20&type=chunk) - Net cash provided by financing activities increased to **$76,897 thousand** in 2025 from **$48,305 thousand** in 2024, mainly due to an increase in deposit accounts[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [Note 1 - Nature of Business and Basis of Presentation](index=10&type=section&id=Note%201%20-%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) - The financial statements are unaudited and present the financial position of First Community Corporation and its wholly-owned subsidiary, First Community Bank[21](index=21&type=chunk) - The Company adopted ASU 2023-07 (Segment Reporting) effective January 1, 2024[23](index=23&type=chunk) - ASU 2023-09 (Income Taxes) is effective for annual periods beginning after December 15, 2024, with early adoption permitted[24](index=24&type=chunk) [Note 2 - Earnings Per Common Share](index=10&type=section&id=Note%202%20-%20Earnings%20Per%20Common%20Share) - Basic earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during the period, excluding non-vested restricted shares[26](index=26&type=chunk) - Dilutive earnings per share is calculated by dividing net income by the weighted-average shares of common stock outstanding during the period plus the maximum dilutive effect on common stock issuable upon exercise of stock options or vesting of restricted stock units[26](index=26&type=chunk) Metric (in thousands, except per share) | Metric (in thousands, except per share) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | | :-------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income available to common shareholders | $9,183 | $5,862 | $5,186 | $3,265 | | Basic shares | 7,656 | 7,608 | 7,664 | 7,617 | | Diluted common shares outstanding | 7,775 | 7,685 | 7,787 | 7,695 | | Basic earnings per common share | $1.20 | $0.77 | $0.68 | $0.43 | | Diluted earnings per common share | $1.18 | $0.76 | $0.67 | $0.42 | [Note 3 - Investment Securities](index=11&type=section&id=Note%203%20-%20Investment%20Securities) - Available-for-sale (AFS) securities fair value increased to **$302,627 thousand** at June 30, 2025, from **$279,582 thousand** at December 31, 2024[29](index=29&type=chunk) - Held-to-maturity (HTM) securities amortized cost decreased to **$201,742 thousand** at June 30, 2025, from **$209,413 thousand** at December 31, 2024[30](index=30&type=chunk) - Gross unrealized losses on AFS securities decreased to **$16,486 thousand** at June 30, 2025, from **$20,010 thousand** at December 31, 2024[29](index=29&type=chunk) - No allowance for credit loss was recorded for AFS securities at June 30, 2025, or December 31, 2024[33](index=33&type=chunk) - The allowance for credit losses on HTM state and local government securities decreased to **$19 thousand** at June 30, 2025, from **$23 thousand** at December 31, 2024[38](index=38&type=chunk) - All mortgage-backed securities (MBS) held by the Company are issued by government-sponsored corporations and have a long history of no credit losses[41](index=41&type=chunk) Held-to-Maturity Securities by Credit Quality (in thousands) | Rating | June 30, 2025 | December 31, 2024 | | :------------ | :------------ | :---------------- | | Aaa | $145,831 | $149,064 | | Aa1/Aa2/Aa3 | $50,880 | $55,318 | | A1/A2 | $5,050 | $5,055 | | Less: Allowance for Credit Losses | $19 | $23 | [Note 4 - Loans](index=15&type=section&id=Note%204%20-%20Loans) - Total loans, net of deferred fees and costs, increased to **$1,260,055 thousand** at June 30, 2025, from **$1,220,542 thousand** at December 31, 2024[46](index=46&type=chunk) - Commercial real estate mortgage loans constitute the largest segment, totaling **$818,706 thousand** (**64.9%**) at June 30, 2025[188](index=188&type=chunk) Allowance for Credit Losses - Loans (in thousands) | Metric | Balance Dec 31, 2024 | Net Loan Recoveries (Charge-offs) | Provision for Credit Losses | Balance Jun 30, 2025 | | :----- | :------------------- | :-------------------------------- | :-------------------------- | :------------------- | | Total | $13,135 | $1 | $194 | $13,330 | - Non-accrual loans decreased to **$208 thousand** at June 30, 2025, from **$217 thousand** at December 31, 2024, for residential mortgages[58](index=58&type=chunk) - The allowance for credit losses for unfunded loan commitments increased to **$490 thousand** at June 30, 2025, from **$480 thousand** at December 31, 2024[61](index=61&type=chunk)[63](index=63&type=chunk) [Note 5 - Fair Value Measurement](index=22&type=section&id=Note%205%20-%20Fair%20Value%20Measurement) - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[66](index=66&type=chunk) - Available-for-sale securities, loans held for sale, and derivative financial instruments are primarily Level 2[78](index=78&type=chunk) - Net loans receivable and other investments at cost are primarily Level 3[76](index=76&type=chunk) - Other real estate owned (OREO) is measured on a non-recurring basis using Level 3 inputs (appraisals discounted for sales commissions and holding costs)[80](index=80&type=chunk)[82](index=82&type=chunk) [Note 6 - Deposits](index=26&type=section&id=Note%206%20-%20Deposits) - Total deposits increased to **$1,754,041 thousand** at June 30, 2025, from **$1,675,901 thousand** at December 31, 2024[83](index=83&type=chunk) Deposit Composition (in thousands) | Deposit Type | June 30, 2025 Amount | June 30, 2025 % of Deposits | December 31, 2024 Amount | December 31, 2024 % of Deposits | | :-------------------------------- | :------------------- | :-------------------------- | :----------------------- | :------------------------------ | | Non-interest bearing demand deposits | $475,889 | 27.1% | $462,717 | 27.6% | | Interest bearing demand deposits and money market accounts | $824,921 | 47.0% | $770,595 | 46.0% | | Savings | $107,798 | 6.1% | $113,928 | 6.8% | | Time deposits ≤ $250,000 | $251,772 | 14.4% | $239,643 | 14.3% | | Time deposits > $250,000 | $93,661 | 5.3% | $89,018 | 5.3% | | Total | $1,754,041 | 100.0% | $1,675,901 | 100.0% | - Brokered deposits of **$10.4 million** were held at June 30, 2025, and December 31, 2024[83](index=83&type=chunk) - Total uninsured deposits were **$570.5 million** at June 30, 2025, with **$87.9 million** secured or collateralized[201](index=201&type=chunk) [Note 7 - Reportable Segments](index=27&type=section&id=Note%207%20-%20Reportable%20Segments) - The Company operates four reportable segments: Commercial and Retail Banking, Mortgage Banking, Investment Advisory and Non-Deposit, and Corporate[84](index=84&type=chunk)[86](index=86&type=chunk) Segment Net Income (in thousands) | Segment | 3 Months Ended June 30, 2025 Net Income | 6 Months Ended June 30, 2025 Net Income | | :---------------------------- | :-------------------------------------- | :-------------------------------------- | | Commercial and Retail Banking | $3,978 | $6,895 | | Mortgage Banking | $1,074 | $2,204 | | Investment Advisory and Non-Deposit | $641 | $1,287 | | Corporate | $1,287 | $2,014 | - Total assets for Commercial and Retail Banking were **$1,889,795 thousand** at June 30, 2025[88](index=88&type=chunk) [Note 8 - Derivative Financial Instruments](index=28&type=section&id=Note%208%20-%20Derivative%20Financial%20Instruments) - The Company uses interest rate swaps as fair value hedges to convert fixed-rate loans and securities to synthetic floating rates[89](index=89&type=chunk)[90](index=90&type=chunk) - A Loan Pay-Fixed Swap Agreement (notional **$150.0 million**) hedges fixed-rate loans, paying **3.58%** fixed and receiving overnight SOFR, maturing May 2026[89](index=89&type=chunk) - An Investment Pay-Fixed Swap Agreement (notional **$19.8 million**) hedges investment securities, paying **3.67%** fixed and receiving USD-SOFR-OIS Compound, maturing April 2038[90](index=90&type=chunk) - Total notional amount of interest rate swaps was **$169.8 million** at June 30, 2025, with a positive fair value of **$280 thousand**[91](index=91&type=chunk) [Note 9 - Leases](index=29&type=section&id=Note%209%20-%20Leases) - The Company has operating leases for three facilities with maturities ranging from May 2027 to December 2038[92](index=92&type=chunk) - Right-of-use assets were **$2,336 thousand** and lease liabilities were **$2,511 thousand** at June 30, 2025[92](index=92&type=chunk) - Weighted average remaining lease term was **10.95 years** with a weighted average discount rate of **4.20%** at June 30, 2025[92](index=92&type=chunk) [Note 10 - Accumulated Other Comprehensive Loss](index=29&type=section&id=Note%2010%20-%20Accumulated%20Other%20Comprehensive%20Loss) - Accumulated other comprehensive loss improved to (**$21,863 thousand**) at June 30, 2025, from (**$25,459 thousand**) at December 31, 2024[95](index=95&type=chunk) - This improvement was driven by **$3,010 thousand** in other comprehensive income from available-for-sale securities and **$662 thousand** from amortization of unrealized losses on transferred held-to-maturity securities, partially offset by a **$76 thousand** unrealized loss on investment hedge[95](index=95&type=chunk) [Note 11 - Subsequent Events](index=30&type=section&id=Note%2011%20-%20Subsequent%20Events) - On July 13, 2025, the Company entered into a merger agreement with Signature Bank of Georgia[97](index=97&type=chunk) - Signature Bank shareholders will receive **0.6410 shares** of First Community Corporation common stock per share[98](index=98&type=chunk) - At June 30, 2025, Signature Bank had approximately **$266.0 million** in total assets, **$205.9 million** in total loans, and **$206.0 million** in total deposits[99](index=99&type=chunk) - The pro forma combined company is projected to have approximately **$2.3 billion** in total assets, **$1.5 billion** in total loans, and **$2.0 billion** in total deposits[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's analysis of financial condition and operations, discussing performance, trends, and future outlook [CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS](index=31&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) - The report contains forward-looking statements subject to risks and uncertainties, including credit losses, real estate market weaknesses, regulatory restrictions, interest rate changes, and competitive pressures[102](index=102&type=chunk) - Specific risks related to the pending Signature Bank merger include integration difficulties, unexpected costs, potential revenue shortfalls, deposit/customer attrition, and failure to obtain approvals[109](index=109&type=chunk) - The Company undertakes no obligation to publicly update or revise forward-looking statements, except as required by applicable law[104](index=104&type=chunk) [Overview](index=32&type=section&id=Overview) - The Company's primary income sources are interest from loans and investments, funded by deposits and borrowings[105](index=105&type=chunk) - Key performance measures include net interest income (difference between interest earned and paid) and the spread between asset yield and liability cost[105](index=105&type=chunk) - An allowance for credit losses is maintained to cover expected uncollectible loans, established by recording a provision for or release of credit losses against earnings[105](index=105&type=chunk) [Industry Trends](index=33&type=section&id=Industry%20Trends) - Federal Reserve monetary policies, including interest rate changes and balance sheet reduction, significantly impact bank operating results, loan demand, and net interest margins[110](index=110&type=chunk) - Lower interest rates, initiated in September 2024, may support loan demand but could compress net interest margins[110](index=110&type=chunk) - The recently enacted One Big Beautiful Bill Act (OBBBA) on July 4, 2025, is being evaluated for its impact on deferred tax assets/liabilities and effective tax rate, with no material impact currently expected for 2025[111](index=111&type=chunk) [Proposed Merger with Signature Bank of Georgia](index=33&type=section&id=Proposed%20Merger%20with%20Signature%20Bank%20of%20Georgia) - On July 13, 2025, the Company entered into a merger agreement with Signature Bank of Georgia[112](index=112&type=chunk) - Signature Bank common stock will be converted into **0.6410 shares** of First Community Corporation common stock[113](index=113&type=chunk) - At June 30, 2025, Signature Bank had approximately **$266.0 million** in total assets, **$205.9 million** in total loans, and **$206.0 million** in total deposits. The combined entity is projected to have approximately **$2.3 billion** in total assets, **$1.5 billion** in total loans, and **$2.0 billion** in total deposits[114](index=114&type=chunk) [Critical Accounting Estimates](index=33&type=section&id=Critical%20Accounting%20Estimates) - Critical accounting policies involve significant estimates and judgments, including the allowance for credit losses, income taxes and deferred tax assets/liabilities, goodwill and other intangible assets, and derivative instruments[117](index=117&type=chunk) - These estimates are subject to revision based on new information or changes in economic conditions and market interest rates[117](index=117&type=chunk) - No significant changes to critical accounting estimates have occurred since the Annual Report on Form 10-K for December 31, 2024[118](index=118&type=chunk) [Comparison of Results of Operations for the Three Months Ended June 30, 2025 to the Three Months Ended June 30, 2024](index=34&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20June%2030%2C%202025%20to%20the%20Three%20Months%20Ended%20June%2030%2C%202024) - Net income increased by **$1.9 million** (**58.8%**) to **$5.2 million**, with diluted EPS rising to **$0.67** from **$0.42**[119](index=119&type=chunk) - Net interest income increased by **$2.6 million** (**20.7%**) to **$15.3 million**, driven by a **$174.9 million** increase in average earning assets and a **0.27%** increase in net interest margin to **3.19%**[119](index=119&type=chunk)[123](index=123&type=chunk) - A **$237 thousand** release of provision for credit losses in 2025, compared to a **$454 thousand** provision in 2024, contributed to the net income increase[119](index=119&type=chunk)[122](index=122&type=chunk) - Non-interest income increased by **$564 thousand**, primarily due to higher mortgage banking income (**$220 thousand**), investment advisory fees (**$243 thousand**), and gain on sale of OREO (**$127 thousand**)[119](index=119&type=chunk)[135](index=135&type=chunk) - Non-interest expense increased by **$1.2 million**, mainly due to higher salaries and employee benefits (**$757 thousand**) and other non-interest expenses, including merger-related legal fees (**$234 thousand**)[119](index=119&type=chunk)[141](index=141&type=chunk)[144](index=144&type=chunk) - The effective tax rate increased to **22.41%** from **19.16%**, partly due to a non-recurring adjustment in 2024[122](index=122&type=chunk)[145](index=145&type=chunk) - Average loans increased by **$84.7 million** (**7.2%**) to **$1.3 billion**, with loan yield increasing by **0.17%** to **5.77%**[124](index=124&type=chunk) - The cost of interest-bearing liabilities decreased to **2.56%** from **2.94%**, and the cost of deposits decreased to **1.82%** from **1.98%**[127](index=127&type=chunk) [Comparison of Results of Operations for the Six Months Ended June 30, 2025 to the Six Months Ended June 30, 2024](index=41&type=section&id=Comparison%20of%20Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202025%20to%20the%20Six%20Months%20Ended%20June%2030%2C%202024) - Net income increased by **$3.3 million** (**56.6%**) to **$9.2 million**, with diluted EPS rising to **$1.18** from **$0.76**[146](index=146&type=chunk) - Net interest income increased by **$4.9 million** to **$29.7 million**, with net interest margin improving by **0.31%** to **3.16%**[149](index=149&type=chunk) - Provision for credit losses declined by **$383 thousand** to **$200 thousand**, primarily related to a **$39.5 million** increase in loans held-for-investment and a reduction in qualitative factors[146](index=146&type=chunk)[150](index=150&type=chunk) - Non-interest income increased by **$1.4 million**, driven by mortgage banking income (**$554 thousand**), investment advisory fees (**$691 thousand**), and gain on sale of OREO (**$127 thousand**)[150](index=150&type=chunk)[162](index=162&type=chunk) - Non-interest expense increased by **$2.2 million**, mainly due to higher salaries and employee benefits (**$1.3 million**) and other non-interest expenses, including merger-related legal fees (**$234 thousand**)[150](index=150&type=chunk)[168](index=168&type=chunk) - The effective tax rate increased to **22.60%** from **20.42%**, partly due to a non-recurring adjustment in 2024[150](index=150&type=chunk)[171](index=171&type=chunk) - Average loans increased by **$87.4 million** (**7.5%**) to **$1.3 billion**, with loan yield increasing by **0.22%** to **5.74%**[151](index=151&type=chunk) - The cost of interest-bearing liabilities decreased to **2.57%** from **2.91%**, and the cost of deposits decreased to **1.84%** from **1.94%**[154](index=154&type=chunk) [Provision and Allowance for Credit Losses and Credit Metrics](index=48&type=section&id=Provision%20and%20Allowance%20for%20Credit%20Losses%20and%20Credit%20Metrics) - The total allowance for credit losses (ACL) comprises ACL for loans, unfunded commitments, and HTM investments[172](index=172&type=chunk) - The ACL for loans increased to **$13,330 thousand** at June 30, 2025, from **$13,135 thousand** at December 31, 2024[173](index=173&type=chunk) - Net loan recoveries were **$1 thousand** for the six months ended June 30, 2025, compared to net charge-offs of **$28 thousand** in the prior year[172](index=172&type=chunk) - Non-performing assets decreased to **$470 thousand** (**0.02%** of total assets) at June 30, 2025, from **$810 thousand** (**0.04%**) at December 31, 2024[176](index=176&type=chunk)[180](index=180&type=chunk) - Non-accrual loans decreased to **$210 thousand** at June 30, 2025, from **$219 thousand** at December 31, 2024[176](index=176&type=chunk) - The allowance as a percentage of total loans was **1.06%** at June 30, 2025, compared to **1.09%** at December 31, 2024[180](index=180&type=chunk) - Approximately **91.3%** of the loan portfolio is collateralized by real estate[174](index=174&type=chunk) [Financial Position](index=51&type=section&id=Financial%20Position) - Total assets increased by **$88.2 million** (**4.5%** or **9.1%** annualized) to **$2.0 billion** at June 30, 2025, from December 31, 2024[182](index=182&type=chunk) - Loans held-for-investment increased by **$39.5 million** (**3.2%** or **6.5%** annualized) to **$1.3 billion**[182](index=182&type=chunk)[184](index=184&type=chunk) - Total loan production (excluding mortgage secondary market and new construction residential real estate) was **$109.5 million** for the six months ended June 30, 2025[184](index=184&type=chunk) - Investment securities increased by **$15.6 million** to **$507.3 million**, driven by AFS mortgage-backed securities purchases[193](index=193&type=chunk) - Deposits increased by **$78.1 million** (**4.7%** or **9.4%** annualized) to **$1.8 billion**[199](index=199&type=chunk) - The loan-to-deposit ratio (including loans held-for-sale) was **72.5%** at June 30, 2025, down from **74.5%** at December 31, 2024[186](index=186&type=chunk) - Non-owner occupied commercial real estate loans and construction and land development loans were approximately **306%** and **77%** of total risk-based capital, respectively, at June 30, 2025[187](index=187&type=chunk) [Market Risk Management](index=58&type=section&id=Market%20Risk%20Management) - The Asset/Liability Committee (ALCO) monitors and manages interest rate risk, reviewing policies and assumptions quarterly[210](index=210&type=chunk) - The Company uses interest sensitivity 'gap' analysis and simulation modeling to assess the impact of varying interest rates on net interest income[211](index=211&type=chunk) - Policies aim to limit the maximum anticipated negative impact on net interest income to no more than **10%**, **15%**, **20%**, and **20%** for **100**, **200**, **300**, and **400 basis point** rate changes, respectively, over **12 months**[211](index=211&type=chunk) - At June 30, 2025, the Company was liability sensitive, projecting a decrease in net interest income in a rising interest rate environment over the subsequent **12 months**[212](index=212&type=chunk)[215](index=215&type=chunk) - In a declining interest rate environment, the model reflects increases in net interest income in all scenarios for the first **12 months**[212](index=212&type=chunk)[215](index=215&type=chunk) - The Present Value of Equity (PVE) analysis indicates the Company was primarily asset sensitive at June 30, 2025, with PVE increasing slightly in up **100** and **200 bp** scenarios, but declining in up **300** and **400 bp** scenarios[217](index=217&type=chunk)[218](index=218&type=chunk) [Liquidity and Capital Resources](index=60&type=section&id=Liquidity%20and%20Capital%20Resources) - The Company maintains high liquidity and adequate capital to meet day-to-day cash flow requirements and fund operations for at least the next **12 months**[219](index=219&type=chunk)[221](index=221&type=chunk) - Sources of liquidity include low-cost deposits, approved lines of credit (**$77.5 million** with financial institutions, **$10.0 million** with Federal Reserve Discount Window), and FHLB advances (over **$509.7 million** available)[220](index=220&type=chunk)[222](index=222&type=chunk) - Unused commitments to extend credit totaled **$197.2 million** at June 30, 2025, including **$67.9 million** in home equity lines of credit[223](index=223&type=chunk) - The Bank met all Basel III capital adequacy requirements at June 30, 2025, remaining a 'well capitalized' institution[231](index=231&type=chunk)[232](index=232&type=chunk) - Total shareholders' equity increased by **$11.0 million** to **$155.5 million** at June 30, 2025, driven by retained earnings and an improvement in accumulated other comprehensive loss[208](index=208&type=chunk) - The Board approved a **$7.5 million** share repurchase plan (2025 Repurchase Plan) on May 9, 2025, expiring May 8, 2026, with no repurchases made to date[209](index=209&type=chunk)[247](index=247&type=chunk) - The Board approved a cash dividend of **$0.16** per common share for Q2 2025, payable August 19, 2025[233](index=233&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk disclosures are not applicable, integrated within Management's Discussion and Analysis - Not applicable[235](index=235&type=chunk) [Item 4. Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) Management deemed disclosure controls effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective by the CEO and CFO as of June 30, 2025[236](index=236&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[238](index=238&type=chunk) [PART II – OTHER INFORMATION](index=64&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) Routine legal claims exist, but no material pending proceedings are expected to adversely impact financials - The Company is a party to claims and lawsuits arising in the normal course of business[240](index=240&type=chunk) - Management is not aware of any material pending legal proceedings that would have a material adverse impact on financial position, results of operations, or cash flows[240](index=240&type=chunk) [Item 1A. Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) Risk factors from the Annual Report on Form 10-K and Item 2 are referenced, with no material changes - Investing in common stock involves risks detailed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024, and the cautionary statements under 'Cautionary Statement Regarding Forward-Looking Statements' in Part I, Item 2 of this Quarterly Report on Form 10-Q[241](index=241&type=chunk) - No material changes to previously disclosed risk factors have occurred[242](index=242&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Deferred stock units were credited to directors; no share repurchases made under the $7.5 million plan - **1,565** deferred stock units were credited to directors under the Non-Employee Director Deferred Compensation Plan during Q2 2025[247](index=247&type=chunk) - The 2025 Repurchase Plan, authorizing up to **$7.5 million** in common stock repurchases, was approved on May 9, 2025, but no repurchases were made during Q2 2025[247](index=247&type=chunk) [Item 3. Defaults Upon Senior Securities](index=64&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities - Not Applicable[244](index=244&type=chunk) [Item 4. Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures - Not Applicable[245](index=245&type=chunk) [Item 5. Other Information](index=64&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended June 30, 2025[246](index=246&type=chunk) [Item 6. Exhibits](index=65&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with Form 10-Q, including merger agreement, certifications, and XBRL data - Includes the Agreement and Plan of Merger with Signature Bank (Exhibit 2.1)[248](index=248&type=chunk) - Contains certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32)[248](index=248&type=chunk) - Provides financial statements and notes in iXBRL format (Exhibit 101)[248](index=248&type=chunk) [SIGNATURES](index=66&type=section&id=SIGNATURES) Report signed by President and CEO Michael C. Crapps and EVP and CFO D. Shawn Jordan - Signed by Michael C. Crapps, President and CEO, and D. Shawn Jordan, EVP and CFO[252](index=252&type=chunk) - Date of signing: August 8, 2025[252](index=252&type=chunk)