UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended ~~September 30, 2019~~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)

~~Not Applicable~~

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

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

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

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,”~~company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero		Accelerated filerx
Non-accelerated filer o		Smaller reporting companyx
		Emerging growth companyo

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On ~~November 7, 2019, 7,422,474~~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		31
Item 1.	Financial Statements	31
	Consolidated Balance Sheets	31
	Consolidated Statements of Income	42
	Consolidated Statements of Comprehensive Income	63
	Consolidated Statements of Changes in Shareholders’ Equity	74
	Consolidated Statements of Cash Flows	95
	Notes to Consolidated Financial Statements	106
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3432
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5149
Item 4.	Controls and Procedures	5149

PART II – OTHER INFORMATION		5250
Item 1.	Legal Proceedings	5250
Item 1A.	Risk Factors	5250
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5251
Item 3.	Defaults Upon Senior Securities	5351
Item 4.	Mine Safety Disclosures	5352
Item 5.	Other Information	5352
Item 6.	Exhibits	5352

SIGNATURES		5453
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

	September 30,						March 31,
(Dollars in thousands, except par value)	2019			December 31,			2020			December 31,
	(Unaudited)			2018			(Unaudited)			2019
ASSETS
Cash and due from banks	$	20,079		$	14,328		$	23,739		$	14,951
Interest-bearing bank balances		12,861			17,883			25,637			32,741
Federal funds sold and securities purchased under agreements to resell		295			57
Investment securities - held-to-maturity		—			16,174
Investment securities - available-for-sale		265,068			237,893
Investment securities available-for-sale								288,881			286,800
Other investments, at cost		1,992			1,955			2,062			1,992
Loans held for sale		10,775			3,223
Loans held-for-sale								11,937			11,155
Loans		735,074			718,462			749,529			737,028
Less, allowance for loan losses		6,560			6,263			7,694			6,627
Net loans		728,514			712,199			741,835			730,401
Property, furniture and equipment - net		36,077			34,987			34,819			35,008
Right-of-use asset		3,260			—
Lease right-of-use assets								3,170			3,215
Premises held-for-sale								591			591
Bank owned life insurance		26,268			25,754			28,223			28,041
Other real estate owned		1,412			1,460			1,481			1,410
Intangible assets		1,609			2,006			1,378			1,483
Goodwill		14,637			14,637			14,637			14,637
Other assets		7,143			9,039			6,917			7,854
Total assets	$	1,129,990		$	1,091,595		$	1,185,307		$	1,170,279
LIABILITIES
Deposits:
Non-interest bearing	$	268,693		$	244,686
Non-interest bearing demand							$	291,669		$	289,829
Interest bearing		680,134			680,837			694,976			698,372
Total deposits		948,827			925,523			986,645			988,201
Securities sold under agreements to repurchase		34,321			28,022			46,041			33,296
Federal Home Loan Bank advances		216			231			—			211
Junior subordinated debt		14,964			14,964			14,964			14,964
Lease liability		3,291			—			3,229			3,266
Other liabilities		9,591			10,358			9,814			10,147
Total liabilities		1,011,210			979,098			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 7,408,879 at September 30, 2019 7,638,681 at December 31, 2018		7,409			7,639
Common stock warrants issued		13			31

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		(195	)		(149	)		(465	)		(151	)
Additional paid in capital		90,292			95,048			90,916			90,488
Retained earnings		18,024			12,262			20,830			19,927

Accumulated other comprehensive income (loss)		3,237			(2,334	)
Accumulated other comprehensive income								5,871			2,490
Total shareholders’ equity		118,780			112,497			124,614			120,194
Total liabilities and shareholders’ equity	$	1,129,990		$	1,091,595		$	1,185,307		$	1,170,279

See Notes to Consolidated Financial Statements

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 ~~INCOME~~CHANGES IN SHAREHOLDERS’ EQUITY
Three Months ended March 31, 2020 and March 31, 2019
(Unaudited)
Nine Nine
Months Ended Months Ended
September 30, September 30,
(Dollars in thousands, except per share amounts) 2019 2018
Interest income:
Loans, including fees $ 26,492 $ 23,974
Taxable securities 3,840 3,623
Non-taxable securities 1,084 1,232
Federal funds sold and securities purchased under resale agreements 410 290
Other 18 16
Total interest income 31,844 29,135
Interest expense:
Deposits 3,401 2,001
Federal funds sold and securities sold under agreement to repurchase 303 197
Other borrowed money 651 581
Total interest expense 4,355 2,779
Net interest income 27,489 26,356
Provision for loan losses 139 252
Net interest income after provision for loan losses 27,350 26,104
Non-interest income:
Deposit service charges 1,212 1,320
Mortgage banking income 3,333 3,126
Investment advisory fees and non-deposit commissions 1,436 1,207
Gain (loss) on sale of securities 135 (10 )
Gain (loss) on sale of other assets (3 ) 8
Other 2,695 2,733
Total non-interest income 8,808 8,384
Non-interest expense:
Salaries and employee benefits 15,845 14,537
Occupancy 2,005 1,808
Equipment 1,140 1,167
Marketing and public relations 764 460
FDIC assessments 135 258
Other real estate expense 78 86
Amortization of intangibles 397 427
Other 5,389 5,210
Total non-interest expense 25,753 23,953
Net income before tax 10,405 10,535
Income taxes 2,131 1,992
Net income $ 8,274 $ 8,543

Basic earnings per common share $ 1.10 $ 1.13
Diluted earnings per common share $ 1.08 $ 1.11
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 INCOME~~
~~(Unaudited)~~
Three Three
Months Ended Months Ended
September 30, September 30,
(Dollars in thousands, except per share amounts) 2019 2018
Interest income:
Loans, including fees $ 9,091 $ 8,277
Taxable securities 1,259 1,250
Non-taxable securities 350 333
Federal funds sold and securities purchased under resale agreements 158 120
Other 6 5
Total interest income 10,864 9,985
Interest expense:
Deposits 1,219 816
Federal funds sold and securities sold under agreement to repurchase 102 96
Other borrowed money 190 190
Total interest expense 1,511 1,102
Net interest income 9,353 8,883
Provision for loan losses 25 21
Net interest income after provision for loan losses 9,328 8,862
Non-interest income:
Deposit service charges 421 434
Mortgage banking income 1,251 1,159
Investment advisory fees and non-deposit commissions 509 423
Loss on sale of other assets — (29 )
Other 932 855
Total non-interest income 3,113 2,842
Non-interest expense:
Salaries and employee benefits 5,465 5,079
Occupancy 703 611
Equipment 365 388
Marketing and public relations 159 177
FDIC assessments — 94
Other real estate expense 31 37
Amortization of intangibles 133 142
Other 1,934 1,606
Total non-interest expense 8,790 8,134
Net income before tax 3,651 3,570
Income taxes 753 737
Net income $ 2,898 $ 2,833

Basic earnings per common share $ 0.39 $ 0.37
Diluted earnings per common share $ 0.39 $ 0.37
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

~~FIRST COMMUNITY CORPORATION~~
~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~
~~(Unaudited)~~
(Dollars in thousands) Nine months ended September 30,
2019 2018

Net income $ 8,274 $ 8,543

Other comprehensive income:
Unrealized gain (loss) during the period on available-for-sale securities, net of tax expense of $1,511 and tax benefit of $1,104, respectively 5,677 (4,140 )

Less: Reclassification adjustment for loss (gain) included in net income, net of tax benefit of $29 and tax expense of $2, respectively (106 ) 8

Other comprehensive income (loss) 5,571 (4,132 )
Comprehensive income $ 13,845 $ 4,411

(Dollars in thousands) Three months ended September 30,
2019 2018

Net income $ 2,898 $ 2,833

Other comprehensive income:
Unrealized gain (loss) during the period on available-for-sale securities, net of tax expense of $271 and tax benefit of $280, respectively 1,232 (1,054 )

Other comprehensive income (loss) 1,232 (1,054 )
Comprehensive income $ 4,130 $ 1,779
~~See Notes to Consolidated Financial Statements~~
6
~~FIRST COMMUNITY CORPORATION~~
~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~
~~(Unaudited)~~
~~(Dollars and shares in thousands, except per share amounts)~~
Accumulated
Common Common Additional Nonvested Other
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 $601 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
Net Income 2,881 $ 2,881
Other comprehensive income net of tax of $610 2,034 2,034
Amortization of compensation on restricted stock 45 45
Exercise of warrants 2 2 (2 ) —
Stock repurchase plan (185 ) (185 ) (3,228 ) (3,413 )
Shares issued-deferred compensation 24 24 241 265
Dividends: Common ($0.11 per share) (841 ) (841 )
Dividend reinvestment plan 5 5 79 84
Balance, June 30, 2019 7,511 $ 7,511 $ 15 $ 92,242 $ (241 ) $ 15,957 $ 2,005 $ 117,489
Net Income 2,898 $ 2,898
Other comprehensive income net of tax of $271 1,232 1,232
Amortization of compensation on restricted stock 46 46
Exercise of warrants 3 3 (2 ) (1 ) —
Stock repurchase plan (115 ) (115 ) (2,110 ) (2,225 )
Shares issued-deferred compensation —
Dividends: Common ($0.11 per share) (831 ) (831 )
Dividend reinvestment plan 10 10 161 171
Balance September 30, 2019 7,409 $ 7,409 $ 13 $ 90,292 $ (195 ) $ 18,024 $ 3,237 $ 118,780
~~See notes to Consolidated Financial Statements~~
7
~~FIRST COMMUNITY CORPORATION~~
~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~
~~(Unaudited)~~
~~(Dollars and shares in thousands, except per share amounts)~~
Accumulated
Common Common Additional Nonvested Other
Shares Common Stock Paid-in Restricted Retained Comprehensive
Issued Stock Warrants Capital Stock Earnings Income (Loss) Total
Balance, December 31, 2017 7,588 $ 7,588 $ 46 $ 94,516 $ (109 ) $ 4,066 $ (444 ) $ 105,663
Net Income 2,709 2,709
Other comprehensive loss net of tax of $587 (2,192 ) (2,192 )
Issuance of restricted stock 11 11 233 (244 ) —
Amortization of compensation on restricted stock 35 35
Shares retired (2 ) (2 ) (55 ) (57 )

Dividends: Common ($0.10 per share) (757 ) (757 )
Dividend reinvestment plan 3 3 79 82
Balance March 31, 2018 7,600 $ 7,600 $ 46 $ 94,773 $ (318 ) $ 6,018 $ (2,636 ) $ 105,483
Net Income 3,001 $ 3,001
Other comprehensive loss net of tax of $235 (886 ) (886 )
Amortization of compensation on restricted stock 56 56

Dividends: Common ($0.10 per share) (756 ) (756 )
Dividend reinvestment plan 5 5 94 99
Balance, June 30, 2018 7,605 $ 7,605 $ 46 $ 94,867 $ (262 ) $ 8,263 $ (3,522 ) $ 106,997
Net Income 2,833 $ 2,833
Other comprehensive loss net of tax of $280 (1,054 ) (1,054 )
Amortization of compensation on restricted stock 57 57
Exercise of warrants 20 20 (12 ) (8 ) —
Shares issued-deferred compensation 1 1 18 19
Dividends: Common ($0.10 per share) (760 ) (760 )
Dividend reinvestment plan 4 4 90 94
Balance September 30, 2018 7,630 $ 7 ,630 $ 34 $ 94,967 $ (205 ) $ 10,336 $ (4,576 ) $ 108,186
~~See notes to Consolidated Financial Statements~~
8
~~FIRST COMMUNITY CORPORATION~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~
~~(Unaudited)~~
Nine months ended
September 30,
(Dollars in thousands) 2019 2018
Cash flows from operating activities:
Net income $ 8,274 $ 8,543
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation 1,000 1,130
Premium amortization 1,658 1,873
Provision for loan losses 139 252
Loss (gain) on sale of other real estate owned 3 (8 )
Origination of loans held-for-sale (97,878 ) (89,125 )
Sale of loans held-for-sale 90,326 88,690
Amortization of intangibles 397 427
Accretion on acquired loans (402 ) (288 )
Writedown of land held for sale — 42
(Gain) loss on sale of securities (135 ) 10
Gain on sale of fixed assets — (123 )
(Increase) decrease in other assets (3,089 ) 518
Increase in other liabilities 2,522 547
Net cash (used) provided from operating activities 2,815 12,488
Cash flows from investing activities:
Purchase of investment securities available-for-sale (81,977 ) (47,668 )
Purchase of other investment securities (37 ) —
Maturity/call of investment securities available-for-sale 32,199 33,703
Proceeds from sale of securities available-for-sale 44,398 19,946
Proceeds from sale of securities held-to-maturity — 655
Proceeds from sale of other securities — 434
Increase in loans (16,322 ) (49,603 )
Proceeds from sale of other real estate owned 45 367
Proceeds from sale of fixed assets 301 1,143
Purchase of property and equipment (2,391 ) (494 )
Net cash used in investing activities (23,784 ) (41,517 )
Cash flows from financing activities:
Increase in deposit accounts 23,338 33,472
Increase in securities sold under agreements to repurchase 6,299 13,956
Advances from the Federal Home Loan Bank 65,000 4,000
Repayment of advances from Federal Home Loan Bank (65,015 ) (14,014 )
Shares retired (158 ) (57 )
Repurchase of Common Stock (5,635 ) —
Issuance of Deferred Compensation Shares 265 19
Dividends paid: Common Stock (2,512 ) (2,273 )
Dividend reinvestment plan 354 275
Net cash provided from financing activities 21,936 35,378
Net increase in cash and cash equivalents 967 6,349
Cash and cash equivalents at beginning of period 32,268 30,591
Cash and cash equivalents at end of period $ 33,235 $ 36,940
Supplemental disclosure:
Cash paid during the period for:
Interest $ 4,301 $ 2,627
Income taxes $ 2,060 $ 1,875
Non-cash investing and financing activities:
Unrealized gain (loss) on securities $ 7,053 $ (4,132 )
Recognition of operating lease right of use asset $ 3,260 $ —
Recognition of operating lease liability $ 3,291 $ —
Transfer of loans to foreclosed property $ — $ 346
Transfer of investment securities held-to-maturity to available-for-sale $ 16,144 $ —
~~See Notes to Consolidated Financial Statements~~
9
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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, and the Company’s results of operations and cash flows for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 and ~~2018.~~2019. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2019~~March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2019.~~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, ~~2018~~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:

(~~Dollars and shares in~~In thousands except ~~per share amounts)~~ average market price)

Nine months Three months
Ended September 30, Ended September 30,
2019 2018 2019 2018
Numerator (Net income available to common shareholders $ 8,274 $ 8,543 $ 2,898 $ 2,833
Denominator
Weighted average common shares outstanding for:
Basic shares 7,548 7,581 7,386 7,592
Dilutive securities:
Deferred compensation 40 65 39 61
Warrants/Restricted stock-Treasury stock method 42 73 38 71
Diluted shares 7,630 7,719 7,463 7,724
Earnings per common share:
Basic $ 1.10 $ 1.13 $ 0.39 $ 0.37
Diluted $ 1.08 $ 1.11 $ 0.39 $ 0.37
The average market price used in calculating assumed number of shares $ 19.06 $ 25.33 $ 18.95 $ 23.49
10
~~Note 2—Earnings Per Common Share-continued~~
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 ~~September 30, 2019~~March 31, 2020 and ~~September 30, 2018.~~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. ~~Warrants~~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 were issued in connection with the issuance of the subordinated debt.~~share. There were ~~27,950~~36,550 warrants outstanding at ~~September 30, 2019. These warrants expire December 16,~~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
The Company has a total of 15,129 unvested restricted shares and 5,644 restricted units under the terms of its compensation plans and employment agreements as of September 30, 2019. The employee shares and units cliff vest over a three-year period; the non-employee director shares vest one year after issuance. The unrecognized compensation cost at September 30, 2019 for nonvested shares amounts to $194.8 thousand. Each unit is convertible into one share of common stock at the time the unit vests. The related compensation cost is accrued over the vesting period and was $51.1 thousand at September 30, 2019. 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, there were ~~96,066~~100,215 and ~~114,982~~97,104 units in the plan, respectively. The accrued liability at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 amounted to ~~$1.1~~$1.2 million and ~~$1.3~~$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
September 30, 2019
US Treasury securities $ 7,174 $ 24 $ 6 $ 7,192
Government Sponsored Enterprises 1,105 18 — 1,123
Mortgage-backed securities 166,558 2,090 607 168,041
Small Business Administration pools 47,564 374 285 47,653
State and local government 38,550 2,494 4 41,040
Other securities 19 — — 19
$ 260,970 $ 5,000 $ 902 $ 265,068
Gross Gross
Amortized Unrealized Unrealized
(Dollars in thousands) Cost Gains Losses Fair Value
December 31, 2018
US Treasury securities $ 15,488 $ 9 $ 40 $ 15,457
Government Sponsored Enterprises 1,096 6 2 1,100
Mortgage-backed securities 117,862 73 2,460 115,475
Small Business Administration pools 55,784 247 695 55,336
State and local government 50,599 619 712 50,506
Other securities 19 — — 19
$ 240,848 $ 954 $ 3,909 $ 237,893
11
~~Note 3—Investment Securities-continued~~
HELD-TO-MATURITY: Gross Gross
AVAILABLE-FOR-SALE: Gross Gross
Amortized Unrealized Unrealized Amortized Unrealized Unrealized
(Dollars in thousands) Cost Gains Losses Fair Value Cost Gains Losses Fair Value
December 31, 2018
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 $ 16,174 $ 50 $ 40 $ 16,184 59,187 2,577 8 61,756
Other securities 15 — — 15
$ 16,174 $ 50 $ 40 $ 16,184 $ 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 ~~September 30, 2019.~~March 31, 2020.

During the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company received proceeds of ~~$44.4 million~~$0 and ~~$19.9~~$7.1 million, respectively, from the sale of investment securities available-for-sale. For the ~~nine~~three months ended ~~September 30,~~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 ~~$355.6~~$41 thousand and gross realized losses amounted to ~~$219.6~~$70 thousand. For the nine months ended September 30, 2018, gross realized gains from the sale of investment securities available-for-sale amounted to $240.7 thousand and gross realized losses amounted to $246.5 thousand. For the three months ended September 30, 2019, there were no realized gains or losses from the sale of investment securities available-for-sale. For the three months ended September 30, 2018, there were no realized gains or losses from the sale of investment securities available-for-sale.
8
Note 3—Investment Securities-continued

At ~~September 30, 2019,~~March 31, 2020, other securities available-for-sale included the following at fair value: a mutual fund at ~~$9.2~~$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 ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, a ~~$2.1~~$3.8 thousand loss and a $1.0 thousand gain ~~was~~were recognized on a mutual ~~fund.~~fund, respectively. At December 31, ~~2018,~~2019, corporate and other securities available-for-sale included the following at fair value: a mutual fund at ~~$7.1~~$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 ~~$992 thousand and $955 thousand~~$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 ~~September 30, 2019 and~~ December 31, ~~2018, respectively.~~
12
~~Note 3—Investment Securities-continued~~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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018.~~ 2019.

(Dollars in thousands) Less than 12 months 12 months or more Total Less than 12 months 12 months or more Total
September 30, 2019 Fair Unrealized Fair Unrealized Fair Unrealized
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 Value Loss Value Loss Value Loss

US Treasury securities $ — $ — $ 1,507 $ 6 $ 1,507 $ 6 $ — $ — $ 1,508 $ 3 $ 1,508 $ 3
Government Sponsored Enterprise mortgage-backed securities 36,200 436 13,094 171 49,294 607
Mortgage-backed securities 57,175 485 12,419 155 69,594 640
Small Business Administration pools 9,011 103 13,533 182 22,544 285 7,891 53 13,502 164 21,393 217
State and local government 761 4 — — 761 4 5,695 141 — — 5,695 141
$ 47,674 $ 545 $ 26,441 $ 357 $ 74,115 $ 902
Total $ 70,761 $ 679 $ 27,429 $ 322 $ 98,190 $ 1,001
(Dollars in thousands) Less than 12 months 12 months or more Total
December 31, 2018 Fair Unrealized Fair Unrealized Fair Unrealized
Available-for-sale securities: Value Loss Value Loss Value Loss

US Treasury securities $ 8,355 $ 10 $ 1,488 $ 30 $ 9,843 $ 40
Government Sponsored Enterprise — — 122 2 122 2
Government Sponsored Enterprise mortgage-backed securities 13,917 120 89,870 2,339 103,787 2,459
Small Business Administration pools 16,400 211 20,330 484 36,730 695
State and local government 9,517 52 15,598 660 25,115 712
Corporate bonds and other 7 1 — — 7 1
$ 48,196 $ 394 $ 127,408 $ 3,515 $ 175,604 $ 3,909
(Dollars in thousands) Less than 12 months 12 months or more Total
December 31, 2018 Fair Unrealized Fair Unrealized Fair Unrealized
Held-to-maturity securities: Value Loss Value Loss Value Loss
State and local government $ 2,843 $ 14 $ 4,899 $ 26 $ 7,742 $ 40
13
~~Note 3—Investment Securities-continued~~

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 ~~$166.6~~$176.5 million and ~~$117.9~~$182.7 million and approximate fair value of ~~$168.0~~$180.8 million and ~~$115.5~~$183.6 million at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. As of ~~September 30, 2019,~~March 31, 2020, and December 31, ~~2018,~~2019, all of the MBSs issued by GSEs were classified as ~~“Available for Sale.~~“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 ~~GSE.~~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 ~~September 30, 2019.~~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 ~~September 30, 2019~~March 31, 2020 with an amortized cost of ~~$123.1~~$70.9 thousand and approximate fair value of ~~$122.3~~$66.2 thousand. The Company held PLMBSs, including CMOs, at December 31, ~~2018~~2019 with an amortized cost of ~~$199.9~~$73.5 thousand and approximate fair value of ~~$204.1~~$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 ~~September 30, 2019.~~March 31, 2020.
The following sets forth the amortized cost and fair value of investment securities at ~~September 30, 2019~~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.

September 30, 2019 Available-for-sale
March 31, 2020 Available-for-sale
Amortized Fair Amortized Fair
(Dollars in thousands) Cost Value Cost Value
Due in one year or less $ 10,823 $ 10,866 $ 7,772 $ 7,842
Due after one year through five years 120,043 120,762 122,950 125,292
Due after five years through ten years 108,314 111,870 123,926 128,280
Due after ten years 21,790 21,570 26,801 27,467
$ 260,970 $ 265,068
Total $ 281,449 $ 288,881
Note 4—Loans

Loans summarized by category as of ~~September 30, 2019,~~March 31, 2020, December 31, ~~2018~~2019 and ~~September 30, 2018~~March 31, 2019 are as follows:
September 30, December 31, September 30,
(Dollars in thousands) 2019 2018 2018
Commercial, financial and agricultural $ 55,169 $ 53,933 $ 50,940
Real estate:
Construction 58,737 58,440 56,568
Mortgage-residential 47,693 52,764 50,914
Mortgage-commercial 534,554 513,833 498,650
Consumer:
Home equity 29,103 29,583 29,933
Other 9,818 9,909 9,510
Total $ 735,074 $ 718,462 $ 696,515
14
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
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 ~~nine~~three months ended ~~September 30,~~March 31, 2020 and March 31, 2019 ~~and September 30, 2018~~ and for the year ended December 31, ~~2018~~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
September 30, 2019
Allowance for loan losses:
Beginning balance
December 31, 2018 $ 430 $ 89 $ 431 $ 4,318 $ 261 $ 88 $ 646 $ 6,263
Charge-offs (8 ) — (7 ) — (1 ) (96 ) — (112 )
Recoveries — — — 221 14 35 — 270
Provisions 37 2 (39 ) (3 ) (33 ) 68 107 139
Ending balance
September 30, 2019 $ 459 $ 91 $ 385 $ 4,536 $ 241 $ 95 $ 753 $ 6,560

Ending balances:
Individually evaluated for impairment $ 4 $ — $ — $ 10 $ — $ — $ — $ 14

Collectively evaluated for impairment 455 91 385 4,526 241 95 753 6,546

September 30, 2019
Loans receivable:
Ending balance-total $ 55,169 $ 58,737 $ 47,693 $ 534,554 $ 29,103 $ 9,818 $ — $ 735,074

Ending balances:
Individually evaluated for impairment 4 — 538 3,541 72 — — 4,155

Collectively evaluated for impairment $ 55,165 $ 58,737 $ 47,155 $ 531,013 $ 29,031 $ 9,818 $ — $ 730,919

(Dollars in thousands)
Commercial Real estate
Construction Real estate
Mortgage
Residential Real estate
Mortgage
Commercial Consumer
Home
equity Consumer
Other Unallocated Total
September 30, 2018
Allowance for loan losses:
Beginning balance
December 31, 2017 $ 221 $ 101 $ 461 $ 3,077 $ 308 $ 35 $ 1,594 $ 5,797
Charge-offs — — (1 ) — — (109 ) — (110 )
Recoveries 14 — 3 219 6 31 — 273
Provisions (46 ) 4 481 (388 ) 732 108 (639 ) 252
Ending balance
September 30, 2018 $ 189 $ 105 $ 944 $ 2,908 $ 1,046 $ 65 $ 955 $ 6,212

Ending balances:
Individually evaluated for impairment $ — $ — $ 1 $ 3 $ — $ — $ — $ 4

Collectively evaluated for impairment 189 105 943 2,905 1,046 65 955 6,208

September 30, 2018
Loans receivable:
Ending balance-total $ 50,940 $ 56,568 $ 50,914 $ 498,650 $ 29,933 $ 9,510 $ — $ 696,515

Ending balances:
Individually evaluated for impairment — — 237 4,466 31 — — 4,734

Collectively evaluated for impairment $ 50,940 $ 56,568 $ 50,677 $ 494,184 $ 29,902 $ 9,510 $ — $ 691,781
15
(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
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
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
Note 4—Loans-continued
(Dollars in thousands)
Commercial Real estate
Construction Real estate
Mortgage
Residential Real estate
Mortgage
Commercial Consumer
Home
equity Consumer
Other Unallocated Total
December 31, 2018
Allowance for loan losses:
Beginning balance
December 31, 2017 $ 221 $ 101 $ 461 $ 3,077 $ 308 $ 35 $ 1,594 $ 5,797
Charge-offs — — (1 ) — (23 ) (140 ) — (164 )
Recoveries 3 — 4 210 6 61 — 284
Provisions 206 (12 ) (33 ) 1,031 (30 ) 132 (948 ) 346
Ending balance
December 31, 2018 $ 430 $ 89 $ 431 $ 4,318 $ 261 $ 88 $ 646 $ 6,263

Ending balances:
Individually evaluated for impairment $ — $ — $ — $ 14 $ — $ — $ — $ 14

Collectively evaluated for impairment 430 89 431 4,304 261 88 646 6,249

December 31, 2018
Loans receivable:
Ending balance-total $ 53,933 $ 58,440 $ 52,764 $ 513,833 $ 29,583 $ 9,909 $ — $ 718,462

Ending balances:
Individually evaluated for impairment — — 322 4,030 29 — — 4,381

Collectively evaluated for impairment $ 53,933 $ 58,440 $ 52,442 $ 509,803 $ 29,554 $ 9,909 $ — $ 714,081
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 ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 and ~~September 30, 2018:~~March 31, 2019:
(Dollars in thousands) 2019 2018 2020 2019
Beginning Balance January 1, $ 5,937 $ 5,938
Beginning Balance December 31, $ 4,109 $ 5,937
New Loans 111 2,406 55 —
Less loan repayments 1,804 1,999 437 85
Ending Balance September 30, $ 4,244 $ 6,345
Ending Balance March 31, $ 3,727 $ 5,852

The following table presents at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~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”).

September 30, December 31,
(Dollars in thousands) 2019 2018
Total loans considered impaired $ 4,155 $ 4,381
Loans considered impaired for which there is a related allowance for loan loss:
Outstanding loan balance $ 373 $ 453
Related allowance $ 14 $ 14
Loans considered impaired and previously written down to fair value $ 2,347 $ 3,928
Average impaired loans $ 4,354 $ 4,128
16
(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
Note 4—Loans-continued

The following tables are by loan category and present at ~~September 30,~~March 31, 2020, March 31, 2019 ~~September 30, 2018~~ and December 31, ~~2018~~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) Nine months ended Three months ended
Unpaid Average Interest Average Interest
September 30, 2019 Recorded Principal Related Recorded income Recorded Income
Investment Balance Allowance Investment Recognized Investment Recognized
With no allowance recorded:
Commercial, financial, agricultural $ — $ — $ — $ — $ — $ — $ —
Real estate:
Construction — — — — — — —
Mortgage-residential 538 603 — 594 16 537 12
Mortgage-commercial 3,172 5,867 — 3,259 131 3,092 79
Consumer:
Home equity 72 74 — 76 2 71 1
Other — — — — — — —

With an allowance recorded:
Commercial, financial, agricultural 4 4 4 4 — 4 —
Real estate:
Construction — — — — — — —
Mortgage-residential — — — — — — —
Mortgage-commercial 369 369 10 421 19 326 6
Consumer:
Home equity — — — — — — —
Other — — — — — — —

Total:
Commercial, financial, agricultural $ 4 $ 4 $ 4 $ 4 $ — $ 4 $ —
Real estate:
Construction — — — — — — —
Mortgage-residential 538 603 — 594 16 537 12
Mortgage-commercial 3,541 6,236 10 3,680 150 3,418 85
Consumer:
Home equity 72 74 — 76 2 71 1
Other — — — — — — —
$ 4,155 $ 6,917 $ 14 $ 4,354 $ 168 $ 4,030 $ 98
17
(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
Note 4—Loans-continued

(Dollars in thousands) Nine months ended Three months ended
Unpaid Average Interest Average Interest
September 30, 2018 Recorded Principal Related Recorded income Recorded Income
Investment Balance Allowance Investment Recognized Investment Recognized
With no allowance recorded:
Commercial, financial, agricultural $ — $ — $ — $ — $ — $ — $ —
Real estate:
Construction — — — — — — —
Mortgage-residential 198 266 — 202 16 197 2
Mortgage-commercial 3,363 6,158 — 3,753 219 3,627 75
Consumer:
Home equity 31 32 — 35 1 31 —
Other — — — — — — —

With an allowance recorded:
Commercial, financial, agricultural — — — — — — —
Real estate:
Construction — — — — — — —
Mortgage-residential 39 39 1 41 2 39 1
Mortgage-commercial 1,103 1,103 3 1,129 59 1,103 19
Consumer:
Home equity — — — — — — —
Other — — — — — — —

Total:
Commercial, financial, agricultural $ — $ — $ — $ — $ — $ — $ —
Real estate:
Construction — — — — — — —
Mortgage-residential 237 305 1 243 18 236 3
Mortgage-commercial 4,466 7,261 3 4,882 278 4,730 94
Consumer:
Home equity 31 32 — 35 1 31 —
Other — — — — — — —
$ 4,734 $ 7,598 $ 4 $ 5,160 $ 297 $ 4,997 $ 97
18
(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
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
Note 4—Loans-continued
(Dollars in thousands)
December 31, 2018 Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
With no allowance recorded:
Commercial $ — $ — $ — $ — $ —
Real estate:
Construction — — — — —
Mortgage-residential 322 371 — 483 9
Mortgage-commercial 3,577 6,173 — 3,232 128
Consumer:
Home Equity 29 30 — 33 2
Other — — — — —

With an allowance recorded:
Commercial — — — — —
Real estate:
Construction — — — — —
Mortgage-residential — — — — —
Mortgage-commercial 453 453 14 380 21
Consumer:
Home Equity — — — — —
Other — — — — —

Total:
Commercial — — — — —
Real estate:
Construction — — — — —
Mortgage-residential 322 371 — 483 9
Mortgage-commercial 4,030 6,626 14 3,612 149
Consumer:
Home Equity 29 30 — 33 2
Other — — — — —
$ 4,381 $ 7,027 $ 14 $ 4,128 $ 160

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.
19
~~Note 4—Loans-continued~~

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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, no loans were classified as doubtful.

(Dollars in thousands)
September 30, 2019 Pass Special
Mention Substandard Doubtful Total
Commercial, financial & agricultural $ 54,975 $ 194 $ — $ — $ 55,169
Real estate:
Construction 58,737 — — — 58,737
Mortgage - residential 46,404 522 767 — 47,693
Mortgage - commercial 527,551 3,401 3,602 — 534,554
Consumer:
Home Equity 27,651 1,164 288 — 29,103
Other 9,778 40 — — 9,818
Total $ 725,096 $ 5,321 $ 4,657 $ — $ 735,074
(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
Note 4—Loans-continued
(Dollars in thousands)
December 31, 2018 Pass Special
Mention Substandard Doubtful Total
Commercial, financial & agricultural $ 53,709 $ 224 $ — $ — $ 53,933
Real estate:
Construction 58,440 — — — 58,440
Mortgage - residential 51,286 633 845 — 52,764
Mortgage - commercial 505,493 5,176 3,164 — 513,833
Consumer:
Home Equity 28,071 1,197 315 — 29,583
Other 9,907 — 2 — 9,909
Total $ 706,906 $ 7,230 $ 4,326 $ — $ 718,462

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, non-accrual loans totaled ~~$2.3~~$1.7 million and ~~$2.5~~$2.3 million, respectively.

TDRs that are still accruing and included in impaired loans at ~~September 30, 2019~~March 31, 2020 and at December 31, ~~2018~~2019 amounted to ~~$1.9~~$1.6 million and ~~$2.0 million, respectively. TDRs in non-accrual status at September 30, 2019 and December 31, 2018 amounted to $1.1 million and $1.2~~$1.7 million, respectively.

Loans greater than 90 days delinquent and still accruing interest were ~~$33.5~~$168.1 thousand and ~~$31.2~~$0.3 thousand at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~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—~~(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.
20
~~Note 4—Loans-continued~~

A summary of changes in the accretable yield for ~~PCI~~purchased credit-impaired loans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and March 31, 2019 ~~and September 30, 2018~~ follows:

(Dollars in thousands) Three Months
Ended
September 30,
2019 Three Months
Ended
September 30,
2018 Three Months
Ended
March 31, 2020 Three Months
Ended
March 31, 2019

Accretable yield, beginning of period $ 138 $ (2 ) $ 123 $ 153
Additions — — — —
Accretion (7 ) (8 ) (7 ) (8 )
Reclassification of nonaccretable difference due to improvement in expected cash flows — — — —
Other changes, net — — — —
Accretable yield, end of period $ 130 $ (10 ) $ 116 $ 145
(Dollars in thousands) Nine Months
Ended
September 30,
2019 Nine Months
Ended
September 30,
2018

Accretable yield, beginning of period $ 153 $ 22
Additions — —
Accretion (23 ) (32 )
Reclassification of nonaccretable difference due to improvement in expected cash flows — —
Other changes, net — —
Accretable yield, end of period $ 130 $ (10 )

At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the recorded investment in purchased impaired loans was $112 ~~thousand and $112 thousand, respectively.~~thousand. The unpaid principal balance was ~~$193~~$186 thousand and ~~$205~~$190 thousand at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, these loans were all secured by commercial real estate.
2119

Note 4—Loans-continued
The following tables are by loan category and present loans past due and on non-accrual status as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018:~~2019:
(Dollars in thousands) Greater than Greater than
30-59 Days 60-89 Days 90 Days and Total 30-59 Days 60-89 Days 90 Days and Total
September 30, 2019 Past Due Past Due Accruing Nonaccrual Past Due Current Total Loans
March 31, 2020 Past Due Past Due Accruing Nonaccrual Past Due Current Total Loans

Commercial $ 33 $ 306 $ — $ 4 $ 343 $ 54,826 $ 55,169 $ 57 $ — $ — $ — $ 57 $ 50,256 $ 50,313
Real estate:
Construction — — — — — 58,737 58,737 — — — — — 83,547 83,547
Mortgage-residential 138 184 — 538 860 46,833 47,693 181 — 168 340 689 45,782 46,471
Mortgage-commercial 2,272 47 — 1,661 3,980 530,574 534,554 294 — — 1,330 1,624 528,556 530,180
Consumer:
Home equity 55 91 33 72 251 28,852 29,103 — 70 — 68 138 28,503 28,641
Other 17 44 — — 61 9,757 9,818 66 3 — — 69 10,308 10,377
$ 2,515 $ 672 $ 33 $ 2,275 $ 5,495 $ 729,579 $ 735,074 $ 598 $ 73 $ 168 $ 1,738 $ 2,577 $ 746,952 $ 749,529

(Dollars in thousands) Greater than Greater than
30-59 Days 60-89 Days 90 Days and Total 30-59 Days 60-89 Days 90 Days and Total
December 31, 2018 Past Due Past Due Accruing Nonaccrual Past Due Current Total Loans
December 31, 2019 Past Due Past Due Accruing Nonaccrual Past Due Current Total Loans

Commercial $ 18 $ 8 $ — $ — $ 26 $ 53,907 $ 53,933 $ — $ 99 $ — $ 400 $ 499 $ 51,306 $ 51,805
Real estate:
Construction — — — — — 58,440 58,440 113 — — — 113 73,399 73,512
Mortgage-residential 110 163 — 284 557 52,207 52,764 151 — — 392 543 44,814 45,357
Mortgage-commercial 1,302 — — 2,232 3,534 510,299 513,833 39 — — 1,467 1,506 525,941 527,447
Consumer: —
Home equity 146 11 31 29 217 29,366 29,583 2 9 — 70 81 28,810 28,891
Other 14 55 — — 69 9,840 9,909 40 23 — — 63 9,953 10,016
$ 1,590 $ 237 $ 31 $ 2,545 $ 4,403 $ 714,059 $ 718,462 $ 345 $ 131 $ — $ 2,329 $ 2,805 $ 734,223 $ 737,028

The Company identifies TDRs as impaired under the guidance in ASC 310-10-35. There were no loans determined to be TDRs that were restructured during the ~~three and nine-month~~three-month periods ended ~~September 30, 2019~~March 31, 2020 and ~~September 30, 2018.~~March 31, 2019.

During the three ~~and nine-month~~month periods ended ~~September 30,~~March 31, 2020 and March 31, 2019, ~~and September 30, 2018,~~ there were no loans determined to be TDRs in the previous twelve months that had payment defaults. Defaulted loans are those loans that are greater than 89 days past due.

In the determination of the allowance for loan losses, all TDRs are reviewed to ensure that one of the three proper valuation methods (fair market value of the collateral, present value of cash flows, or observable market price) is adhered to. All non-accrual loans are written down to their corresponding collateral value. All troubled TDR accruing loans that have a loan balance that exceeds the present value of cash flows will have a specific allocation. All nonaccrual loans are considered impaired. Under ASC 310-10, a loan is impaired when it is probable that the Company will be unable to collect all amounts due including both principal and interest according to the contractual terms of the loan agreement. In accordance with interagency guidance, short term deferrals granted due to the COVID-19 pandemic are not considered TDRs unless the borrower was previously experiencing financial difficulty.
2220

Note 5—Recently Issued Accounting Pronouncements
~~In May 2014, the FASB issued guidance (ASU 2014-09) to change the recognition~~The following is a summary of revenue from contracts with customers. The core principle of the new guidance is that an entity recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance was effective for the Company as of January 1, 2018. The Company evaluated the overall impact on affected revenue streams and any related contracts, including asset management fees, gains and losses on the sale of real estate, deposit related fees and interchange fees. Based on this evaluation, the Company determined that ASU 2014-09 did not materially change the method in which revenue from impacted revenue streams was previously being recognized. The Company applied the guidance using a modified retrospective approach. This approach requires the application of the new guidance to uncompleted contracts at the date of adoption. Periods prior to the date of adoption were not retrospectively revised as the impact on uncompleted contracts at the date of adoption was not material.recent authoritative pronouncements:
In January 2016, the FASB amended the Financial Instruments topic of the ASC (ASU 2016-01) to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments were effective for the Company on January 1, 2018. The guidance affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure of financial instruments. The amendments related to equity securities without readily determinable fair values were applied prospectively to equity investments that exist as of the date of adoption of the amendments. ASU 2016-01 requires the use of exit price rather than entrance price in determining the fair value of loans not measured at fair value on a non-recurring basis in the consolidated balance sheets. See Note 6 - Fair Value of Financial Instruments for information regarding the change in the valuation of these loans. The adoption of ASU 2016-01 did not have a material impact on the Company’s financial statements.
In February 2016, the FASB amended the Leases topic of the ASC to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. The amendments were effective for fiscal years beginning after December 15, 2018 including interim periods within those fiscal years. The Company adopted the guidance using the modified retrospective method and practical expedients for transition. The practical expedients allow the Company to largely account for our existing leases consistent with current guidance except for the incremental balance sheet recognition of leases. The ~~Company evaluated the new guidance and its impact on the Company’s financial statements. Based on leases outstanding at December 31, 2018, the~~ impact of adoption on January 1, 2019 was recording a right-of-use asset and lease liability of $2.9 million. See Note 9 “Leases” to the consolidated financial statements.
In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, ~~2019.~~2022. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows. On July 17, 2019, the FASB issued a proposal draft to extend the implementation date for certain smaller reporting companies to include SEC registrants classified as a Smaller Reporting Company. On October 16, 2019, the FASB voted to delay the implementation date for SEC registrants classified as a Smaller Reporting Company to fiscal years beginning after December 15, 2022. The FASB has directed its staff to draft an ASU that will change the implementation dates, which should be issued following a formal written ballot by the FASB, which is expected to take place in November 2019.
In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendment to the Business Combinations Topic is intended to address concerns that the existing definition of a business has been applied too broadly and has resulted in many transactions being recorded as business acquisitions that in substance are more akin to asset acquisitions. The guidance was effective for the Company for reporting periods beginning after December 15, 2017. These amendments had no material effect on the Company’s financial statements.
23
~~Note 5—Recently Issued Accounting Pronouncements-continued~~
In January 2017, the FASB amended the Goodwill and Other Topic of the ASC to simplify the accounting for goodwill impairment for public business entities and other entities that have goodwill reported in their financial statements and have not elected the private company alternative for the subsequent measurement of goodwill. The amendment removes Step 2 of the goodwill impairment test. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The effective date and transition requirements for the technical corrections ~~will be~~are effective for the Company for reporting periods beginning after December 15, 2019. ~~Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does~~These amendments did not ~~expect these amendments to~~ have a material ~~effect~~impact on ~~its~~the Company’s financial statements.
In March 2017, the FASB amended the requirements in the Receivables—Nonrefundable Fees and Other Costs Topic of the ASC related to the amortization period for certain purchased callable debt securities held at a premium. The amendments shorten the amortization period for the premium to the earliest call date. The amendments became effective for the Company for interim and annual periods beginning after December 15, 2018. The Company did not experience a material effect on its financial statements.
In March 2018, the FASB updated the Debt Securities and the Regulated Operations Topics of the ASC. The amendments incorporate into the ASC recent SEC guidance which was issued in order to make the relevant interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. The amendments were effective upon issuance and did not have a material ~~impact on the Company’s financial statements.~~
In February 2018, the FASB amended the Income Statement—Reporting Comprehensive Income Topic of the Accounting Standards Codification. The amendments allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments became effective for the Company for interim and annual periods beginning after December 15, 2018. The amendments did not have a material impacteffect on the Company’s financial statements.
In July 2018, the FASB amended the Leases Topic of the ASC to make narrow amendments to clarify how to apply certain aspects of the new ~~lease~~leases standard. Additionally, amendments were made to give entities another option for transition and to provide lessors with a practical expedient. The amendments ~~became~~are effective for reporting periods beginning after December 15, 2018. The ~~amendments~~Company did not ~~have~~experience a material ~~impact~~effect on ~~the Company’s~~its financial statements.
In August 2018, the FASB amended the Fair Value Measurement Topic of the ASC. The amendments remove, modify, and add certain fair value disclosure requirements based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this ASU and delay adoption of the additional disclosures until their effective date. The Company ~~does~~did not ~~expect these amendments to have~~experience a material effect on its financial statements.
In August 2018, the FASB amended the Intangibles—Goodwill and Other Topic of the ASC to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments ~~will be~~are effective for the Company for fiscal years beginning after December 15, 2019. ~~Early adoption is permitted.~~ The Company ~~does~~did not ~~expect these amendments to have~~experience a material effect on its financial statements.
In March 2019, the FASB issued guidance to address concerns companies had raised about an accounting exception they would lose when assessing the fair value of underlying assets under the leases standard and clarify that lessees and lessors are exempt from a certain interim disclosure requirement associated with adopting the new standard. The amendments ~~will be~~are effective for the Company for reporting periods beginning after December 15, 2019. Early adoption is permitted. The Company ~~does~~did not ~~expect these amendments to have~~experience a material effect on its financial statements.
2421

Note 5—Recently Issued Accounting Pronouncements-continued

In April 2019, the FASB issued guidance that clarifies and improves areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement of financial instruments. The amendments related to credit losses ~~will be~~are effective for the Company for reporting periods beginning after December 15, 2019. The amendments related to hedging ~~will be~~are effective for the Company for interim and annual periods beginning after December 15, 2018. The amendments related to recognition and measurement of financial instruments ~~will be~~are effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company ~~does~~did not ~~expect these amendments to have~~experience a material effect on its financial statements.
In July 2019, the FASB updated various Topics of the ASC to align the guidance in various SEC sections of the ASC with the requirements of certain SEC final rules. The amendments were effective upon issuance and did not have a material effect on the financial statements.
In November 2019, the FASB issued guidance to defer the effective dates for private companies, not-for-profit organizations, and certain smaller reporting companies applying standards on current expected credit losses (CECL), leases, hedging. The new effective date for CECL will be fiscal years beginning after December 15, 2022 including interim periods within those fiscal years. The Company is evaluating the impact that this will have on its financial statements
In November 2019, the FASB issued guidance that addresses issues raised by stakeholders during the implementation of ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments affect a variety of Topics in the Accounting Standards Codification. For entities that have not yet adopted the amendments in ASU 2016-13, the amendments are effective for fiscal years beginning after December 15, 2022 including interim periods within those fiscal years-all other entities. Early adoption is permitted in any interim period as long as an entity has adopted the amendments in ASU 2016-13. The Company is evaluating the impact that this will have on its financial statements.
In January 2020, the FASB issued guidance to address accounting for the transition into and out of the equity method and measuring certain purchased options and forward contracts to acquire investments. The amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.
In February 2020, the FASB issued guidance to add and amend SEC paragraphs in the ASC to reflect the issuance of SEC Staff Accounting Bulletin No. 119 related to the new credit losses standard and comments by the SEC staff related to the revised effective date of the new leases standard. The amendments were effective upon issuance.
In March 2020, the FASB issued guidance that makes narrow-scope improvements to various aspects of the financial instrument guidance, including the CECL guidance issued in 2016. The amendments related to conforming amendments: For public business entities, the amendments are effective upon issuance of this final ASU. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years beginning after December 15, 2020. Early application is permitted. The effective date of the amendments to ASU 2016-01 is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For the amendments related to ASU 2016-13, public business entities that meet the definition of an SEC filer, excluding eligible smaller reporting companies (SRCs) as defined by the SEC, should adopt the amendments in ASU 2016-13 during 2020. All other entities should adopt the amendments in ASU 2016-13 during 2023. Early adoption will continue to be permitted. For entities that have not yet adopted the guidance in ASU 2016-13, the effective dates and the transition requirements for these amendments are the same as the effective date and transition requirements in ASU 2016-13. For entities that have adopted the guidance in ASU 2016-13, the amendments were effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For those entities, the amendments should be applied on a modified-retrospective basis by means of a cumulative-effect adjustment to opening retained earnings in the statement of financial position as of the date that an entity adopted the amendments in ASU 2016-13. The Company is evaluating the impact that this will have on its financial statements In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
22
Note 6—Fair Value of Financial Instruments

The Company adopted FASB ASC Fair Value Measurement Topic 820, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level l
Quoted prices in active markets for identical assets or liabilities.

Level 2
Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

FASB ASC 825-10-50 “Disclosure about Fair Value of Financial Instruments”, requires the Company to disclose estimated fair values for its financial instruments. Fair value estimates, methods, and assumptions are set forth below.

Cash and Short Term Investments-The carrying amount of these financial instruments (cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under agreements to resell) approximates fair value. All mature within 90 days and do not present unanticipated credit concerns and are classified as Level 1.
25
~~Note 6—Fair Value of Financial Instruments-continued~~

Investment ~~Securities~~Securities— -Measurement is on a recurring basis based upon quoted market prices, if available. If quoted market prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for prepayment assumptions, projected credit losses, and liquidity. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, or by dealers or brokers in active over-the-counter markets. Level 2 securities include ~~MBSs~~mortgage-backed securities issued both by government sponsored enterprises and ~~PLMBSs.~~private label mortgage-backed securities. Generally, these fair values are priced from established pricing models. Level 3 securities include corporate debt obligations and asset–backed securities that are less liquid or for which there is an inactive market.

Loans ~~Held for Sale~~Held-for-Sale- The Company originates fixed rate residential loans on a servicing released basis in the secondary market. Loans closed but not yet settled with an investor, are carried in the Company’s loans ~~held for sale~~held-for-sale portfolio. These loans are fixed rate residential loans that have been originated in the Company’s name and have closed. Virtually all of these loans have commitments to be purchased by investors at a locked in price with the investors on the same day that the loan was locked in with the company’s customers. Therefore, these loans present very little market risk for the Company and are classified as Level 2. The carrying amount of these loans approximates fair value.

Loans - The ~~fair value~~valuation of loans ~~at September 30, 2019 and December 31, 2018 were measured~~receivable is estimated using anthe exit price ~~methodology,~~notion which includes an entry price notion that uses a discounted cash flow method to calculate the present future value of expected future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. The exit price uses the entry price notion but also incorporates ~~other assumptions~~factors, such as ~~market factors~~enhanced credit risk, illiquidity risk and ~~enhanced~~market factors that sometimes exist in exit prices in dislocated markets. This credit ~~risk. These added assumptions are~~risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. ~~In estimating the fair value, the~~The Company’s loan portfolio is initially fair valued using a segmented ~~using~~approach. The Company divides its loan portfolio into the six categories in Note 4 – Loans. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Prior to adoption of ASU 2016-01following categories: variable rate loans, ~~other than~~ impaired loans ~~were classified~~and all other loans. The results are then adjusted to account for credit risk as ~~a Level 2 measurement, as~~described above.
Note 6—Fair Value of ~~September 30, 2019 all loans are classified as a Level 3 measurement.~~  Financial Instruments-continued

Other Real Estate Owned (“OREO”)-OREO is carried at the lower of carrying value or fair value on a non-recurring basis. Fair value is based upon independent appraisals or management’s estimation of the collateral and is considered a Level 3 measurement.

Accrued Interest Receivable - The fair value approximates the carrying value and is classified as Level 1.

Deposits-The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposits is estimated by discounting the future cash flows using rates currently offered for deposits of similar remaining maturities. Deposits are classified as Level 2.

Federal Home Loan Bank Advances- Fair value is estimated based on discounted cash flows using current market rates for borrowings with similar terms and are classified as Level 2.

Short Term Borrowings- The carrying value of short term borrowings (securities sold under agreements to repurchase and demand notes to the Treasury) approximates fair value. These are classified as Level 2.

Junior Subordinated Debentures -The fair value of junior subordinated debentures is estimated by using discounted cash flow analyses based on incremental borrowing rates for similar types of instruments. These are classified as Level 2.

Accrued Interest Payable-The fair value approximates the carrying value and is classified as Level 1.

Commitments to Extend Credit - The fair value of these commitments is immaterial because their underlying interest rates approximate market.
2624

Note 6—Fair Value of Financial Instruments-continued

The carrying amount and estimated fair value by classification level of the Company’s financial instruments as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows:

September 30, 2019
Fair Value
(Dollars in thousands) Carrying
Amount Total Level 1 Level 2 Level 3
Financial Assets:
Cash and short term investments $ 33,235 $ 33,235 $ 33,235 $ — $ —
Available-for-sale securities 265,068 265,068 9 265,059 —
Other investments, at cost 1,992 1,992 — — 1,992
Loans held for sale 10,775 10,775 — 10,775 —
Net loans receivable 728,514 723,160 — — 723,160
Accrued interest 3,228 3,228 3,228 — —
Financial liabilities:
Non-interest bearing demand $ 268,693 $ 268,693 $ — $ 268,693 $ —
Interest bearing demand deposits and money market accounts 404,336 404,336 — 404,336 —
Savings 100,895 100,895 — 100,895 —
Time deposits 174,903 175,594 — 175,594 —
Total deposits 948,827 937,861 — 937,861 —
Federal Home Loan Bank Advances 216 216 — 216 —
Short term borrowings 34,321 34,321 — 34,321 —
Junior subordinated debentures 14,964 13,180 — 13,180 —
Accrued interest payable 1,059 1,059 1,059 — —
December 31, 2018
Fair Value
(Dollars in thousands) Carrying
Amount Total Level 1 Level 2 Level 3
Financial Assets:
Cash and short term investments $ 32,268 $ 32,268 $ 32,268 $ — $ —
Held-to-maturity securities 16,174 16,184 — 16,184 —
Available-for-sale securities 237,893 237,893 1,642 235,560 691
Other investments, at cost 1,955 1,955 — — 1,955
Loans held for sale 3,223 3,223 — 3,223 —
Net loans receivable 712,199 697,432 — — 697,432
Accrued interest 3,579 3,579 3,579 — —
Financial liabilities:
Non-interest bearing demand $ 244,686 $ 244,686 $ — $ 244,686 $ —
Interest bearing demand deposits and money market accounts 393,473 393,473 — 393,473 —
Savings 108,368 108,368 — 108,368 —
Time deposits 178,996 177,797 — 177,797 —
Total deposits 925,523 925,849 — 925,849 —
Federal Home Loan Bank Advances 231 231 — 231 —
Short term borrowings 28,022 28,022 — 28,022 —
Junior subordinated debentures 14,964 14,178 — 14,178 —
Accrued interest payable 861 861 861 — —
27
March 31, 2020
Fair Value
(Dollars in thousands) Carrying
Amount Total Level 1 Level 2 Level 3
Financial Assets:
Cash and short term investments $ 49,376 $ 49,376 $ 49,376 $ — $ —
Available-for-sale securities 288,881 288,881 11,887 275,345 1,649
Other investments, at cost 2,062 2,062 — — 2,062
Loans held-for-sale 11,937 11,937 — 11,937 —
Net loans receivable 741,835 717,881 — — 717,881
Accrued interest 3,369 3,369 3,369 — —
Financial liabilities:
Non-interest bearing demand $ 291,669 $ 291,669 $ — $ 291,669 $ —
Interest bearing demand deposits and money market accounts 426,332 426,332 — 426,332 —
Savings 102,171 102,171 — 102,171 —
Time deposits 166,473 167,852 — 167,852 —
Total deposits 986,645 986,645 — 986,645 —
Short term borrowings 46,041 46,041 — 46,041 —
Junior subordinated debentures 14,964 12,166 — 12,166 —
Accrued interest payable 1,001 1,001 1,001 — —
Note 6—Fair Value of Financial Instruments-continued
December 31, 2019
Fair Value
(Dollars in thousands) Carrying
Amount Total Level 1 Level 2 Level 3
Financial Assets:
Cash and short term investments $ 47,692 $ 47,692 $ 47,692 $ — $ —
Available-for-sale securities 286,800 286,800 23,632 261,361 1,807
Other investments, at cost 1,992 1,992 — — 1,992
Loans held-for-sale 11,155 11,155 — 11,155 —
Net loans receivable 730,401 728,745 — — 728,745
Accrued interest 3,481 3,481 3,481 — —
Financial liabilities:
Non-interest bearing demand $ 289,829 $ 289,829 $ — $ 289,829 $ —
Interest bearing demand deposits and money market accounts 423,256 423,256 — 423,256 —
Savings 104,456 104,456 — 104,456 —
Time deposits 170,660 171,558 — 171,558 —
Total deposits 988,201 989,099 — 989,099 —
Federal Home Loan Bank advances 211 211 — 211 —
Short term borrowings 33,296 33,296 — 33,296 —
Junior subordinated debentures 14,964 13,161 — 13,161 —
Accrued interest payable 1,033 1,033 1,033 — —

The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 that are measured on a recurring basis. There were no liabilities carried at fair value as of ~~September 30, 2019~~March 31, 2020 or December 31, ~~2018~~2019 that are measured on a recurring basis.

(Dollars in thousands)
Description September 30,
2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available for sale securities
US Treasury Securities $ 7,192 $ — $ 7,192 $ —
Government sponsored enterprises 1,123 — 1,123 —
Mortgage-backed securities 168,041 — 168,041 —
Small Business Administration pools 47,653 — 47,653 —
State and local government 41,040 — 41,040 —
Corporate and other securities 19 9 10 —
265,068 9 265,059 —
Loans held for sale 10,775 — 10,775 —
Total $ 275,843 $ 9 $ 275,834 $ —
~~(Dollars in thousands)~~
Description December 31,
2018 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available for sale securities
US Treasury Securities $ 15,457 $ — $ 15,457 $ —
Government sponsored enterprises 1,100 — 1,100 —
Mortgage-backed securities 115,475 — 114,784 691
Small Business Administration securities 55,336 1,633 53,703 —
State and local government 50,506 — 50,506 —
Corporate and other securities 19 9 10 —
237,893 1,642 235,560 691
Loans held for sale 3,223 — 3,223 —
Total $ 241,116 $ 1,642 $ 238,783 $ 691
28
Description March 31,
2020 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available-for-sale securities
US treasury securities $ 3,534 $ — $ 3,534 $ —
Government sponsored enterprises 1,015 — 1,015 —
Mortgage-backed securities 180,830 — 179,181 1,649
Small Business Administration pools 41,727 — 41,727 —
State and local government 61,756 11,882 49,874 —
Corporate and other securities 19 9 10 —
288,881 11,891 275,341 1,649
Loans held-for-sale 11,937 — 11,937 —
Total $ 300,818 $ 11,891 $ 287,278 $ 1,649
Note 6—Fair Value of Financial Instruments-continued

(Dollars in thousands)
Description December 31,
2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Available-for-sale securities
US treasury securities $ 7,203 $ — $ 7,203 $ —
Government sponsored enterprises 1,001 — 1,001 —
Mortgage-backed securities 183,586 18,435 163,344 1,807
Small Business Administration securities 45,343 — 45,343 —
State and local government 49,648 5,188 44,460 —
Corporate and other securities 19 9 10 —
286,800 23,632 261,361 1,807
Loans held-for-sale 11,155 — 11,155 —
         Total $ 297,955 $ 23,632 $ 272,516 $ 1,807
The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 that are measured on a non-recurring basis. There were no Level 3 financial instruments ~~as of September 30,~~for the three months ended March 31, 2020 and March 31, 2019 ~~and September 30, 2018~~ measured on a recurring basis.

(Dollars in thousands)
Description September 30,
2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Impaired loans:
Commercial $ — $ — $ — $ —
Real estate:
Mortgage-residential 538 — — 538
Mortgage-commercial 3,531 — — 3,531
Consumer:
Home equity 72 — — 72
Other — — — —
Total impaired 4,141 — — 4,141
Other real estate owned: ��
Construction 828 — — 828
Mortgage-residential 584 — — 584
Total other real estate owned 1,412 — — 1,412
Total $ 5,553 $ — $ — $ 5,553
(Dollars in thousands)
Description December 31,
2018 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) March 31,
2020 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Impaired loans:
Commercial & Industrial $ — $ — $ — $ — $ — $ — $ — $ —
Real estate:
Mortgage-residential 322 — — 322 340 — — 340
Mortgage-commercial 4,016 — — 4,016 2,961 — — 2,961
Consumer:
Home equity 29 — — 29 68 — — 68
Other — — — — — — — —
Total impaired 4,367 — — 4,367 3,369 — — 3,369
Other real estate owned:
Construction 828 — — 828 826 — — 826
Mortgage-residential 632 — — 632 655 — — 655
Total other real estate owned 1,460 — — 1,460 1,481 — — 1,481
Total $ 6,057 $ — $ — $ 6,057 $ 4,850 $ — $ — $ 4,850
Note 6—Fair Value of Financial Instruments-continued
(Dollars in thousands)
Description December 31,
2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Impaired loans:
Commercial & Industrial $ 400 $ — $ — $ 400
Real estate:
Mortgage-residential 392 — — 392
Mortgage-commercial 3,129 — — 3,129
Consumer:
Home equity 70 — — 70
Other — — — —
Total impaired 3,991 — — 3,991
Other real estate owned:
Construction 826 — — 826
Mortgage-residential 584 — — 584
Total other real estate owned 1,410 — — 1,410
Total $ 5,401 $ — $ — $ 5,401

The Company has a large percentage of loans with real estate serving as collateral. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. Third party appraisals are generally obtained when a loan is identified as being impaired or at the time it is transferred to OREO. This internal process consists of evaluating the underlying collateral to independently obtained comparable properties. With respect to less complex or smaller credits, an internal evaluation may be performed. Generally, the independent and internal evaluations are updated annually. Factors considered in determining the fair value include, among others, geographic sales trends, the value of comparable surrounding properties and the condition of the property. The aggregate amount of impaired loans was ~~$4.1~~$3.4 million and ~~$4.4~~$4.0 million as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.
28
Note 6—Fair Value of Financial Instruments-continued
For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the significant unobservable inputs used in the fair value measurements were as follows:
(Dollars in thousands) Fair Value
as of
September 30,
2019 Valuation Technique Significant
Observable Inputs Significant
Unobservable Inputs
OREO $ 1,412 Appraisal Value/Comparison Sales/Other estimates Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans $ 4,141 Appraisal Value Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost

(Dollars in thousands) Fair Value
as of
December 31,
2018 Valuation Technique Significant
Observable Inputs Significant
Unobservable Inputs
OREO $ 1,460 Appraisal Value/Comparison Sales/Other estimates Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost

Impaired loans $ 4,367 Appraisal Value Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost
(Dollars in thousands) Fair Value
as of
March 31,
2020 Valuation Technique Significant
Observable Inputs Significant
Unobservable Inputs
OREO $    1,481 Appraisal Value/Comparison Sales/Other estimates Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans $    3,369 Appraisal Value Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost
(Dollars in thousands) Fair Value
as of
December 31,
2019 Valuation Technique Significant
Observable Inputs Significant
Unobservable Inputs
OREO $    1,410 Appraisal Value/Comparison Sales/Other estimates Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans $    3,991 Appraisal Value Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost

Note 7—Deposits

The Company’s total deposits are comprised of the following at the dates indicated:

September 30, December 31, March 31, December 31,
(Dollars in thousands) 2019 2018 2020 2019
Non-interest bearing demand deposits $ 268,693 $ 244,686 $ 291,669 $ 289,829
Interest bearing demand deposits and money market accounts 404,336 393,473 426,332 423,256
Savings 100,895 108,368 102,171 104,456
Time deposits 174,903 178,996 166,473 170,660
Total deposits $ 948,827 $ 925,523 $ 986,645 $ 988,201

As of ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the Company had time deposits greater than $250,000 of ~~$31.1~~$30.9 million and ~~$27.8~~$32.2 million, respectively.
3029

Note 8—Reportable Segments

The Company’s reportable segments represent the distinct product lines the Company offers and are viewed separately for strategic planning by management. The Company has four reportable segments:

· Commercial and retail banking: The Company’s primary business is to provide deposit and lending products and services to its commercial and retail customers.

· Mortgage banking: This segment provides mortgage origination services for loans that will be sold to investors in the secondary market.

· Investment advisory and non-deposit: This segment provides investment advisory services and non-deposit products.

·
Corporate: This segment includes the parent company financial information, including interest on parent company debt and dividend income received from ~~First Community Bank (the “Bank”).~~the Bank.
The following tables present selected financial information for the Company’s reportable business segments for the three months ended March 31, 2020 and March 31, 2019.
Nine months ended September 30, 2019 Commercial Investment
Three months ended March 31, 2020 Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 31,081 $ 745 $ — $ 6,077 $ (6,059 ) $ 31,844 $ 10,404 $ 300 $ — $ 1,068 $ (1,062 ) $ 10,710
Interest expense 3,772 — — 583 — 4,355 1,125 — — 168 — 1,293
Net interest income $ 27,309 $ 745 $ — $ 5,494 $ (6,059 ) $ 27,489 $ 9,279 $ 300 $ — $ 900 $ (1,062 ) $ 9,417
Provision for loan losses 139 — — — — 139 1,075 — — — — 1,075
Noninterest income 4,039 3,333 1,436 — — 8,808 1,312 982 634 — — 2,928
Noninterest expense 21,416 2,754 1,302 281 — 25,753 7,495 963 468 112 — 9,038
Net income before taxes $ 9,793 $ 1,324 $ 134 $ 5,213 $ (6,059 ) $ 10,405 $ 2,021 $ 319 $ 166 $ 788 $ (1,062 ) $ 2,232
Income tax provision (benefit) 2,330 — — (199 ) — 2,131
Net income (loss) $ 7,463 $ 1,324 $ 134 $ 5,412 $ (6,059 ) $ 8,274

Nine months ended September 30, 2018 Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 28,513 $ 622 $ — $ 2,779 $ (2,779 ) $ 29,135
Interest expense 2,251 — — 528 — 2,779
Net interest income $ 26,262 $ 622 $ — $ 2,251 $ (2,779 ) $ 26,356
Provision for loan losses 252 — — — — 252
Noninterest income 4,051 3,126 1,207 — — 8,384
Noninterest expense 20,105 2,515 1,047 286 — 23,953
Net income before taxes $ 9,956 $ 1,233 $ 160 $ 1,965 $ (2,779 ) $ 10,535
Income tax provision (benefit) 2,173 — — (181 ) — 1,992 497 — — (59 ) — 438
Net income $ 7,783 $ 1,233 $ 160 $ 2,146 $ (2,779 ) $ 8,543 $ 1,524 $ 319 $ 166 $ 847 $ (1,062 ) $ 1,794
Three months ended March 31, 2019 Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 10,131 $ 237 $ — $ 1,017 $ (1,011 ) $ 10,374
Interest expense 1,156 — — 198 — 1,354
Net interest income $ 8,975 $ 237 $ — $ 819 $ (1,011 ) $ 9,020
Provision for loan losses 105 — — — — 105
Noninterest income 1,227 844 438 — — 2,509
Noninterest expense 7,024 804 415 80 — 8,323
Net income before taxes $ 3,073 $ 277 $ 23 $ 739 $ (1,011 ) $ 3,101

Income tax provision (benefit) 685 — — (79 ) — 606
Net income $ 2,388 $ 277 $ 23 $ 818 $ (1,011 ) $ 2,495
3130

Note 8—Reportable Segments-continued

Three months ended September 30, 2019 Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 10,600 $ 257 $ — $ 3,036 $ (3,029 ) 10,864
Interest expense 1,322 — — 189 — 1,511
Net interest income $ 9,278 $ 257 $ — $ 2,847 $ (3,029 ) $ 9,353
Provision for loan losses 25 — — — — 25
Noninterest income 1,353 1,251 509 — — 3,113
Noninterest expense 7,246 999 440 105 — 8,790
Net income before taxes $ 3,360 $ 509 $ 69 $ 2,742 $ (3,029 ) $ 3,651
Income tax provision (benefit) 813 — — (60 ) — 753
Net income $ 2,547 $ 509 $ 69 $ 2,802 $ (3,029 ) $ 2,898

Three months ended September 30, 2018 Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 9,772 $ 213 $ — $ 947 $ (947 ) 9,985
Interest expense 915 — — 187 — 1,102
Net interest income $ 8,857 $ 213 $ — $ 760 $ (947 ) $ 8,883
Provision for loan losses 21 — — — — 21
Noninterest income 1,260 1,159 423 — — 2,842
Noninterest expense 6,796 937 324 77 — 8,134
Net income before taxes $ 3,300 $ 435 $ 99 $ 683 $ (947 ) $ 3,570
Income tax provision (benefit) 791 — — (54 ) — 737
Net income $ 2,509 $ 435 $ 99 $ 737 $ (947 ) $ 2,833

Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Total Assets as of September 30, 2019 $ 1,102,804 $ 23,638 $ 2 $ 127,864 $ (124,318 ) $ 1,129,990

Total Assets as of December 31, 2018 $ 1,074,838 $ 16,078 $ 9 $ 129,992 $ (129,322 ) $ 1,091,595
Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Total Assets as of March 31, 2020 $ 1,156,598 $ 27,990 $ 4 $ 132,987 $ (132,272 ) $ 1,185,307

Total Assets as of December 31, 2019 $ 1,143,934 $ 25,673 $ 2 $ 132,890 $ (132,220 ) $ 1,170,279
32
Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Total Assets as of March 31, 2019 $ 1,076,190 $ 20,486 $ 7 $ 130,121 $ (129,408 ) $ 1,097,396

Total Assets as of December 31, 2018 $ 1,074,838 $ 16,078 $ 9 $ 129,992 $ (129,322 ) $ 1,091,595
Note 9—Leases

Effective January 1, 2019, the Company adopted ASC 842 “Leases”. Currently, the Company has operating leases on three of its facilities that are accounted for under this standard. As a result of this standard, the Company recognized a right-of-use asset and a lease liability of $3.3 million, respectively. During the ~~nine-month~~ period ended ~~September 30,~~March 31, 2020 and March 31, 2019, the Company made cash payments for operating leases in the amount of ~~$147.3~~$72.6 thousand ~~for operating leases~~ and ~~the~~$48.9 thousand, respectively. The lease expense recognized during this period amounted to $80.8 thousand and $58.3 thousand at March 31, 2020 and March 31, 2019, respectively. The lease liability was reduced by ~~$51.0 thousand. The lease expense recognized during the three and nine-month periods ended September 30, 2019 amounted to $62.1~~$37.1 thousand and ~~$178.8~~$17.2 thousand at March 31, 2020 and March 31, 2019, respectively. At March 31, 2020 and March 31, 2019, the weighted average lease term was 16.3 years and 18.92 years, respectively and the weighted average discount rate for both years was 4.4%. The following table is a maturity analysis of the operating lease liabilities. ~~The weighted average remaining lease term as of September 30, 2019 is 16.76 years and the weighted average discount rate used is 4.41%.~~

(Dollars in thousands) Liability
(Dollars in thousands) (Dollars in thousands) Liability
Year Cash Lease Expense Reduction Cash Lease Expense Reduction
2019 $ 208 $ 133 $ 24
2020 292 140 152 $ 220 $ 105 $ 115
2021 298 133 165 298 133 165
2022 303 126 177 303 126 177
2023 309 118 191 309 118 191
2024 282 110 172
Thereafter 3,481 900 2,582 3,199 789 2,409
Total $ 4,892 $ 1,550 $ 3,291 $ 4,611 $ 1,381 $ 3,229

Note 10—Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
Management has reviewed events occurring through the date the financial statements were available to be issued and ~~have determined that~~ no ~~additional~~ subsequent events occurred requiring accrual or ~~disclosure.~~that require disclosure and have not been disclosed in the footnotes to our unaudited consolidated financial statements as of March 31, 2020 .
3331

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding ~~Any~~ 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. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our ~~Company.~~company. Forward-looking statements are based on many assumptions and estimates and are not guarantees of future performance. 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. 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. 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 our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 as filed with the ~~SEC~~Securities and Exchange Commission (the “SEC”) on March ~~14, 2019~~13, 2020 and the following:
· the strength of the United States economy in general and the strength of the local economies in which we conduct operations may be different than expected including, but not limited to, due to the negative impacts and disruptions resulting from the recent outbreak of the novel coronavirus, or COVID-19, on the economies and communities we serve, which may have an adverse impact on our business, operations, and performance, and could have a negative impact on our credit portfolio, share price, borrowers, and on the economy as a whole both domestically and globally;
· changes in legislation, regulation, policies or administrative practices, whether by judicial, governmental, or legislative action, including, but not limited to, the Coronavirus Aid, Relief, and Economic Security Act, or the “CARES Act”
· credit losses as a result of, among other potential factors, declining real estate values, increasing interest rates, increasing unemployment, or changes 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 loan losses and the amount of loan 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 loan losses, write-down assets, or ~~write-down assets;~~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 other-than-temporary impairment charges resulting from additional 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;
· merger and merger integration risk, including potential customer loss, higher than expected costs, loss of key employees, and business disruption associated with completed combinations, and including the potential inability to identify and successfully negotiate, complete and integrate additional potential combinations with merger or acquisition partners or to realize the benefits and cost savings sought from, and acceptably limit unexpected liabilities associated with, any business combinations;
· increases in competitive pressure in the banking and financial services industries;
· changes in the interest rate environment which could reduce anticipated or actual margins;
· changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services ~~industry;~~industry, including, but not limited to, the CARES Act;
· risks associated with ~~actual or~~our participation in the Paycheck Protection Program, otherwise the PPP, established by the CARES Act, including but not limited to, potential litigation ~~or investigations by~~from borrowers of the PPP loans and the failure of the borrower to qualify for loan forgiveness, which would subject us to the risk of holding these loans at unfavorable interest rates as compared to the loans to customers ~~regulatory agencies or others;~~that we would have otherwise extended credit;
· general economic conditions resulting in, among other things, a deterioration in credit quality;
· changes occurring in business conditions and inflation;
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· changes in access to funding or increased regulatory requirements with regard to funding;
· ~~increased~~ cybersecurity risk ~~including~~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;~~losses resulting from deliberate attacks or unintentional events;
· changes in deposit flows;
· changes in technology;
· our current and future products, services, applications and functionality and plans to promote them;
· changes in monetary and tax policies;
· changes in accounting standards, policies, estimates, practices ~~and procedures;~~or guidelines;
· 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;
· our ability to successfully execute our business strategy;
· our ability to attract and retain key personnel;
· our ability to retain our existing ~~clients,~~customers, including our deposit relationships;
· adverse changes in asset quality and resulting credit risk-related losses and expenses;
· ~~loss~~the potential effects of ~~consumer confidence~~events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics (including the potential effects of the COVID-19 pandemic on trade, including supply chains and export levels, travel, employee activity and other economic ~~disruptions resulting from~~activities), war or terrorist ~~activities;~~activities, essential utility outages or trade disputes and related tariffs;
· disruptions due to flooding, severe weather or other natural disasters; and
· other risks and uncertainties detailed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019, in Part II, Item 1A of this Quarterly Report on Form 10-Q, and from time to time in our other filings with the SEC.
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. 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 our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and “Risk Factors” under Part II, Item 1A of this Quarterly Report on Form 10-Q. In addition, our past results of operations do not necessarily indicate our future results. 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 you that these expectations will be achieved. 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.~~otherwise, except as required by applicable law.
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Overview
The following discussion describes our results of operations for the ~~nine months and~~ three months ended ~~September 30, 2019~~March 31, 2020 as compared to the ~~nine months~~three-month period ended March 31, 2019 and ~~three months ended September 30, 2018 and also~~ analyzes our financial condition as of ~~September 30, 2019~~March 31, 2020 as compared to December 31, ~~2018.~~2019. Like most community banks, we derive most of our income from interest we receive on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as ~~deposits.~~deposits and borrowings. Another key measure is the spread between the yield we earn on ~~these~~our interest-earning assets and the rate we pay on our interest-bearing liabilities.
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There are risks inherent in all loans, so we maintain an allowance for loan losses to absorb probable losses on existing loans that may become uncollectible. We establish and maintain this allowance by charging a provision for loan losses against our operating earnings. In the following section, we have included a discussion of this process, as well as several tables describing our allowance for loan losses and the allocation of this allowance among our various categories of loans.

In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this non-interest income, as well as our non-interest expense, in the following discussion.

The following discussion and analysisidentify significant factors that have affected our financial position and operating results during the periods included in the accompanying financial statements. We encourage you to read this discussion and analysis in conjunction with the financial statements and the related notes and the other statistical information also included in this report.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” or similar references mean First Community Corporation and its subsidiaries.
Recent Events – COVID-19 Pandemic
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 our markets. In response to the COVID-19 pandemic, the governments of the states in which we have 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 our business has been designated an essential business, which allows us to continue to serve our customers, we serve many customers that have been deemed, or who are employed by businesses that have been deemed, to be non-essential. And many of our 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 our business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on our 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 our customers, employees and vendors.
Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets where we operate and in the United States as a whole. The COVID-19 pandemic has begun to have an impact on our business and operations. We have a business continuity plan that covers a variety of potential impacts to business operations. These plans are periodically reviewed and tested and have been designed to protect the ongoing viability of bank operations in the event of a disruption such as a pandemic. Beginning in early March 2020, we activated our pandemic preparedness plan and began to roll it out in phases related to the COVID-19 pandemic.
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Following recommendations from the Centers for Disease Control and Prevention and the South Carolina Department of Health and Environmental Control, we implemented enhanced cleaning of bank facilities and provided guidance to employees and customers on best practices to minimize the spread of the virus. As part of our efforts to exercise social distancing, we modified our delivery channels with a shift to drive thru only service at the banking offices supplemented by appointments for service in the office lobbies. The number of branch transactions for March and through mid-April (as of April 15th) 2020 decreased 13.6% compared to the same period in 2019. We have encouraged the use of online and mobile channels and have seen the number of online banking users increase, as well as the dollar volume of bill payment, Zelle, and mobile deposit transactions trend higher. To support the health and well-being of our employees, on any given day, approximately 40% of our workforce is working from home. We have enhanced our remote work capabilities by providing additional laptops and various audio and video meeting technologies. Communication channels for employees and customers were created to provide periodic updates during this rapidly changing environment. These are still in place and in use.
We are focused on servicing the financial needs of our commercial and consumer customers with flexible loan payment arrangements, including short-term loan modifications or forbearance payments and reducing or waiving certain fees on deposit accounts. Future governmental actions may require these and other types of customer-related responses.
Ourasset quality metrics as of March 31, 2020 remained sound. The non-performing asset ratio was 0.29% of total assets with the nominal level of $3.4 million in non-performing assets. Loans past due 30 days or more represented only 0.11% of the loan portfolio. The ratio of classified loans plus OREO has declined further to 4.88% of total bank regulatory capital. During the first quarter, the Bank experienced net loan recoveries of $8 thousand and net overdraft charge-offs of $16 thousand. However, the impact of the COVID-19 pandemic is serious and is being felt by our customers and our communities. The ultimate impacts of this unique and evolving situation on our customers and our asset quality are too challenging to predict. Stay-at-home orders were implemented in our markets causing many businesses to close or significantly reduce their normal operations. While there has been some recent relaxing of these restrictions in some of our markets, the timing of the return to normal is unknown. Our focus is on serving our many local business and individual customers at this time of great need and uncertainty.
We have proactively offered payment deferrals for up to 90 days to our loan customers. As of March 31, 2020, we granted 183 deferral requests totaling $118.3 million of our loan portfolio related to the COVID-19 pandemic. As of May 4, 2020, we have granted 383 deferrals totaling approximately $202.4 million of our loan portfolio. Some of these deferments were to businesses that have temporarily closed or reduced operations and some were requested as a pre-cautionary measure to conserve cash. We proactively offered deferrals to our customers regardless of the impact of the pandemic on their business or personal finances.
We are also a small business administration approved lender and have begun processing customer applications under the PPP, established under the CARES Act. As of May 6, 2020, we have funded 545 PPP loans totaling $42.7 million.
At March 31, 2020, our non-performing assets were not yet materially impacted by the economic pressures of the COVID-19 pandemic. However, as we closely monitor credit risk and our exposure to increased loan losses resulting from the impact of COVID-19 on our customers, we evaluated and identified our 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 %
We are monitoring the impact of the COVID-19 pandemic on the operations and value of our investments. We mark to market our publicly traded investments and review our investment portfolio for impairment at, a minimum, quarterly. We do not consider any securities in our investment portfolio to be other-than-temporarily impaired at March 31, 2020. However, because of changing economic and market conditions affecting issuers, we may be required to recognize future impairments on the securities we hold as well as reductions in other comprehensive income. We cannot currently determine the ultimate impact of the pandemic on the long-term value of our portfolio.
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Our capital remained strong and exceeded the well-capitalized regulatory requirements at March 31, 2020. Total shareholders’ equity increased $4.4 million or 3.7% to $124.6 million at March 31, 2020 from $120.2 million at December 31, 2019. In 2018, the Federal Reserve increased the asset size to qualify as a small bank holding company. As a result of this change, we are generally not subject to the Federal Reserve capital requirements unless advised otherwise. The bank remains subject to capital requirements including a minimum leverage ratio and a minimum ratio of “qualifying capital” to risk weighted assets. These requirements are essentially the same as those that applied to the Company prior to the change in the definition of a small bank holding company. Each of the regulatory capital ratios for the Bank exceeds the well capitalized minimum levels currently required by regulatory statute at March 31, 2020 and December 31, 2019. Refer to Capital and Liquidity section for more details.
Dollars in thousands Prompt Corrective Action
(PCA) Requirements Excess Capital $s of
PCA Requirements
Capital Ratios Actual Well
Capitalized Adequately
Capitalized Well
Capitalized Adequately
Capitalized
March 31, 2020
Leverage Ratio 9.91 % 5.00 % 4.00 % $ 56,619 $ 68,157
Common Equity Tier 1 Capital Ratio 13.35 % 6.50 % 4.50 % 58,671 75,790
Tier 1 Capital Ratio 13.35 % 8.00 % 6.00 % 45,831 62,951
Total Capital Ratio 14.25 % 10.00 % 8.00 % 36,406 53,525
December 31, 2019
Leverage Ratio 9.97 % 5.00 % 4.00 % $ 56,197 $ 67,508
Common Equity Tier 1 Capital Ratio 13.47 % 6.50 % 4.50 % 58,345 75,086
Tier 1 Capital Ratio 13.47 % 8.00 % 6.00 % 45,789 62,530
Total Capital Ratio 14.26 % 10.00 % 8.00 % 35,675 52,416
Based on our strong capital, conservative underwriting, and internal stress testing, we expect to remain well capitalized throughout the COVID-19 pandemic. However, the Bank’s reported and regulatory capital ratios could be adversely impacted by future credit losses related to the COVID-19 pandemic. We recognize that we face extraordinary circumstances, and we intend to monitor developments and potential impacts on our capital.
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 PPPLF to fund PPP loans, if needed.
Critical Accounting Policies

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements. Our significant accounting policies are described in the footnotes to our unaudited consolidated financial statements as of ~~September 30, 2019~~March 31, 2020 and our notes included in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 as filed with the SEC on March ~~14, 2019.~~13, 2020.

Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies to be critical accounting policies. The judgment and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgment and assumptions we make, actual results could differ from these judgments and estimates that could have a material impact on the carrying values of our assets and liabilities and our results of operations. A brief discussion of each of these areas appears in our 2019 Annual Report on Form 10-K. During the first three months of 2020, we did not significantly alter the manner in which we applied our Critical Accounting Policies or developed related assumptions and estimates.
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Allowance for Loan Losses

We believe the allowance for loan losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements. Some of the more critical judgments supporting the amount of our allowance for loan losses include judgments about the credit worthiness of borrowers, the estimated value of the underlying collateral, the assumptions about cash flow, determination of loss factors for estimating credit losses, the impact of current events and conditions, and other factors impacting the level of probable inherent losses. Under different conditions or using different assumptions, the actual amount of credit losses incurred by us may be different from management’s estimates provided in our consolidated financial statements. Refer to the portion of this discussion that addresses our allowance for loan losses for a more complete discussion of our processes and methodology for determining our allowance for loan losses.
FASB has issued a new credit impairment model, the Current Expected Credit Loss, or CECL model, which will become applicable to us in 2023. Under the CECL model, we will be required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model currently required under GAAP, which delays recognition until it is probable a loss has been incurred. Accordingly, we expect that the adoption of the CECL model will materially affect how we determine our allowance for loan losses and could require us to significantly increase our allowance. Moreover, the CECL model may create more volatility in the level of our allowance for loan losses. If we are required to materially increase our level of allowance for loan losses for any reason, such increase could adversely affect our business, financial condition and results of operations.
The new CECL standard will become effective for us on January 1, 2023 and for interim periods within that year. We are currently evaluating the impact the CECL model will have on our accounting, but we expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. We cannot yet determine the magnitude of any such one-time cumulative adjustment or of the overall impact of the new standard on our business, financial condition and results of operations.
On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to (i) address the upcoming implementation of CECL; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (iii) require for certain banking organizations that are subject to stress testing, the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle.

Goodwill and Other Intangibles

Goodwill represents the excess of the purchase price over the sum of the estimated fair values of the tangible and identifiable intangible assets acquired less the estimated fair value of the liabilities assumed. Goodwill has an indefinite useful life and is evaluated for impairment annually or more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount exceeds the asset’s fair value. Qualitative factors are assessed to first determine if it is more likely than not (more than 50%) that the carrying value of goodwill is less than fair value. These qualitative factors include but are not limited to overall deterioration in general economic conditions, industry and market conditions, and overall financial performance. If determined that it is more likely than not that there has been a deterioration in the fair value of the carrying value ~~than~~then the first of a two-step process would be performed. The first step, used to identify potential impairment, involves comparing each reporting unit’s estimated fair value to its carrying value, including goodwill. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is considered not to be impaired. If the carrying value exceeds estimated fair value, there is an indication of potential impairment and the second step is performed to measure the amount of impairment.
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If required, the second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step, over the aggregate estimated fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the reporting unit, there is no impairment. If the carrying value of goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess. An impairment loss cannot exceed the carrying value of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted. Management has determined that the Company has ~~one~~four reporting ~~unit.~~units.
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In January 2017, the FASB issued ASU No. 2017-04, which simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in today’s two-step impairment test under ASC Topic 350 and eliminating Step 2 from the goodwill impairment test. This guidance was effective for us as of January 1, 2020.

Core deposit intangibles represent the estimated value of long-term deposit relationships acquired in ~~merger~~bank or branch acquisition transactions. These costs are amortized over the estimated useful lives of the deposit accounts acquired on a method that we believe reasonably approximates the anticipated benefit stream from the accounts. The estimated useful lives are periodically reviewed for reasonableness.

Income Taxes and Deferred Tax Assets and Liabilities

Income taxes are provided for the tax effects of the transactions reported in our consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities, including available-for-sale securities, allowance for loan losses, ~~write downs~~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 deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. We file a consolidated federal income tax return for the Bank. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, we were in a net deferred tax asset position.

Other-Than-Temporary Impairment
We evaluate securities for other-than-temporary impairment at least on a quarterly basis. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) the outlook for receiving the contractual cash flows of the investments, (4) the anticipated outlook for changes in the general level of interest rates, and (5) our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that the Company will be required to sell the debt security prior to recovering its fair value (See Note 3 to the Consolidated Financial Statements).

Business Combinations, Method of Accounting for Loans Acquired

We account for acquisitions under FASB ASC Topic 805,Business Combinations,, which requires the use of the acquisition method of accounting. All identifiable assets acquired, including loans, are recorded at fair value. No allowance for loan losses related to the acquired loans is recorded on the acquisition date because the fair value of the loans acquired incorporates assumptions regarding credit risk.

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~~Qualityand 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.
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Comparison of Results of Operations for ~~Nine~~Three Months Ended ~~September 30, 2019~~March 31, 2020 to the ~~Nine~~Three Months Ended ~~September 30, 2018~~March 31, 2019
Net Income
Our net income for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 was ~~$8.3~~$1.8 million, or ~~$1.08~~$0.24 diluted earnings per common share, as compared to ~~$8.5~~$2.5 million, or ~~$1.11~~$0.32 diluted earnings per common share, for the ~~nine~~three months ended ~~September 30, 2018. Net~~March 31, 2019. The decrease in net income between the two periods is primarily due to increases in provision for loan losses expense of $970 thousand and non-interest expense of $715 thousand partially offset by an increase in net interest income ~~increased $1.1 million~~of $397 thousand, an increase in non-interest income of $419 thousand, and a decrease in income tax expense of $168 thousand. The increase in provision for ~~the nine months ended September 30, 2019 as compared to the same period in 2018. This increase~~loan losses is primarily ~~a result of a higher level of average earning assets in the first nine months of 2019 as compared~~related to ~~the same period in 2018 as well as a four basis point~~an increase in the ~~net interest margin. Net interest margin for the nine months ended September 30, 2019 was 3.65% as compared to 3.61%~~qualitative factors in the ~~same period~~company’s allowance for loan losses methodology related to the economic uncertainties caused by the COVID-19 pandemic. The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of ~~2018.~~$483 thousand and increased marketing and public relations expense of $179 thousand. The increase in net interest ~~margin was~~income results from an increase of $83.8 million in average earning assets partially offset by a 16 basis point decline in the net interest margin between the two periods. The increase in non-interest income is primarily related to an increase in ~~non-interest expense~~mortgage banking income of ~~$1.8 million~~$138 thousand and an increase in investment advisory fees and non-deposit commissions of $196 thousand. Our effective tax rate was 19.62% during the ~~nine months ending September 30 ,2019 as~~first quarter of 2020 compared to 19.54% during the ~~nine months ended September 30, 2018.~~first quarter of 2019.
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Net Interest Income
Please refer to the table at the end of this Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) for the ~~yield~~average yields on assets and ~~rate data for~~average rates on interest-bearing ~~balance sheet components~~liabilities during the ~~nine months~~three-month periods ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ along with average balances and the related interest income and interest expense amounts.

Net interest income ~~was $27.5~~increased $397 thousand or 4.4% to $9.4 million for the ~~nine~~three months ended ~~September 30, 2019~~March 31, 2020 from $9.0 million for the three months ended March 31, 2019. Our net interest margin declined by 16 basis points to 3.52% during the first quarter of 2020 from 3.68% during the first quarter of 2019. Our net interest margin, on a taxable equivalent basis, was 3.55% for the first quarter of 2020 compared to 3.73% for the first quarter of 2019. Average earning assets increased $83.8 million, or 8.4%, to $1.077 billion for the quarter ended March 31, 2020 as compared to ~~$26.4~~$993.5 million ~~for~~in the ~~nine months ended September 30, 2018.~~same period of 2019. The ~~$1.1 million~~ increase in net interest income was ~~attributable~~primarily due to ~~an increase in~~a higher level of average earning assets ~~of $30.8 million as well as an increase of four basis points in the~~partially offset by lower net interest ~~margin between the two periods. Our~~margin. The decline in net interest margin was ~~3.65% during~~primarily due to the ~~nine months ended September 30, 2019 as compared to 3.61% for~~Federal Reserve reducing the ~~same period in 2018. The yield on earning assets increased by 24~~target range of the federal funds rate three times totaling 75 basis points in ~~the first nine months of~~reductions during 2019 as compared to the same period in 2018. Average loans comprised 72.6% of average earning assets in the first nine months of 2019 as compared to 69.4% in the same period of 2018. The yield on our loan portfolio increased 12and two times totaling 150 basis points in ~~the nine-month period ended September 30, 2019 to 4.85% as compared to 4.73%~~reductions during the same period in 2018. The yield on our investment portfolio for the nine-month period ended September 30, 2019 increased to 2.61% from 2.36% for the same period in 2018. Increases in the federal funds target rate in 2017 and 2018 increased the yields on certain variable rate products in both our loan and investment portfolio. In July and Octoberfirst quarter of ~~2019, the Federal Reserve began lowering its target band for short-term interest~~2020. Lower market rates, ~~by 25 basis point each time. Lower short-term interest rates along with~~ a ~~flat~~flat-to-inverted yield curve, ~~have more recently resulted in~~the competitive loan pricing environment, and the COVID-19 pandemic put downward pressure on our net interest margin ~~(See “Market Risk Management” below).~~during the first quarter of 2020.
Average loans increased $29.6 million, or 4.1%, to $753.7 million for the first three months of 2020 from $724.1 million for the first three months of 2019. Average loans represented 70.0% of average earning assets during the first quarter of 2020 compared to 72.9% of average earning assets during the first quarter of 2019. The decline in average loans as a percentage of average earning assets was primarily due to increases in deposits of $60.6 million and securities sold under agreements to repurchase of $23.4 million. The growth in our deposits and securities sold under agreements to repurchase was higher than the growth in our loans, which resulted in the excess funds being deployed in our securities portfolio and other short-term investments and to reduce Federal Home Loan Bank advances. The yield on loans declined 11 basis points to 4.71% in the first quarter of 2020 from 4.82% in the first quarter of 2019. Average securities and average other short-term investments for the three months ended March 31, 2020 increased $34.4 million and $19.8 million, respectively, from the prior year period. The yield on our securities portfolio declined to 2.42% for the three months ended March 31, 2020 from 2.67% for the same period in 2019; the yield on our other short-term investments declined to 1.70% for the three months ended March 31, 2020 from 2.53% for the same period in 2019. These declines were primarily related to the Federal Reserve reducing the target range of the federal funds as described above. The yield on earning assets for the three months ended March 31, 2020 and 2019 was 4.00% and 4.23%, respectively. The cost of interest-bearing liabilities ~~during~~was at 69 basis points in the first ~~nine months of 2019 was 0.81% as~~quarter 2020 compared to ~~0.52%~~76 basis points in the ~~same period in 2018. The continued~~first quarter of 2019. We continue to focus on growing our pure deposits (demand deposits, interest-bearing transaction accounts, savings deposits and ~~resulting shift in our deposit funding mix, as well as our current liquidity position, continue~~money market accounts). These accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds. As noted previously, recent decreases in the Federal Reserve Fed Fund target band may result in lower overall funding cost. Interest-bearing transaction accounts, money market accounts and savings deposits, which are typically our lower cost funds, represent 68.0% of our average interest-bearing liabilities duringIn the first ~~nine months~~quarter of ~~2019~~2020, these deposits averaged 82.5% of total deposits as compared to ~~67.1%~~80.2% in the same period ~~in 2018.~~of 2019.
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Provision and Allowance for Loan Losses

We account for our allowance for loan losses under the incurred loss model. As mentioned above, the CECL model will become effective for us on January 1, 2023. At ~~September 30, 2019 and December~~March 31, ~~2018,~~2020, the allowance for loan losses was ~~$6.6~~$7.7 million, or ~~0.89%~~1.03% of total loans (excluding loans ~~held for sale)~~held-for-sale), ~~and $6.3~~compared to $6.6 million, or ~~0.87%~~0.90% of total loans (excluding loans ~~held~~held-for-sale) at December 31, 2019 and $6.4 million, or 0.88% of total loans (excluding loans held-for-sale) at March 31, 2019. The increase in the allowance for ~~sale), respectively.~~ loan losses is primarily related to an increase in the qualitative factors in our allowance for loan losses methodology related to the economic uncertainties caused by the COVID-19 pandemic.
Loans that were acquired in the acquisition of Cornerstone Bancorp, ~~(“Cornerstone”)~~otherwise referred to herein as Cornerstone, in 2017 as well as in the acquisition of Savannah River Financial ~~Corporation (“~~Corp., otherwise referred to herein as Savannah ~~River”)~~River, in 2014 are accounted for under FASB ASC 310-30. These acquired loans were initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. The credit component on loans related to cash flows not expected to be collected is not subsequently accreted (non-accretable difference) into interest income. 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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the remaining credit component on loans attributable to acquired loans in the Cornerstone and Savannah River transactions was ~~$384~~$429 thousand and ~~$660~~$534 thousand, respectively. Our provision for loan losses was ~~$139 thousand~~$1.075 million and ~~$252~~$105 thousand for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively. The increase in the provision for loan losses is primarily related to an increase in the qualitative factors in our allowance for loan losses methodology related to the economic uncertainties caused by the COVID-19 pandemic.
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The allowance for loan losses represents an amount which we believe will be adequate to absorb probable losses on existing loans that may become uncollectible. Our judgment as to the adequacy of the allowance for loan losses is based on ~~a number of~~ assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. Our determination of the allowance for loan losses is based on evaluations of the collectability of loans, including consideration of factors such as the balance of impaired loans, the quality, mix, and size of our overall loan portfolio, the experience ability and depth of lending personnel, economic conditions (local and national) that may affect the borrower’s ability to repay, the amount and quality of collateral securing the loans, our historical loan loss experience, and a review of specific problem loans. We also consider ~~subjective issues~~qualitative factors such as changes in the lending policies and procedures, changes in the local/national economy, changes in volume or type of credits, changes in volume/severity of problem loans, quality of loan review and board of director oversight, and concentrations of credit. ~~Periodically,~~During the first quarter of 2020, we ~~adjust~~added a new qualitative factor related to the ~~amount of~~economic uncertainties caused by the ~~allowance based on changing circumstances.~~COVID-19 pandemic. We charge recognized losses to the allowance and add subsequent recoveries back to the allowance for loan losses. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period, especially considering the uncertainty related to the COVID-19 pandemic.
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 – Loans). The annualized weighted average loss ratios over the last 36 months for ~~all loan risk categories has~~loans classified substandard, special mention and pass have been approximately 0.54%, 0.11% and 0.01%., respectively. The allowance consists of an allocated and unallocated allowance. The allocated portion is determined by types and ratings of loans within the portfolio. The unallocated portion of the allowance is established for losses that exist in the remainder of the portfolio and compensates for uncertainty in estimating the loan losses. The allocated portion of the allowance is based on historical loss experience as well as certain qualitative factors as explained above. The qualitative factors have been established based on certain assumptions made as a result of the current economic conditions and are adjusted as conditions change to be directionally consistent with these changes. The unallocated portion of the allowance is composed of factors based on management’s evaluation of various conditions that are not directly measured in the estimation of probable losses through the experience formula or specific allowances. The overall risk as measured in our three-year lookback, both quantitatively and qualitatively, does not encompass a full economic cycle. The U.S. economy ~~has~~had been in an extended period of ~~recovery.~~recovery leading up to the COVID-19 pandemic. The ~~period at which we will reach full recovery or revert back to a slowing economy~~ultimate impact of the COVID-19 pandemic and the related stimulus programs is not yet determinable. Net charge-offs in the 2009 to 2011 period averaged 63 basis points annualized in our loan portfolio. Over the most recent three-year period, our net charge-offs have ~~averaged less than one basis point annualized.~~experienced a modest net recovery. We currently believe the unallocated portion of our allowance represents potential risk associated throughout a full economic ~~cycle~~.~~The percentage of~~cycle. However, the ~~unallocated portion of~~COVID-19 pandemic and the ~~allowance to~~government and economic responses thereto may materially affect the ~~total allowance has declined over the last several years. Management does not believe it would be judicious to reduce the overall level of the allowance at this time.~~risk within our loan portfolios.

~~Our Company has~~We have a significant portion of ~~its~~our loan portfolio with real estate as the underlying collateral. At ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, approximately ~~91.1%~~91.9% and ~~91.1%~~91.6%, 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. Real estate is generally taken to reinforce the likelihood of the ultimate repayment and as a secondary source of repayment. We work closely with all our borrowers that experience cash flow or other economic problems, and we believe that we have the appropriate processes in place to monitor and identify problem credits. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for loan losses as estimated at any point in time or that provisions for loan losses will not be significant to a particular accounting period. 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.
39
Non-performing assets were ~~$3.7~~$3.4 million ~~(0.33%~~(0.29% of total assets) at ~~September 30, 2019~~March 31, 2020 as compared to ~~$4.0~~$3.7 million ~~(0.37%~~(0.32% of total assets) at December 31, ~~2018.~~2019. While we believe the non-performing assets to total assets ratios are favorable in comparison to current industry results (both nationally and locally), we continue to ~~be concerned about~~monitor the ~~sustainability~~potential impact of the ~~current economic environment and the effect that an overall economic decline could have~~COVID-19 pandemic on our customer base of local businesses and professionals. There were 3227 loans totaling ~~$2.3~~$1.9 million (0.25% of total loans) included in non-performing status (non-accrual loans and loans past due 90 days and still accruing) at ~~September 30, 2019.~~March 31, 2020. The largest loan included in non-accrual status is in the amount of ~~$701~~$629 thousand and is secured by ~~a first mortgage on developed lots to be sold for residential use.~~commercial non-owner occupied real estate located in Aiken, South Carolina. The average balance of the remaining 3126 loans is approximately ~~$52~~$49 thousand with a range between $0 and $300 thousand, and the majority of these loans are secured by first mortgage liens. AtFurthermore, we had $1.6 million in accruing trouble debt restructurings, or TDRs, at March 31, 2020 compared to $1.7 million at December 31, 2019. We consider a loan impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due, including both principal and interest, according to the ~~time the loans are placed in non-accrual status, we typically obtain an updated appraisal and, if~~contractual terms of the loan ~~balance exceeds~~agreement. Nonaccrual loans and accruing trouble debt restructurings are considered impaired. At March 31, 2020, we had 32 impaired loans totaling $3.4 million compared to 33 impaired loans totaling $4.0 million at December 31, 2019. These loans were measured for impairment under the fair value ~~write the balance down to~~of collateral method or present value of expected cash flows method. For collateral dependent loans, the fair ~~value.~~value of collateral method is used and the fair value is determined by an independent appraisal less estimated selling costs. At ~~September 30, 2019, we had one loan in the amount of $33 thousand delinquent 90 days or more and still accruing interest. At September 30, 2019,~~March 31, 2020, we had loans totaling ~~$3.2 million~~$671 thousand that were delinquent 30 days to 89 days representing ~~0.44%~~0.09% of total ~~loans.~~loans compared to $476 thousand or 0.06% of total loans at December 31, 2019.

Our management continuously monitors non-performing, classified and past due loans to identify deterioration regarding the condition of these loans. ~~At September 30, 2019, there~~As of March 31, 2020, we received 183 deferral requests totaling $118.3 million of our loan portfolio related to the COVID-19 pandemic. As of May 4, 2020, we have ~~been no loans identified~~granted 383 deferrals totaling approximately $202.4 million of our loan portfolio. Some of these deferments were to businesses that have temporarily closed or reduced operations and some were requested as a pre-cautionary measure to conserve cash. We proactively offered deferrals to our customers regardless of the impact of the pandemic on their business or personal finances. Given the on-going and uncertain impact of the COVID-19 pandemic, we will continue to monitor our loan portfolio for potential ~~problem loans.~~risks.
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The following table summarizes the activity related to our allowance for loan losses for the periods indicated:

Allowance for Loan Losses

(Dollars in thousands) Nine Months Ended
September 30,
2019 2018
Average loans (including loans held for sale) outstanding $ 731,033 $ 677,441
Loans (including loans held for sale) outstanding at period end $ 745,849 $ 696,515
Non-performing assets:
Nonaccrual loans $ 2,275 $ 2,904
Loans 90 days past due still accruing 33 29
Repossessed-other — —
Foreclosed real estate and other assets 1,412 1,921
Total non-performing assets $ 3,720 $ 4,854

Beginning balance of allowance $ 6,263 $ 5,797
Loans charged-off:
1-4 family residential mortgage 7 1
Non-residential real estate — —
Home equity 1 —
Commercial 8 —
Installment & credit card 96 109
Total loans charged-off 112 110
Recoveries:
1-4 family residential mortgage — 3
Non-residential real estate 221 219
Home equity 14 6
Commercial — 14
Installment & credit card 35 31
Total recoveries 270 273
Net loan recoveries (charge offs) 158 (163 )
Provision for loan losses 139 252
Balance at period end $ 6,560 $ 6,212

Net (recoveries) charge-offs to average loans 0.00 % (0.02 %)
Allowance as percent of total loans 0.88 % 0.89 %
Non-performing assets as % of total assets 0.33 % 0.45 %
Allowance as % of non-performing loans 284.23 % 127.98 %
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Three Months Ended
March 31,
(Dollars in thousands) 2020 2019
Average loans outstanding (including loans held-for-sale) $ 753,659 $ 724,059
Loans outstanding at period end (excluding loans held-for-sale) $ 749,529 $ 718,420
Non-performing assets:
Nonaccrual loans $ 1,739 $ 2,641
Loans 90 days past due still accruing 168 22
Foreclosed real estate 1,481 1,460
Repossessed-other — —
Total non-performing assets $ 3,388 $ 4,123

Beginning balance of allowance $ 6,627 $ 6,263
Loans charged-off:
Commercial — 2
Real Estate - Construction — —
Real Estate Mortgage - Residential — —
Real Estate Mortgage - Commercial — —
Consumer - Home Equity — 1
Consumer - Other 23 30
Total loans charged-off 23 33
Recoveries:
Commercial — —
Real Estate - Construction — —
Real Estate Mortgage - Residential — —
Real Estate Mortgage - Commercial 6 10
Consumer - Home Equity 1 —
Consumer - Other 8 9
Total recoveries 15 19
Net loan charge offs (recoveries) 8 14
Provision for loan losses 1,075 105
Balance at period end $ 7,694 $ 6,354

Net charge offs (recoveries) to average loans (annualized) 0.00 % 0.01 %
Allowance as percent of total loans 1.03 % 0.88 %
Non-performing assets as % of total assets 0.29 % 0.38 %
Allowance as % of non-performing loans 403.5 % 238.6 %
The following allocation of the allowance to specific components is not necessarily indicative of future losses or future allocations. The entire allowance is available to absorb losses in the portfolio.

Composition of the Allowance for Loan Losses
(Dollars in thousands) September 30, 2019 December 31, 2018 March 31, 2020 December 31, 2019
Amount % of loans in
Category Amount % of loans in
Category % of loans in % of loans in
Amount Category Amount Category
Commercial, Financial and Agricultural $ 459 7.5 % $ 430 7.5 % $ 489 7.0 % $ 427 7.3 %
Real Estate - Construction 91 8.0 % 89 8.1 %
Real Estate – Construction 148 2.1 % 111 1.9 %
Real Estate Mortgage:
Residential 385 6.5 % 431 7.3 % 440 6.3 % 367 6.3 %
Commercial 4,536 72.7 % 4,318 71.6 % 5,531 79.0 % 4,602 78.7 %
Consumer:
Home Equity 241 4.0 % 261 4.1 % 277 4.0 % 240 4.1 %
Other 95 1.3 % 88 1.4 % 112 1.6 % 97 1.7 %
Unallocated 753 N/A 646 N/A 697       N/A 783 N/A
Total $ 6,560 100.0 % $ 6,263 100.0 % $ 7,694 100.0 % $ 6,627 100.0 %

Accrual of interest is discontinued on loans when management believes, after considering economic and business conditions and collection efforts that a borrower’s financial condition is such that the collection of interest is doubtful. A delinquent loan is generally placed in ~~non-accrual~~nonaccrual status when it becomes 90 days or more past due. At the time a loan is placed in ~~non-accrual~~nonaccrual status, all interest, which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

Non-interest Income and Non-interest Expense

Non-interest income during the first ~~nine months~~quarter of ~~2019~~2020 was ~~$8.8~~$2.9 million as compared to ~~$8.4~~$2.5 million during the same period in ~~2018.~~2019. Deposit service charges decreased ~~$108~~$12 thousand during the first ~~nine months~~quarter of ~~2019~~2020 as compared to the same period in ~~2018. Changes in the overdraft protection fee collection regulatory requirements continue to contribute to the decrease in overall deposit service charge fees.~~2019. Mortgage banking income ~~and investment advisory fees accounted for $207~~increased by $138 thousand ~~and $229~~from $844 thousand ~~respectively, of the increase~~ in the first ~~nine months~~quarter of 2019 ~~as compared~~ to ~~the same period in 2018. Mortgage loan production including construction perm loans~~$982 thousand in the first ~~nine months~~quarter of ~~2019 amounted to $100.6~~2020. Mortgage production in the first quarter of 2020 was $35.3 million as compared to ~~$94.0~~$25.8 million ~~during~~in the same period of ~~2018. At September 30, 2019, we had $339.6 million~~2019. With the decline in mortgage interest rates, refinance activity increased during the first quarter of 2020 and represented 44.7% of production. Mortgage activity increased significantly during the month of March 2020 and represented 45.6% of the production and 48.0% of the fees during the first quarter of 2020. However, the gain on sale margin was negatively impacted by some loans, which were not saleable due to disruptions in the mortgage market during the first quarter of 2020. Investment advisory fees increased $196 thousand to $634 thousand during the first quarter of 2020 from $438 thousand during the first quarter of 2019. Total assets under management amounted to $320 million at March 31, 2020 as compared to ~~$306.8~~$330 million at ~~September 30, 2018.~~March 31, 2019. Management continues to focus on increasing both the mortgage banking income as well as the investment advisory fees and commissions. ~~During~~Gain on sale of securities was $0 during the first ~~nine months~~quarter of ~~2019, we sold investment securities for a net gain of $135 thousand as~~2020 compared to a ~~net~~ loss on sale of ~~investment~~ securities of ~~$10~~$29 thousand during the first quarter of 2019.
Non-interest income, other increased $62 thousand in the first quarter of 2020 as compared to the same period in ~~2018.~~2019 primarily due to higher ATM debit card income.

The following is a summary of the components of other non-interest income for the periods indicated:

(Dollars in thousands) Nine months ended
September 30,
2019 2018
ATM debit card income $ 1,524 $ 1,375
Income on bank owned life insurance 515 519
Rental income 212 211
Loan late charges 84 72
Safe deposit fees 39 40
Wire transfer fees 60 61
Other 261 455
Total $ 2,695 $ 2,733
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(Dollars in thousands) Three months ended
March 31,
2020 2019
ATM debit card income $ 512 $ 462
Income on bank owned life insurance 196 196
Rental income 66 70
Loan late charges 25 26
Safe deposit fees 15 15
Wire transfer fees 20 18
Other 73 58
Total $ 907 $ 845
~~Total non-interest~~Non-interest expense increased ~~$1.8~~$715 thousand in the first quarter of 2020 to $9.0 million as compared to $8.3 million in the first ~~nine months~~quarter of ~~2019 to $25.8 million as compared to $24.0 million in the first nine months of 2018.~~2019. Salary and benefit expense increased ~~$1.3 million to $15.8~~$483 thousand from $5.2 million in the first ~~nine months~~quarter of 2019 ~~as compared~~ to ~~$14.5~~$5.7 million in the first ~~nine months~~quarter of ~~2018.~~2020. This increase is primarily a result of the normal salary adjustments, as well as the ~~addition~~opening of ~~two new~~our full-service ~~offices opened in the first half of 2019. We opened a downtown Greenville, South Carolina office in February 2019. In June 2019, we opened a full-service~~de novo office in Evans, ~~Georgia. The hiring for positions~~Georgia, a suburb of Augusta in ~~these offices takes place prior to opening and therefore the cost for staffing and benefits impacts substantially all of the first nine months of~~Columbia County, Georgia in June 2019. ~~At September 30, 2019 and 2018, we~~We had 242 ~~and 233~~ full time equivalent employees ~~respectively. The increase in occupancy expense of $197 thousand in first nine months of 2019 as~~at March 31, 2020 compared to ~~same period in 2018 is primarily a result of the addition of the two new branch offices.~~230 at March 31, 2019. Marketing and public relations expense increased ~~to $764~~$179 thousand in the first ~~nine months~~quarter of ~~2019 from $460 thousand in~~2020 as compared to the ~~first nine months~~same period of ~~2018.~~2019. The timing of our planned media campaigns in 2020, which is a ~~media campaign~~presidential election year, impacts the recognition of marketing expense, and it is expected that the overall ~~2019~~2020 annual media cost will not vary substantially from the annual cost incurred in 2018. Miscellaneous non-interest expense decreased $86 thousand in first nine months of 2019 as compared to the same period in 2018. The 2018 period includes the cost of purchasing South Carolina Rehabilitation tax credits for $165 thousand. The amount of the tax credit received and recorded for the same period in the 2018 was $205 thousand. There were no costs related to purchasing tax credits in the nine months ended September 30, 2019.

The following is a summary of the components of other non-interest expense for the periods indicated:

(Dollars in thousands) Nine months ended Three months ended
September 30, March 31,
2019 2018 2020 2019
Data processing $ 2,008 $ 1,681 $ 777 $ 616
Supplies 107 104 36 46
Telephone 323 324 81 105
Courier 107 113 42 38
Correspondent services 174 213 66 57
Insurance 185 198 78 57
Postage 37 43 12 11
Legal and professional fees 738 746 255 231
Loss on limited partnership interest 45 48
Director fees 255 284 82 87
Shareholder expense 126 136 39 39
Dues 108 113 37 35
Subscriptions 141 148 39 48
Loan closing costs/fees 250 187 70 81
Miscellaneous 785 872
Other 274 251
$ 5,389 $ 5,210 $ 1,888 $ 1,702

Income Tax Expense

Our effective tax rate was ~~20.5%~~19.6% and ~~18.9%~~19.5% in the first nine months of 2019 and 2018, respectively. As noted previously, the purchase of the South Carolina Rehabilitation tax credits reduced our state income tax expense by $205 thousand for the nine months ended September 30, 2018. As a result, of our current level of tax-exempt securities in our investment portfolio and our BOLI holdings, the effective tax rate is expected to be 20.5% to 21.0% throughout the remainder of 2019.
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~~Comparison of Results of Operations for Three Months Ended September 30, 2019 to the Three Months Ended September 30, 2018~~
~~Net Income~~
Our net income for the three months ended September 30, 2019 was $2.9 million, or $0.39 diluted earnings per common share, as compared to $2.8 million, or $0.37 diluted earnings per common share, for the three months ended September 30, 2018. Net interest income increased $470 thousand for the three months ended September 30, 2019 as compared to the same period in 2018. Average earning assets increased by $29.6 million in the third quarter of 2020 and 2019, ~~as compared to the same period~~respectively. The effective rate in ~~2018. The net interest margin increased to 3.62% during the second quarter of 2019 as compared to 3.55% during the second quarter of 2018.~~
~~Net Interest Income~~
~~Please refer to the table at the end of this Item 2 for the yield~~2020 and rate data for interest-bearing balance sheet components during the three-month periods ended September 30, 2019 and 2018, along with average balances and the related interest income and interest expense amounts.
Net interest income was $9.3 million and $8.9 million for the three months ended September 30, 2019 and 2018, respectively. Our net interest margin increased by seven basis points from 3.55% for the three months ended September 30, 2018 to 3.62% for the three months ended September 30, 2019. Included in the three-month period in 2019 is a recovery of $131 thousand in non-accrual interest on a loan that paid off during this period. Without that recovery our net interest margin would have been 3.57%. As a result of several increases in the target Fed Funds rate in 2018, we began to experience rate pressure on our deposit funding cost particularly in the last half of 2018 and early 2019. As noted in the nine-month discussion the Federal Reserve began lowering the targeted short-term funds rate, which may have the impact of putting downward pressure on our net-interest margin.
~~Non-interest Income and Non-interest Expense~~
Non-interest income during the third quarter of 2019 was $3.1 million as compared to $2.8 million during the same period in 2018. Mortgage banking income increased $92 thousand for the three months ended September 30, 2019 as compared to the same period in 2018. Mortgage loan production in the second quarter of 2019 was $37.9 million as compared to $32.4 million in the third quarter of 2018. In addition, we experienced an approximate 2% increase in our margin (income before tax/revenues) in this line of business in the third quarter of 2019 as compared to the same period in 2018. The margin is significantly impacted by the product types originated during each period. Investment advisory fees increased $86 thousand in the third quarter of 2019 as compared to the same period of 2018. Assets under management at September 30, 2019 amounted to $339.6 million as compared to $306.8 million at September 30,2018. ATM/Debit card fees increased approximately $66 thousand in the third quarter of 2019 as compared to the same period in 2018.
~~The following is a summary~~passing of the ~~components of other non-interest income for~~Tax Cut and Jobs Act on December 22, 2017. The federal tax rate prior to this change was 34%, and beginning January 1, 2018, the ~~periods indicated:~~
(Dollars in thousands) Three months ended
September 30,
2019 2018
ATM debit card income $ 530 $ 464
Income on bank owned life insurance 174 147
Rental income 72 70
Loan late charges 35 22
Safe deposit fees 12 12
Wire transfer fees 22 20
Other 87 116
Total $ 932 $ 855
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~~Total non-interest expense increased $656 thousand in the third quarter of 2019~~rate was lowered to $8.8 million as compared to $8.1 million in the third quarter of 2018. Salary and benefit expense increased $386 thousand to $5.5 million in the third quarter of 2019 as compared to $5.1 million in the third quarter of 2018. We opened two new full-service offices in the first half of 2019 and the additional staffing and benefit cost associated with these openings account for the majority of the increase. Occupancy expense increased $92 thousand between the two periods and the opening of the new offices resulted in substantially all of the increase. In the third quarter of 2019, the FDIC began distributing refunds for insurance assessments to certain community banks. The refund during the third quarter of 2019 eliminated our assessment for the period as compared to an assessment of $94 thousand in the third quarter of 2018. It is anticipated that these refunds will reduce our assessment for two and a half quarters. This assumes the targeted FDIC insurance fund ratio remains above a set percentage. Data processing fees increased $197 thousand in the third quarter of 2019 as compared to the same period of 2018 primarily due to an increased number of accounts serviced, increased debit card transaction volume, and additional electronic services provided.21%.
Miscellaneous expense was $285 thousand in the third quarter of 2019 as compared to $164 thousand in the same period of 2018. In the third quarter of 2018, we received a $48 thousand refund of fees charged to us by our Investment Advisor. There was an increase in debit card and fraud losses of approximately $29 thousand in the third quarter of 2019.
~~The following is a summary of the components of other non-interest expense for the periods indicated:~~
(Dollars in thousands) Three months ended
September 30,
2019 2018
Data processing $ 732 $ 535
Supplies 24 24
Telephone 112 102
Courier 39 38
Correspondent services 53 83
Insurance 64 71
Postage 14 14
Legal and professional fees 296 248
Loss on limited partnership interest 22 26
Director fees 72 87
Shareholder expense 48 32
Dues 38 41
Subscriptions 47 48
Loan closing costs/fees 89 93
Other 284 164
$ 1,934 $ 1,606

Financial Position

Assets totaled ~~$1.1~~$1.2 billion at ~~September 30, 2019~~March 31, 2020 and at December 31, ~~2018.~~2019. Loans (excluding loans held-for-sale) increased $12.5 million to $749.5 million at March 31, 2020 from $737.0 million at December 31, 2019. Total loan production was $33.5 million during the first quarter of 2020. The ratio of loan growth to loan production was 37.3% during the first quarter of 2020. The loan-to-deposit ratio (including loans held for sale) at ~~September 30,~~March 31, 2020 and December 31, 2019 ~~were $735.1~~was 77.2% and 75.7%, respectively. Investment securities increased to $290.9 million ~~as compared to $718.5~~at March 31, 2020 from $288.8 million at December 31, ~~2018. As a result of significant loan pay offs or pay downs, the loan portfolio excluding loans held-for-sale increased only $16.6 million from December 31, 2018~~2019. Other short-term investments declined to ~~September 30, 2019. Total loan production was $99.1 million during the first nine months of 2019. Deposits increased $23.3 million to $948.8~~$25.6 million at ~~September 30, 2019 as compared to $925.5~~March 31, 2020 from $32.7 million at December 31, 2018. Pure deposits (deposits less non-IRA time deposits) represented 84.8% of total deposits as of September 30, 2019 as compared to 84.0% at December 31, 2018. 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. 2019.
One of our goals as a community bank has been, and continues to be, to grow our assets through quality loan growth by providing credit to small and mid-size businesses and individuals within the markets we serve. We remain committed to meeting the credit needs of our local markets. ~~A slow-down in the national or local economic conditions as well as deterioration of asset quality within our Company could significantly impact our ability to continue to grow our loan portfolio.~~
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The following table shows the composition of the loan portfolio by category at the dates indicated:
(Dollars in thousands) September 30, 2019 December 31, 2018
Amount Percent Amount Percent
Commercial, financial & agricultural $ 55,169 7.5 % $ 53,933 7.5 %
Real estate:
Construction 58,737 8.0 % 58,440 8.1 %
Mortgage – residential 47,693 6.5 % 52,764 7.3 %
Mortgage – commercial 534,554 72.7 % 513,833 71.6 %
Consumer:
Home Equity 29,103 4.0 % 29,583 4.1 %
Other 9,818 1.3 % 9,909 1.4 %
Total gross loans 735,074 100.0 % 718,462 100.0 %
Allowance for loan losses (6,560 ) (6,263 )
Total net loans $ 728,514 $ 712,199
(Dollars in thousands) March 31, 2020 December 31, 2019
Amount Percent Amount Percent
Commercial, financial & agricultural $ 50,313 6.7 % $ 51,805 7.0 %
Real estate:
Construction 83,547 11.1 % 73,512 10.0 %
Mortgage – residential 46,471 6.2 % 45,357 6.2 %
Mortgage – commercial 530,180 70.8 % 527,447 71.5 %
Consumer:
Home Equity 28,641 3.8 % 28,891 3.9 %
Other 10,377 1.4 % 10,016 1.4 %
Total gross loans 749,529 100.0 % 737,028 100.0 %
Allowance for loan losses (7,694 ) (6,627 )
Total net loans $ 741,835 $ 730,401

In the context of this discussion, a real estate mortgage loan is defined as any loan, other than loans for construction purposes and advances on home equity lines of credit, secured by real estate, regardless of the purpose of the loan. Advances on home equity lines of credit are included in consumer loans. We follow the common practice of financial institutions in our market areas of obtaining a security interest in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan components. We generally limit the loan-to-value ratio to 80%.

~~During~~Deposits decreased $1.6 million to $986.6 million at March 31, 2020 as compared to $988.2 million at December 31, 2019. Our pure deposits, which are defined as total deposits less certificates of deposits, increased $2.7 million, or 0.3% to $850.0 million at March 31, 2020 from $847.3 million at December 31, 2019. We had no brokered deposits and no listing services deposits at March 31, 2020. Our securities sold under agreements to repurchase, which are related to our customer cash management accounts, increased $12.7 million or 38.3%, to $46.0 million at March 31, 2020 from $33.3 million at December 31, 2019. This increase was due to the seasonality of one large relationship. Historically, we typically experience a short term decrease in deposits in the first quarter of ~~2019, we adopted the new lease accounting standard (ASC 842 “Leases”). As~~each year due to our business customers withdrawing funds primarily for bonuses and taxes. We continue to focus on growing our pure deposits as a ~~result~~percentage of ~~this change~~total deposits in ~~accounting for leases, we recorded a right-of-use asset~~order to better manage our overall cost of ~~$2.9~~funds.
Total shareholders’ equity increased $4.4 million or 3.7% to $124.6 million at March 31, 2020 from $120.2 million at December 31, 2019. The increase in shareholders’ equity is primarily due to an increase in retention of earnings less dividends paid of $0.9 million and ~~lease liability~~an increase in accumulated other comprehensive income of ~~$2.9 million (see Note 9 “Leases”~~$3.4 million. The increase in accumulated other comprehensive income was due to a reduction in market interest rates, which resulted in an increase in the ~~consolidated financial statements). During~~net unrealized gains in our investment securities portfolio. We announced during the third quarter ~~we entered into another operating lease and recorded an additional $403 thousand right-of-use asset and lease liability~~ of ~~$406 thousand.~~2019 the approval of a new share repurchase plan, which was the second share repurchase plan announced during 2019, of up to 200,000 shares of our outstanding common stock. No share repurchases have been made under this new share repurchase plan. This approved share repurchase plan provides us with some flexibility in managing our capital going forward.

Market Risk Management

Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. The ~~effective management~~risk of loss can be measured in either diminished current market ~~risk is essential to achieving our strategic financial objectives.~~values or reduced current and potential net income. Our ~~most significant~~primary market risk is interest rate risk. We have established an Asset/Liability Management Committee ~~(“ALCO”~~(the “ALCO”) to monitor and manage interest rate risk. The ALCO monitors and manages the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on our net interest income. The ALCO has established policy guidelines and strategies with respect to interest rate risk exposure and liquidity.
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A monitoring technique employed by ~~the ALCO~~us is the measurement of our interest sensitivity “gap,” which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. 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. For each of these scenarios, we model the impact on net interest income in an increasing and decreasing rate environment of 100 and 200 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. Policies have been established in an effort to maintain the maximum anticipated negative impact of these modeled changes in net interest income at no more than 10% and 15%, respectively, in a 100 and 200 basis point change in interest rates ~~respectively,~~ over a ~~twelve-month~~12-month period. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates.
~~We are currently asset sensitive within one year. However, neither~~ Neither the “gap” analysis ~~nor~~or asset/liability ~~simulation~~ modeling ~~is a~~are precise ~~indicator~~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.
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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 over ~~twelve~~the subsequent 12 months.
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~~Net Interest Income Sensitivity~~
Change in short-term interest rates Hypothetical
percentage change in
net interest income
September 30,
2019 December 31,
2018
+200bp -2.87 % -3.54 %
+100bp -1.22 % -1.58 %
Flat — —
-100bp -2.42 % -0.34 %
-200bp -5.32 % -4.37 %
~~The decrease~~ At March 31, 2020 and December 31, 2019, we were slightly liability sensitive over the first three month period and over the balance of a 12-month period are asset sensitive on a cumulative basis. As a result, our modeling reflects modest decline in our net interest income in a ~~down 200 basis point~~rising rate environment over the first 12 months. This negative impact of rising rates reverses and net interest income is favorably impacted over a 24-month period. In a declining rate environment, the model reflects a decline in net interest income. This primarily results from the current level of interest rates being paid on our interest bearing transaction accounts as well as money market accounts. The interest rates on these accounts are at a level where they ~~may not~~cannot be repriced in proportion to the change in interest rates. ~~At the current low interest rate levels, we believe that a downward shift of 200 basis points across the entire yield curve is unlikely.~~ The ~~modest~~increase and decrease in a rising rate environment primarily relates to the historical beta assumptions in the modeling. We are currently not repricing deposits at these levels. We have been able to control deposit pricing in the current rising rate environment primarily as a result of our current liquidity levels as well as continued core deposit growth. The two-year impact of rising rates of 100 and 200 basis points, ~~at our historical beta levels, reflects net~~respectively, reflected in the table below assume a simultaneous and parallel change in interest ~~income increasing by 1.8% and 3.2%, respectively.~~rates along the entire yield curve.
Net Interest Income Sensitivity
Change in short-term
interest rates Hypothetical
percentage change in
net interest income
March 31,
2020 December 31,
2019
+200bp -2.76 % -2.30 %
+100bp -1.03 % -1.09 %
Flat — —
-100bp -0.98 % -1.88 %
-200bp -1.03 % -5.08 %
We ~~also~~ perform a valuation analysis projecting future cash flows from assets and liabilities to determine the Present Value of Equity (“PVE”) over a range of changes in market interest rates. The sensitivity of PVE to changes in interest rates is a measure of the sensitivity of earnings over a longer time horizon. At ~~September 30,~~March 31, 2020 and December 31, 2019, the PVE exposure in a plus 200 basis point increase in market interest rates was estimated to be ~~7.23% as~~11.67% and 5.85%, respectively. The PVE exposure in a down 100 basis point decrease was estimated to be (13.64)% at March 31, 2020 compared to ~~(1.56)~~(7.68)% at December 31, ~~2018.~~2019.

Liquidity and Capital Resources

~~We believe our liquidity remains adequate to meet operating~~Liquidity management involves monitoring sources and ~~loan funding requirements. Interest-bearing bank balances, federal~~uses of funds ~~sold, and investment securities available-for-sale represent 24.6% of total assets at September 30, 2019. We believe that our existing stable base of core deposits along with continued growth~~ in ~~this deposit base will enable us~~order to meet our ~~long-term~~day-to-day cash flow requirements while maximizing profits. Liquidity represents our ability to convert assets into cash or cash equivalents without significant loss and ~~short-term~~to raise additional funds by increasing liabilities. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to nearly the same degree of control. Asset liquidity ~~needs successfully. These needs include~~is provided by cash and assets which are readily marketable, or which can be pledged, or which will mature in the near future. Liability liquidity is provided by access to core funding sources, principally the ability to ~~respond~~generate customer deposits in our market area. In addition, liability liquidity is provided through the ability to ~~short-term demand for funds caused by the withdrawal of deposits, maturity of repurchase agreements, extensions~~borrow against approved lines of credit (federal funds purchased) from correspondent banks and ~~the payment of operating expenses. Other sources of liquidity, in addition~~ to ~~deposit gathering activities, include maturing loans and investments, purchase of federal funds from other financial institutions and selling~~borrow on a secured basis through securities sold under agreements to repurchase. The Bank is a member of the FHLB and has the ability to obtain advances for various periods of time. These advances are secured by eligible securities pledged by the Bank or assignment of eligible loans within the Bank’s portfolio.
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As of March 31, 2020, we have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of the COVID-19 pandemic. We monitor closely the level of large certificates of deposits in amounts of $100 thousand or more as they tend to be more sensitive to interest rate changes and, thus, less reliable sources of funding for liquidity purposes. At September 30, 2019, the amount of time deposits of $100 thousand or more represented 9.3% of totalhad no brokered deposits and no listing services deposits at March 31, 2020. We believe that we have ample liquidity to meet the ~~amount~~needs of ~~time deposits~~our customers and to manage through the COVID-19 pandemic through our low cost deposits; our ability to borrow against approved lines of ~~$250 thousand or more represented 3.3% of deposits. The majority of these deposits~~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 ~~issued~~approved to ~~local customers, many of whom have other product relationships with~~participate in the ~~Bank.~~PPPLF to fund PPP loans if needed.

Through the operations of our Bank, we have made contractual commitments to extend credit in the ordinary course of our business activities. These commitments are legally binding agreements to lend money to our customers at predetermined interest rates for a specified period of time. At ~~September 30,~~March 31, 2020, we had issued commitments to extend unused credit of $132.0 million, including $40.2 million in unused home equity lines of credit, through various types of lending arrangements. At December 31, 2019, we had issued commitments to extend unused credit of ~~$127~~$135.7 million, including ~~$40~~$39.8 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. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, commercial and residential real estate. We manage the credit risk on these commitments by subjecting them to normal underwriting and risk management processes.

Other than as described elsewhere in this report, we are not aware of any trends, events or uncertainties that we expect to result in a significant adverse effect on our liquidity position. However, no assurances can be given in this regard, as rapid growth, deterioration in loan quality, and poor earnings, or a combination of these factors, could change the liquidity position in a relatively short period of time.
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We generally maintain a high level of liquidity and adequate capital, which along with continued retained earnings, we believe will be sufficient to fund the operations of the Bank for at least the next 12 months.   Shareholders’ equity was 10.5% of total assets at ~~September 30, 2019~~March 31, 2020 and 10.3% at December 31, ~~2018.~~2019. The Bank maintains federal funds purchased lines in the total amount of ~~$20.0~~$25.0 million with two financial institutions, although these were not utilized inat March 31, 2020; and $10 million through the ~~first nine months of 2019.~~Federal Reserve Discount Window. The FHLB of Atlanta has approved a line of credit of up to 25% of the Bank’s assets, which, when utilized, is collateralized by a pledge against specific investment securities and/or eligible loans. Furthermore, we are eligible to participate in the PPPLF to fund PPP loans if needed. We regularly review our liquidity position and have implemented internal policies establishing guidelines for sources of asset-based liquidity and evaluate and monitor the total amount of purchased funds used to support the balance sheet and funding from noncore sources. ~~We believe~~
Although uncertain, we may encounter stress on liquidity management as a direct result of the COVID-19 pandemic and the Bank’s participation in the PPP as a participating lender. As customers manage their own liquidity stress, we could experience an increase in the utilization of existing lines of credit. As of May 6, 2020, we have funded 545 PPP loans totaling $42.7 million. The Federal Reserve has provided a lending facility, the PPPLF, that ~~our existing stable base of core deposits along with continued growth in this deposit base~~ will ~~enable~~allow us to ~~meet~~obtain funding specifically for loans that we make under the PPP, which will allow us to retain existing sources of liquidity for our ~~long-term~~traditional operations. PPP loans will be pledged as collateral on any of the Bank’s borrowings under the Federal Reserve’s PPPLF lending facility. Currently, the Bank has sufficient liquidity ~~needs successfully.~~to fund PPP loans without accessing the PPPLF. However, the Bank has the option to use the PPPLF if needed.

Regulatory capital rules ~~released by the federal bank regulatory agencies~~adopted in July 2013 and fully-phased in as of January 1, 2019, which we refer to ~~implement capital standards, referred to as~~ Basel III, ~~and developed by an international body known as the Basel Committee on Banking Supervision,~~ impose ~~higher~~ minimum capital requirements for ~~certain~~ bank holding companies and banks.
The regulatory capital rules became effective for the Bank on January 1, 2015 (subject to a phase-in period for certain provisions), and all of the requirements in the rules were fully phased in on January 1, 2019. In 2018, the Federal Reserve increased the asset size to qualify as a small bank holding company. As a result of this change, we generally are not subject to the Federal Reserve capital requirements unless advised otherwise. ~~Our~~The Bank remains subject to capital requirements including a minimum leverage ratio and a minimum ratio of “qualifying capital” to risk weighted assets. These requirements are essentially the same as those that applied to us prior to the change in the definition of a small bank holding company.

~~When implemented,~~Specifically, the ~~final Basel III rules included certain new and higher risk-based capital and leverage requirements than those previously in place. Specifically, the~~Bank is required to maintain he following minimum capital ~~requirements apply to our Bank:~~requirements:

· a Common Equity Tier 1 risk-based capital ratio of 4.5%;
· a Tier 1 risk-based capital ratio of 6% ~~(increased from the former 4% requirement)~~;
· a total risk-based capital ratio of 8% ~~(unchanged from former requirements)~~; and
· a leverage ratio of 4% ~~(also unchanged from the former requirement)~~.

Under the final Basel III rules, Tier 1 capital was redefined to include two components: Common Equity Tier 1 capital and additional Tier 1 capital. The ~~new and~~ highest form of capital, Common Equity Tier 1 capital, consists solely of common stock (plus related surplus), retained earnings, accumulated other comprehensive income, otherwise referred to as AOCI, and limited amounts of minority interests that are in the form of common stock. Additional Tier 1 capital ~~includes other perpetual instruments historically included in Tier 1 capital, such as~~is primarily comprised of noncumulative perpetual preferred ~~stock. The~~stock, Tier 1 minority interests and grandfathered trust preferred securities (as discussed below). Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution. Cumulative perpetual preferred stock is included only in Tier 2 capital, except that the Basel III rules permit bank holding companies with less than $15 billion in total consolidated assets to continue to include trust preferred securities and cumulative perpetual preferred stock issued before May 19, 2010 in Tier 1 ~~capital, but~~Capital (but not in Common Equity Tier 1 ~~capital,~~capital), subject to certain restrictions. Tier 2 capital consists of instruments that currently qualify in Tier 2 capital plus instruments that the rules have disqualified from Tier 1 capital treatment. Cumulative perpetual preferred stock, formerly includable in Tier 1 capital, is now included only in Tier 2 capital. Accumulated other comprehensive income (“AOCI”)AOCI is presumptively included in Common Equity Tier 1 capital and often would operate to reduce this category of capital. ~~The rules~~When implemented, Basel III provided a one-time opportunity at the end of the first quarter of 2015 for covered banking organizations to opt out of much of this treatment of AOCI. We ~~elected to opt out from the inclusion of AOCI in Common Equity Tier 1 capital.~~made this opt-out election and, as a result, retained our pre-existing treatment for AOCI.
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In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, under Basel III, a covered banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements. This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three measurements (Common Equity Tier 1, Tier 1 capital and total capital). The 2.5% capital conservation buffer was phased in incrementally over time, and became fully effective for us on January 1, 2019, ~~and consists of an additional amount of common equity equal to 2.5% of risk-weighted assets.~~
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~~In general,~~resulting in the ~~final Basel III rules have had the effect of increasing~~following effective minimum capital requirements by increasing the risk weights on certain assets, including high volatility commercial real estate, certain loans past due 90 days or more or in nonaccrual status, mortgage servicing rights not includable inplus capital conservation buffer ratios: (i) a Common Equity Tier 1 capital ~~equity~~ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%, and (iii) a total risk-based capital ratio of 10.5%.
In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets. Under the final rules, which went into effect on January 1, 2020, depository institutions and depository institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and ~~claims on securities firms,~~trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” and are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that ~~are used~~elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules, discussed below, and, if applicable, is considered to have met the “well capitalized” capital ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below. The final rules include a two-quarter grace period during which a qualifying community banking organization that temporarily fails to meet any of the qualifying criteria, including the greater than 9% leverage capital ratio requirement, is generally still deemed “well capitalized” so long as the banking organization maintains a leverage capital ratio greater than 8%. A banking organization that fails to maintain a leverage capital ratio greater than 8% is not permitted to use the grace period and must comply with the generally applicable requirements under the Basel III rules and file the appropriate regulatory reports. We did not elect to use the community bank leverage ratio framework but may make such an election in the ~~denominator of the three risk-based capital ratios.~~future.

As outlined above, we are generally not subject to the Federal Reserve capital requirements unless advised otherwise because we qualify as a small bank holding company. Our Bank remains subject to capital requirements including a minimum leverage ratio and a minimum ratio of “qualifying capital” to risk weighted assets. As of ~~September 30, 2019,~~March 31, 2020, the Bank met all capital adequacy requirements under the rules on a fully phased-in basis.
Dollars in thousands Prompt Corrective Action
(PCA) Requirements Excess Capital $s of
PCA Requirements
Capital Ratios Actual Well
Capitalized Adequately
Capitalized Well
Capitalized Adequately
Capitalized
March 31, 2020
Leverage Ratio 9.91 % 5.00 % 4.00 % $ 56,619 $ 68,157
Common Equity Tier 1 Capital Ratio 13.35 % 6.50 % 4.50 % 58,671 75,790
Tier 1 Capital Ratio 13.35 % 8.00 % 6.00 % 45,831 62,951
Total Capital Ratio 14.25 % 10.00 % 8.00 % 36,406 53,525
December 31, 2019
Leverage Ratio 9.97 % 5.00 % 4.00 % $ 56,197 $ 67,508
Common Equity Tier 1 Capital Ratio 13.47 % 6.50 % 4.50 % 58,345 75,086
Tier 1 Capital Ratio 13.47 % 8.00 % 6.00 % 45,789 62,530
Total Capital Ratio 14.26 % 10.00 % 8.00 % 35,675 52,416
The Bank’s risk-based capital ratios of leverage ratio, Tier 1, and total capital were ~~10.1%~~9.91%, ~~13.4%~~13.35% and ~~14.2%~~14.25%, respectively, at ~~September 30, 2019~~March 31, 2020 as compared to ~~10.0%~~9.97%, ~~13.2%~~13.47%, and ~~14.0%~~14.26%, respectively, at December 31, ~~2018.~~2019. The Bank’s Common Equity Tier 1 ratio at ~~September 30, 2019~~March 31, 2020 was 13.35% and at December 31, ~~2018~~2019 was ~~13.4 and 13.2%, respectively.~~13.47%. Under the Basel III rules, we anticipate that the Bank will remain a ~~well-capitalized~~well capitalized institution for at least the next 12 months.
~~On September 17, 2019,~~   Furthermore, based on our strong capital, conservative underwriting, and internal stress testing, we expect to remain well capitalized throughout the ~~federal banking agencies issued a final rule to provide an optional simplified measure of~~COVID-19 pandemic. However, the Bank’s reported and regulatory capital adequacy for qualifying community banking organizations, including the community bank leverage ratio (“CBLR”) framework. Generally, under the CBLR framework, qualifying community banking organizations with total assets of less than $10 billion, and limited amounts of off-balance-sheet exposures and trading assets and liabilities, may elect whether toratios could be ~~subject~~adversely impacted by future credit losses related to the ~~CBLR framework if they have a CBLR of greater than 9%. Qualifying community banking organizations~~COVID-19 pandemic. We recognize that ~~elect~~we face extraordinary circumstances, and we intend to be subject to the CBLR framework and continue to meet all requirements under the framework would not be subject to risk-based or other leverage capital requirements and, in the case of an insured depository institution, would be considered to have met the well capitalized ratio requirements for purposes of the FDIC’s Prompt Corrective Action framework. The final rule will become effective on January 1, 2020. The Company is currently evaluating the CBLR frameworkmonitor developments and potential ~~advantages and disadvantages that it may present for the Company.~~impacts on our capital.
~~Since the Company is~~As a bank holding company, ~~its~~our 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. In general, the Federal Reserve’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The Federal Reserve’s policies also require that a bank holding company serve as a source of financial strength to its subsidiary bank(s) by standing ready to use available resources to provide adequate capital funds to those banks during periods of financial stress or adversity and by maintaining the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks where necessary. In addition, under the prompt corrective action regulations, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. These regulatory policies could affect our ability to pay dividends or otherwise engage in capital distributions. Our Board of Directors approved a cash dividend for the first quarter of 2020 of $0.12 per common share. This dividend is payable on May 18, 2020 to shareholders of record of our common stock as of May 4, 2020.
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Weannounced during the third quarter of 2019 the approval of a new share repurchase plan, which was the second share repurchase plan announced during 2019, of up to 200,000 shares of our outstanding common stock. No share repurchases have been made under this new share repurchase plan. This approved share repurchase plan provides us with some flexibility in managing our capital going forward.
~~In addition, since~~As we are a legal entity separate and distinct from the Bank and do not conduct stand-alone operations, our ability to pay dividends depends on the ability of the Bank to pay dividends to us, which is also subject to regulatory restrictions. As a South Carolina-chartered bank, ~~our~~the Bank is subject to limitations on the ~~dividend~~ amount of dividends that it is permitted to pay. Unless otherwise instructed by the South Carolina Board of Financial Institutions, the Bank is generally permitted under South Carolina State banking regulations to pay cash dividends of up to 100% of net income in any calendar year without obtaining the prior approval of the South Carolina Board of Financial Institutions. The FDIC also has the authority under federal law to enjoin a bank from engaging in what in its opinion constitutes an unsafe or unsound practice in conducting its business, including the payment of a dividend under certain circumstances.
Average Balances, Income Expenses and Rates. 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.

In May 2019, our Board of Directors approved a stock repurchase plan whereby we could repurchase up to 300,000 shares of our common stock. As of September 30, 2019, we have repurchased all 300,000 shares at an average stock price of $18.79 per share pursuant to this plan. After completion of the repurchase plan, the Bank continues to exceed all capital adequacy requirements under the rules on a fully phased-in basis. In September of 2019, our Board of Directors approved a new stock repurchase plan whereby we can repurchase up to 200,000 additional shares of our common stock. As of September 30, 2019, no shares from the new plan have been repurchased.
48
FIRSTCOMMUNITY CORPORATION
Yields on Average Earning Assets and Rates
on Average Interest-Bearing Liabilities

Nine months ended September 30, 2019 Nine months ended September 30, 2018
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Assets
Earning assets
Loans $ 731,033 $ 26,492 4.85 % $ 677,441 $ 23,974 4.73 %
Securities: 252,357 4,924 2.61 % 275,216 4,855 2.36 %
Federal funds sold and securities purchased under agreements to resell 23,736 428 2.41 % 23,669 306 1.73 %
Total earning assets 1,007,126 31,844 4.23 % 976,326 29,135 3.99 %
Cash and due from banks 13,983 13,398
Premises and equipment 35,832 34,972
Other assets 53,773 53,099
Allowance for loan losses (6,372 ) (6,023 )
Total assets $ 1,104,342 $ 1,071,772
Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts $ 204,300 $ 442 0.29 % $ 191,528 $ 292 0.20 %
Money market accounts 179,063 1,283 0.96 % 183,211 578 0.42 %
Savings deposits 105,054 104 0.13 % 106,581 109 0.14 %
Time deposits 177,415 1,572 1.18 % 190,877 1,022 0.72 %
Other borrowings 52,861 954 2.41 % 45,194 778 2.30 %
Total interest-bearing liabilities 718,693 4,355 0.81 % 717,391 2,779 0.52 %
Demand deposits 258,124 239,981
Other liabilities 11,423 7,886
Shareholders’ equity 116,102 106,514
Total liabilities and shareholders’ equity $ 1,104,342 $ 1,071,772

Cost of funds, including demand deposits 0.60 % 0.39 %
Net interest spread 3.42 % 3.47 %
Net interest income/margin $ 27,489 3.65 % $ 26,356 3.61 %
Net interest income/margin FTE basis $ 283 $ 27,772 3.69 % $ 346 $ 26,702 3.66 %
49
~~FIRST COMMUNITY CORPORATION~~
~~Yields on Average Earning Assets and Rates~~
~~on Average Interest-Bearing Liabilities~~
Three months ended September 30, 2019 Three months ended September 30, 2018
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Assets
Earning assets
Loans $ 740,152 $ 9,091 4.87 % $ 696,157 $ 8,277 4.72 %
Securities: 254,802 1,593 2.48 % 271,348 1,583 2.31 %
Federal funds sold and securities purchased 27,248 164 2.37 % 25,139 125 1.97 %
Total earning assets 1,022,202 10,848 4.21 % 992,644 9,985 3.99 %
Cash and due from banks 14,578 13,192
Premises and equipment 36,197 34,576
Other assets 53,494 52,895
Allowance for loan losses (6,447 ) (6,154 )
Total assets $ 1,120,024 $ 1,087,153

Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts $ 216,163 $ 159 0.29 % $ 193,941 $ 154 0.32 %
Money market accounts 180,758 461 1.01 % 185,928 240 0.51 %
Savings deposits 99,693 32 0.13 % 106,677 35 0.13 %
Time deposits 175,431 567 1.28 % 185,857 387 0.83 %
Other borrowings 52,020 292 2.23 % 47,018 286 2.41 %
Total interest-bearing liabilities 724,065 1,511 0.83 % 719,421 1,102 0.61 %
Demand deposits 266,555 251,305
Other liabilities 12,174 8,535
Shareholders’ equity 117,230 107,892
Total liabilities and shareholders’ equity $ 1,120,024 $ 1,087,153

Cost of funds, including demand deposits 0.61 % 0.45 %
Net interest spread 3.38 % 3.38 %
Net interest income/margin $ 9,337 3.62 % $ 8,883 3.55 %
Net interest income/margin FTE basis $ 75 $ 9,412 3.65 % $ 115 $ 8,998 3.60 %
50
Three months ended March 31, 2020 Three months ended March 31, 2019
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Assets
Earning assets
Loans $ 753,659 $ 8,827 4.71 % $ 724,059 $ 8,609 4.82 %
Securities 286,332 1,726 2.42 % 251,920 1,656 2.67 %
Other short-term investments 37,251 157 1.70 % 17,480 109 2.53 %
Total earning assets 1,077,242 10,710 4.00 % 993,459 10,374 4.23 %
Cash and due from banks 15,032 13,359
Premises and equipment 35,002 35,524
Goodwill and other intangibles 16,063 16,576
Other assets 39,691 36,713
Allowance for loan losses (6,680 ) (6,313 )
Total assets $ 1,176,350 $ 1,089,318
Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts 216,198 103 0.19 % 194,401 149 0.31 %
Money market accounts 198,292 350 0.71 % 179,376 341 0.77 %
Savings deposits 103,776 29 0.11 % 107,921 35 0.13 %
Time deposits 169,397 537 1.27 % 180,152 476 1.07 %
Other borrowings 70,332 274 1.57 % 56,604 353 2.53 %
Total interest-bearing liabilities 757,995 1,293 0.69 % 718,454 1,354 0.76 %
Demand deposits 281,714 246,890
Other liabilities 13,178 10,190
Shareholders’ equity 123,463 113,784
Total liabilities and shareholders’ equity $ 1,176,350 $ 1,089,318

Cost of deposits, including demand deposits 0.42 % 0.45 %
Cost of funds, including demand deposits 0.50 % 0.57 %
Net interest spread 3.31 % 3.47 %
Net interest income/margin $ 9,417 3.52 % $ 9,020 3.68 %
Net interest income/margin (taxable equivalent) $ 9,495 3.55 % $ 9,134 3.73 %
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended ~~September 30, 2019~~March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
5149

PART II -
OTHER INFORMATION

Item 1. Legal Proceedings.

We are a party to claims and lawsuits arising in the course of normal business activities. Management is not aware of any material pending legal proceedings against ~~the Company~~us which, if determined adversely, ~~the Company believes~~ would have a material adverse impact on the Company’s financial position, results of operations or cash flows.

Item 1A. Risk Factors.

~~There have not been any material changes to the risk factors disclosed~~Investing in shares of our ~~2018~~common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form ~~10-K.~~10-K for the fiscal year ended December 31, 2019, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Note Regarding Forward-Looking Statements” set forth in Part I, Item 2 of this Quarterly Report on Form 10-Q, risks and matters described elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.
We are providing this additional risk factor to supplement the risk factors contained in Item 1A. of our Annual Report on Form 10-K for the year ended December 31, 2019.
The COVID-19 pandemic has adversely affected our business, financial condition and results of operations, and the ultimate impacts of the pandemic on our business, financial condition and results of operations will depend on future developments and other factors that are highly uncertain and will be impacted by the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.
The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets and has had an adverse effect on our business, financial condition and results of operations. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability. In response to the COVID-19 pandemic, the governments of the states in which we have 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. These restrictions and other consequences of the pandemic have resulted in significant adverse effects for many different types of businesses, including, among others, those in the travel, hospitality and food and beverage industries, and have resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
The ultimate effects of COVID-19 on the broader economy and the markets that we serve are not known nor is the ultimate length of the restrictions described above and any accompanying effects. Moreover, the Federal Reserve has taken action to lower the Federal Funds rate, which may negatively affect our interest income and, therefore, earnings, financial condition and results of operation. Additional impacts of COVID-19 on our business could be widespread and material, and may include, or exacerbate, among other consequences, the following:
· employees contracting COVID-19;
· reductions in our operating effectiveness as our employees work from home;
· a work stoppage, forced quarantine, or other interruption of our business;
· unavailability of key personnel necessary to conduct our business activities;
· effects on key employees, including operational management personnel and those charged with preparing, monitoring and evaluating our financial reporting and internal controls;
· sustained closures of our branch lobbies or the offices of our customers;
· declines in demand for loans and other banking services and products;
· reduced consumer spending due to both job losses and other effects attributable to the COVID-19 pandemic;
· unprecedented volatility in United States financial markets;
· volatile performance of our investment securities portfolio;
· decline in the credit quality of our loan portfolio, owing to the effects of the COVID-19 pandemic in the markets we serve, leading to a need to increase our allowance for loan losses;
· declines in value of collateral for loans, including real estate collateral;
· declines in the net worth and liquidity of borrowers and loan guarantors, impairing their ability to honor commitments to us; and
· declines in demand resulting from businesses being deemed to be “non-essential” by governments in the markets we serve, and from “non-essential” and “essential” businesses suffering adverse effects from reduced levels of economic activity in our markets.
These factors, together or in combination with other events or occurrences that may not yet be known or anticipated, may materially and adversely affect our business, financial condition and results of operations.
The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, as well as the trading prices for many other securities. The further spread of the COVID-19 outbreak, as well as ongoing or new governmental, regulatory and private sector responses to the pandemic, may materially disrupt banking and other economic activity generally and in the areas in which we operate. This could result in further decline in demand for our banking products and services, and could negatively impact, among other things, our liquidity, regulatory capital and our growth strategy. Any one or more of these developments could have a material adverse effect on our business, financial condition and results of operations.
We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be adequate or deemed to be appropriate, nor can we predict the level of disruption which will occur to our employee’s ability to provide customer support and service. If we are unable to recover from a business disruption on a timely basis, our business, financial condition and results of operations could be materially and adversely affected. We may also incur additional costs to remedy damages caused by such disruptions, which could further adversely affect our business, financial condition and results of operations.
As a participating lender in the SBA Paycheck Protection Program, or PPP, the Company and the Bank are subject to additional risks of litigation from the Bank’s clients or other parties regarding the Bank’s processing of loans for the PPP and risks that the SBA may not fund some or all PPP loan guaranties.
On March 27, 2020, President Trump signed the CARES Act, which included a $349 billion loan program administered through the SBA referred to as the PPP. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA lenders and other approved regulated lenders that enroll in the program, subject to numerous limitations and eligibility criteria. The Bank is participating as a lender in the PPP. The PPP opened on April 3, 2020; however, because of the short timeframe between the passing of the CARES Act and the opening of the PPP, there is some ambiguity in the laws, rules and guidance regarding the operation of the PPP, which exposes the Company to risks relating to noncompliance with the PPP. On or about April 16, 2020, the SBA notified lenders that the $349 billion earmarked for the PPP was exhausted. Congress has approved additional funding for the PPP and President Trump signed the new legislation on April 24, 2020 with the funding opening back up on April 27, 2020. Since the opening of the PPP, several other larger banks have been subject to litigation regarding the process and procedures that such banks used in processing applications for the PPP. The Company and the Bank may be exposed to the risk of litigation, from both clients and non-clients that approached the Bank regarding PPP loans, regarding its process and procedures used in processing applications for the PPP. If any such litigation is filed against the Company or the Bank and is not resolved in a manner favorable to the Company or the Bank, it may result in significant financial liability or adversely affect the Company’s reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by PPP related litigation could have a material adverse impact on our business, financial condition and results of operations.
The Bank also has credit risk on PPP loans if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated, funded, or serviced by the Bank, such as an issue with the eligibility of a borrower to receive a PPP loan, which may or may not be related to the ambiguity in the laws, rules and guidance regarding the operation of the PPP. In the event of a loss resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which the PPP loan was originated, funded, or serviced by the Company, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of any loss related to the deficiency from the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Not ~~applicable~~Applicable.
(b) Not ~~applicable~~Applicable.
(c) ~~Issuer Purchases~~Although we have an authorized repurchase plan to repurchase up to 200,000 share of ~~Registered Equity Securities~~our common stock, no share repurchases were made in the first quarter of 2020.
On September 18, 2019, we announced that our Board of Directors approved the repurchase of up to 200,000 additional shares of our common stock (the “New Repurchase Plan”), which are in addition to the shares repurchased under the repurchase program we announced in May 2019 for 300,000 shares of our common stock (the “Prior Repurchase Plan”). As mentioned above, the Company has completed the repurchase of all 300,000 shares covered by the Prior Repurchase Plan. There have been no repurchases under the New Repurchase Plan.
Under the New Repurchase Plan, the Company may repurchase shares from time to time by means of, among other means, open market purchases and in solicited and unsolicited privately negotiated transactions. The actual means and timing of any purchases, quantity of purchased shares and prices will be, subject to certain limitations, at the discretion of management during a period of up to two years and will depend on a number of factors, including the market price of the Company’s common stock, share issuances under Company equity plans, general market and economic conditions, and applicable legal and regulatory requirements.
The Company’s management believes the New Repurchase Plan, depending upon market and business conditions, may, among other things, provide capital management opportunities for the Company. We are not obligated to repurchase any such shares under the New Repurchase Plan. The New Repurchase Plan may be discontinued, suspended or restarted at any time.
The following table reflects share repurchase activity during the third quarter of 2019 for the Prior Repurchase Plan announced in May of 2019. There have been no repurchases under the new Repurchase Plan.
Period (a) Total
Number of
Shares
(or Units)
Purchased (b) Average
Price Paid
per Share
(or Unit) (c) Total Number
of Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs (d) Maximum Number
(or Approximate
Dollar Value)
of Shares (or Units)
that May Yet Be
Purchased Under
the Plans or Programs
July 1-July 31 114,639 $ 19.40 300,000 200,000
August 1-August 31 — — — —
September 1-September 30 — — — —
Total 114,639 $ 19.40 300,000 200,000
52
Item 3. Defaults Upon Senior Securities.

Not Applicable.
51
Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Description
3.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on June 27, 2011).
3.2 Articles of Amendment (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 23, 2019).
3.3 Amended and Restated Bylaws dated May 21, 2019 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on May 22, 2019).

31.1 Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2 Rule 13a-14(a) Certification of the Principal Financial Officer.

32 Section 1350 Certifications

101 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2019,~~March 31, 2020, formatted in eXtensible Business Reporting Language (XBRL); (i) Consolidated Balance Sheets at ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, (ii) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (iii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2020 and 2019 ~~and 2018~~ (iv) Consolidated Statements of Changes in Shareholders’ Equity for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ (v) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and (vi) Notes to Consolidated Financial Statements.
53
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FIRST COMMUNITY CORPORATION
(REGISTRANT)

Date:~~November 7, 2019~~May 8, 2020 By: /s/ Michael C. Crapps
Michael C. Crapps
President and Chief Executive Officer
(Principal Executive Officer)

Date:~~November 7, 2019~~May 8, 2020 By: /s/ ~~Joseph G. Sawyer~~D. Shawn Jordan
~~Joseph G. Sawyer~~D. Shawn Jordan
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
5453

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

(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

	Nine			Nine
	Months Ended			Months Ended
	September 30,			September 30,
(Dollars in thousands, except per share amounts)	2019			2018
Interest income:
Loans, including fees	$	26,492		$	23,974
Taxable securities		3,840			3,623
Non-taxable securities		1,084			1,232
Federal funds sold and securities purchased under resale agreements		410			290
Other		18			16
Total interest income		31,844			29,135
Interest expense:
Deposits		3,401			2,001
Federal funds sold and securities sold under agreement to repurchase		303			197
Other borrowed money		651			581
Total interest expense		4,355			2,779
Net interest income		27,489			26,356
Provision for loan losses		139			252
Net interest income after provision for loan losses		27,350			26,104
Non-interest income:
Deposit service charges		1,212			1,320
Mortgage banking income		3,333			3,126
Investment advisory fees and non-deposit commissions		1,436			1,207
Gain (loss) on sale of securities		135			(10	)
Gain (loss) on sale of other assets		(3	)		8
Other		2,695			2,733
Total non-interest income		8,808			8,384
Non-interest expense:
Salaries and employee benefits		15,845			14,537
Occupancy		2,005			1,808
Equipment		1,140			1,167
Marketing and public relations		764			460
FDIC assessments		135			258
Other real estate expense		78			86
Amortization of intangibles		397			427
Other		5,389			5,210
Total non-interest expense		25,753			23,953
Net income before tax		10,405			10,535
Income taxes		2,131			1,992
Net income	$	8,274		$	8,543

Basic earnings per common share	$	1.10		$	1.13
Diluted earnings per common share	$	1.08		$	1.11

																			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

	Three		Three
	Months Ended		Months Ended
	September 30,		September 30,
(Dollars in thousands, except per share amounts)	2019		2018
Interest income:
Loans, including fees	$	9,091	$	8,277
Taxable securities		1,259		1,250
Non-taxable securities		350		333
Federal funds sold and securities purchased under resale agreements		158		120
Other		6		5
Total interest income		10,864		9,985
Interest expense:
Deposits		1,219		816
Federal funds sold and securities sold under agreement to repurchase		102		96
Other borrowed money		190		190
Total interest expense		1,511		1,102
Net interest income		9,353		8,883
Provision for loan losses		25		21
Net interest income after provision for loan losses		9,328		8,862
Non-interest income:
Deposit service charges		421		434
Mortgage banking income		1,251		1,159
Investment advisory fees and non-deposit commissions		509		423
Loss on sale of other assets		—		(29	)
Other		932		855
Total non-interest income		3,113		2,842
Non-interest expense:
Salaries and employee benefits		5,465		5,079
Occupancy		703		611
Equipment		365		388
Marketing and public relations		159		177
FDIC assessments		—		94
Other real estate expense		31		37
Amortization of intangibles		133		142
Other		1,934		1,606
Total non-interest expense		8,790		8,134
Net income before tax		3,651		3,570
Income taxes		753		737
Net income	$	2,898	$	2,833

Basic earnings per common share	$	0.39	$	0.37
Diluted earnings per common share	$	0.39	$	0.37

(Dollars in thousands)	Nine months ended September 30,
	2019			2018

Net income	$	8,274		$	8,543

Other comprehensive income:
Unrealized gain (loss) during the period on available-for-sale securities, net of tax expense of $1,511 and tax benefit of $1,104, respectively		5,677			(4,140	)

Less: Reclassification adjustment for loss (gain) included in net income, net of tax benefit of $29 and tax expense of $2, respectively		(106	)		8

Other comprehensive income (loss)		5,571			(4,132	)
Comprehensive income	$	13,845		$	4,411

(Dollars in thousands)	Three months ended September 30,
	2019			2018

Net income	$	2,898		$	2,833

Other comprehensive income:
Unrealized gain (loss) during the period on available-for-sale securities, net of tax expense of $271 and tax benefit of $280, respectively		1,232			(1,054	)

Other comprehensive income (loss)		1,232			(1,054	)
Comprehensive income	$	4,130		$	1,779

	Nine months ended September 30,
(Dollars in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	8,274		$	8,543
Adjustments to reconcile net income to net cash provided from operating activities:
Depreciation		1,000			1,130
Premium amortization		1,658			1,873
Provision for loan losses		139			252
Loss (gain) on sale of other real estate owned		3			(8	)
Origination of loans held-for-sale		(97,878	)		(89,125	)
Sale of loans held-for-sale		90,326			88,690
Amortization of intangibles		397			427
Accretion on acquired loans		(402	)		(288	)
Writedown of land held for sale		—			42
(Gain) loss on sale of securities		(135	)		10
Gain on sale of fixed assets		—			(123	)
(Increase) decrease in other assets		(3,089	)		518
Increase in other liabilities		2,522			547
Net cash (used) provided from operating activities		2,815			12,488
Cash flows from investing activities:
Purchase of investment securities available-for-sale		(81,977	)		(47,668	)
Purchase of other investment securities		(37	)		—
Maturity/call of investment securities available-for-sale		32,199			33,703
Proceeds from sale of securities available-for-sale		44,398			19,946
Proceeds from sale of securities held-to-maturity		—			655
Proceeds from sale of other securities		—			434
Increase in loans		(16,322	)		(49,603	)
Proceeds from sale of other real estate owned		45			367
Proceeds from sale of fixed assets		301			1,143
Purchase of property and equipment		(2,391	)		(494	)
Net cash used in investing activities		(23,784	)		(41,517	)
Cash flows from financing activities:
Increase in deposit accounts		23,338			33,472
Increase in securities sold under agreements to repurchase		6,299			13,956
Advances from the Federal Home Loan Bank		65,000			4,000
Repayment of advances from Federal Home Loan Bank		(65,015	)		(14,014	)
Shares retired		(158	)		(57	)
Repurchase of Common Stock		(5,635	)		—
Issuance of Deferred Compensation Shares		265			19
Dividends paid: Common Stock		(2,512	)		(2,273	)
Dividend reinvestment plan		354			275
Net cash provided from financing activities		21,936			35,378
Net increase in cash and cash equivalents		967			6,349
Cash and cash equivalents at beginning of period		32,268			30,591
Cash and cash equivalents at end of period	$	33,235		$	36,940
Supplemental disclosure:
Cash paid during the period for:
Interest	$	4,301		$	2,627
Income taxes	$	2,060		$	1,875
Non-cash investing and financing activities:
Unrealized gain (loss) on securities	$	7,053		$	(4,132	)
Recognition of operating lease right of use asset	$	3,260		$	—
Recognition of operating lease liability	$	3,291		$	—
Transfer of loans to foreclosed property	$	—		$	346
Transfer of investment securities held-to-maturity to available-for-sale	$	16,144		$	—

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	%

	Nine months				Three months
	Ended September 30,				Ended September 30,
	2019		2018		2019		2018
Numerator (Net income available to common shareholders	$	8,274	$	8,543	$	2,898	$	2,833
Denominator
Weighted average common shares outstanding for:
Basic shares		7,548		7,581		7,386		7,592
Dilutive securities:
Deferred compensation		40		65		39		61
Warrants/Restricted stock-Treasury stock method		42		73		38		71
Diluted shares		7,630		7,719		7,463		7,724
Earnings per common share:
Basic	$	1.10	$	1.13	$	0.39	$	0.37
Diluted	$	1.08	$	1.11	$	0.39	$	0.37
The average market price used in calculating assumed number of shares	$	19.06	$	25.33	$	18.95	$	23.49

	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

AVAILABLE-FOR-SALE:			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
September 30, 2019
US Treasury securities	$	7,174	$	24	$	6	$	7,192
Government Sponsored Enterprises		1,105		18		—		1,123
Mortgage-backed securities		166,558		2,090		607		168,041
Small Business Administration pools		47,564		374		285		47,653
State and local government		38,550		2,494		4		41,040
Other securities		19		—		—		19
	$	260,970	$	5,000	$	902	$	265,068

HELD-TO-MATURITY:			Gross		Gross
AVAILABLE-FOR-SALE:											Gross		Gross
	Amortized		Unrealized		Unrealized				Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
December 31, 2018
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	$	16,174	$	50	$	40	$	16,184		59,187		2,577		8		61,756
Other securities										15		—		—		15
	$	16,174	$	50	$	40	$	16,184	$	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

(Dollars in thousands)	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
September 30, 2019	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
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		Value		Loss		Value		Loss		Value		Loss

US Treasury securities	$	—	$	—	$	1,507	$	6	$	1,507	$	6	$	—	$	—	$	1,508	$	3	$	1,508	$	3
Government Sponsored Enterprise mortgage-backed securities		36,200		436		13,094		171		49,294		607
Mortgage-backed securities														57,175		485		12,419		155		69,594		640
Small Business Administration pools		9,011		103		13,533		182		22,544		285		7,891		53		13,502		164		21,393		217
State and local government		761		4		—		—		761		4		5,695		141		—		—		5,695		141
	$	47,674	$	545	$	26,441	$	357	$	74,115	$	902
Total													$	70,761	$	679	$	27,429	$	322	$	98,190	$	1,001

September 30, 2019	Available-for-sale
March 31, 2020					Available-for-sale
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	10,823	$	10,866	$	7,772	$	7,842
Due after one year through five years		120,043		120,762		122,950		125,292
Due after five years through ten years		108,314		111,870		123,926		128,280
Due after ten years		21,790		21,570		26,801		27,467
	$	260,970	$	265,068
Total					$	281,449	$	288,881

(Dollars in thousands)
							Real estate		Real estate					Consumer
				Real estate			Mortgage		Mortgage					Home		Consumer
	Commercial			Construction			Residential		Commercial					equity		Other				Unallocated		Total
September 30, 2019
Allowance for loan losses:
Beginning balance December 31, 2018	$	430		$	89	$	431		$	4,318			$	261		$	88		$	646		$	6,263
Charge-offs		(8	)		—		(7	)		—				(1	)		(96	)		—			(112	)
Recoveries		—			—		—			221				14			35			—			270
Provisions		37			2		(39	)		(3	)			(33	)		68			107			139
Ending balance
September 30, 2019	$	459		$	91	$	385		$	4,536			$	241		$	95		$	753		$	6,560

Ending balances:
Individually evaluated for impairment	$	4		$	—	$	—		$	10			$	—		$	—		$	—		$	14

Collectively evaluated for impairment		455			91		385			4,526				241			95			753			6,546

September 30, 2019 Loans receivable:
Ending balance-total	$	55,169		$	58,737	$	47,693		$	534,554			$	29,103		$	9,818		$	—		$	735,074

Ending balances:
Individually evaluated for impairment		4			—		538			3,541				72			—			—			4,155

Collectively evaluated for impairment	$	55,165		$	58,737	$	47,155		$	531,013			$	29,031		$	9,818		$	—		$	730,919

(Dollars in thousands)
	Commercial			Real estate Construction		Real estate Mortgage Residential			Real estate Mortgage Commercial				Consumer Home equity			Consumer Other			Unallocated			Total
September 30, 2018
Allowance for loan losses:
Beginning balance
December 31, 2017	$	221		$	101	$	461		$	3,077			$	308		$	35		$	1,594		$	5,797
Charge-offs		—			—		(1	)		—				—			(109	)		—			(110	)
Recoveries		14			—		3			219				6			31			—			273
Provisions		(46	)		4		481			(388	)			732			108			(639	)		252
Ending balance
September 30, 2018	$	189		$	105	$	944		$	2,908			$	1,046		$	65		$	955		$	6,212

Ending balances:
Individually evaluated for impairment	$	—		$	—	$	1		$	3		$		—		$	—		$	—		$	4

Collectively evaluated for impairment		189			105		943			2,905				1,046			65			955			6,208

September 30, 2018
Loans receivable:
Ending balance-total	$	50,940		$	56,568	$	50,914		$	498,650			$	29,933		$	9,510		$	—		$	696,515

Ending balances:
Individually evaluated for impairment		—			—		237			4,466				31			—			—			4,734

Collectively evaluated for impairment	$	50,940		$	56,568	$	50,677		$	494,184			$	29,902		$	9,510		$	—		$	691,781

(Dollars in thousands)							Nine months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest
September 30, 2019	Recorded		Principal		Related		Recorded		income		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
With no allowance recorded:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		538		603		—		594		16		537		12
Mortgage-commercial		3,172		5,867		—		3,259		131		3,092		79
Consumer:
Home equity		72		74		—		76		2		71		1
Other		—		—		—		—		—		—		—

With an allowance recorded:
Commercial, financial, agricultural		4		4		4		4		—		4		—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		—		—		—		—		—		—		—
Mortgage-commercial		369		369		10		421		19		326		6
Consumer:
Home equity		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—

Total:
Commercial, financial, agricultural	$	4	$	4	$	4	$	4	$	—	$	4	$	—
Real estate:
Construction		—		—		—		—		—		—		—
Mortgage-residential		538		603		—		594		16		537		12
Mortgage-commercial		3,541		6,236		10		3,680		150		3,418		85
Consumer:
Home equity		72		74		—		76		2		71		1
Other		—		—		—		—		—		—		—
	$	4,155	$	6,917	$	14	$	4,354	$	168	$	4,030	$	98

(Dollars in thousands)
December 31, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—
Mortgage-residential		322		371		—		483		9
Mortgage-commercial		3,577		6,173		—		3,232		128
Consumer:
Home Equity		29		30		—		33		2
Other		—		—		—		—		—

With an allowance recorded:
Commercial		—		—		—		—		—
Real estate:
Construction		—		—		—		—		—
Mortgage-residential		—		—		—		—		—
Mortgage-commercial		453		453		14		380		21
Consumer:
Home Equity		—		—		—		—		—
Other		—		—		—		—		—

Total:
Commercial		—		—		—		—		—
Real estate:
Construction		—		—		—		—		—
Mortgage-residential		322		371		—		483		9
Mortgage-commercial		4,030		6,626		14		3,612		149
Consumer:
Home Equity		29		30		—		33		2
Other		—		—		—		—		—
	$	4,381	$	7,027	$	14	$	4,128	$	160

(Dollars in thousands)
September 30, 2019	Pass		Special Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	54,975	$	194	$	—	$	—	$	55,169
Real estate:
Construction		58,737		—		—		—		58,737
Mortgage - residential		46,404		522		767		—		47,693
Mortgage - commercial		527,551		3,401		3,602		—		534,554
Consumer:
Home Equity		27,651		1,164		288		—		29,103
Other		9,778		40		—		—		9,818
Total	$	725,096	$	5,321	$	4,657	$	—	$	735,074

(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)	Three Months Ended September 30, 2019			Three Months Ended September 30, 2018			Three Months Ended March 31, 2020			Three Months Ended March 31, 2019

Accretable yield, beginning of period	$	138		$	(2	)	$	123		$	153
Additions		—			—			—			—
Accretion		(7	)		(8	)		(7	)		(8	)
Reclassification of nonaccretable difference due to improvement in expected cash flows		—			—			—			—
Other changes, net		—			—			—			—
Accretable yield, end of period	$	130		$	(10	)	$	116		$	145

(Dollars in thousands)	Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018

Accretable yield, beginning of period	$	153		$	22
Additions		—			—
Accretion		(23	)		(32	)
Reclassification of nonaccretable difference due to improvement in expected cash flows		—			—
Other changes, net		—			—
Accretable yield, end of period	$	130		$	(10	)

(Dollars in thousands)					Greater than														Greater than
	30-59 Days		60-89 Days		90 Days and				Total						30-59 Days		60-89 Days		90 Days and				Total
September 30, 2019	Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		Total Loans
March 31, 2020															Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		Total Loans

Commercial	$	33	$	306	$	—	$	4	$	343	$	54,826	$	55,169	$	57	$	—	$	—	$	—	$	57	$	50,256	$	50,313
Real estate:
Construction		—		—		—		—		—		58,737		58,737		—		—		—		—		—		83,547		83,547
Mortgage-residential		138		184		—		538		860		46,833		47,693		181		—		168		340		689		45,782		46,471
Mortgage-commercial		2,272		47		—		1,661		3,980		530,574		534,554		294		—		—		1,330		1,624		528,556		530,180
Consumer:
Home equity		55		91		33		72		251		28,852		29,103		—		70		—		68		138		28,503		28,641
Other		17		44		—		—		61		9,757		9,818		66		3		—		—		69		10,308		10,377
	$	2,515	$	672	$	33	$	2,275	$	5,495	$	729,579	$	735,074	$	598	$	73	$	168	$	1,738	$	2,577	$	746,952	$	749,529

Description	September 30, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
US Treasury Securities	$	7,192	$	—	$	7,192	$	—
Government sponsored enterprises		1,123		—		1,123		—
Mortgage-backed securities		168,041		—		168,041		—
Small Business Administration pools		47,653		—		47,653		—
State and local government		41,040		—		41,040		—
Corporate and other securities		19		9		10		—
		265,068		9		265,059		—
Loans held for sale		10,775		—		10,775		—
Total	$	275,843	$	9	$	275,834	$	—

Description	December 31, 2018		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available for sale securities
US Treasury Securities	$	15,457	$	—	$	15,457	$	—
Government sponsored enterprises		1,100		—		1,100		—
Mortgage-backed securities		115,475		—		114,784		691
Small Business Administration securities		55,336		1,633		53,703		—
State and local government		50,506		—		50,506		—
Corporate and other securities		19		9		10		—
		237,893		1,642		235,560		691
Loans held for sale		3,223		—		3,223		—
Total	$	241,116	$	1,642	$	238,783	$	691

Description	March 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities
US treasury securities	$	3,534	$	—	$	3,534	$	—
Government sponsored enterprises		1,015		—		1,015		—
Mortgage-backed securities		180,830		—		179,181		1,649
Small Business Administration pools		41,727		—		41,727		—
State and local government		61,756		11,882		49,874		—
Corporate and other securities		19		9		10		—
		288,881		11,891		275,341		1,649
Loans held-for-sale		11,937		—		11,937		—
Total	$	300,818	$	11,891	$	287,278	$	1,649

Description	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Available-for-sale securities
US treasury securities	$	7,203	$	—	$	7,203	$	—
Government sponsored enterprises		1,001		—		1,001		—
Mortgage-backed securities		183,586		18,435		163,344		1,807
Small Business Administration securities		45,343		—		45,343		—
State and local government		49,648		5,188		44,460		—
Corporate and other securities		19		9		10		—
		286,800		23,632		261,361		1,807
Loans held-for-sale		11,155		—		11,155		—
Total	$	297,955	$	23,632	$	272,516	$	1,807

(Dollars in thousands)
Description	September 30, 2019			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans:
Commercial	$	—		$	—	$	—	$	—
Real estate:
Mortgage-residential		538			—		—		538
Mortgage-commercial		3,531			—		—		3,531
Consumer:
Home equity		72			—		—		72
Other		—			—		—		—
Total impaired		4,141			—		—		4,141
Other real estate owned:			��
Construction		828			—		—		828
Mortgage-residential		584			—		—		584
Total other real estate owned		1,412			—		—		1,412
Total	$	5,553		$	—	$	—	$	5,553

(Dollars in thousands)	Fair Value as of September 30, 2019		Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$	1,412	Appraisal Value/Comparison Sales/Other estimates	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans	$	4,141	Appraisal Value	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

(Dollars in thousands)	Fair Value as of December 31, 2018		Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$	1,460	Appraisal Value/Comparison Sales/Other estimates	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

Impaired loans	$	4,367	Appraisal Value	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

(Dollars in thousands)	Fair Value as of March 31, 2020	Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$ 1,481	Appraisal Value/Comparison Sales/Other estimates	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost
Impaired loans	$ 3,369	Appraisal Value	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

(Dollars in thousands)	Fair Value as of December 31, 2019	Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$ 1,410	Appraisal Value/Comparison Sales/Other estimates	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

Impaired loans	$ 3,991	Appraisal Value	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

Nine months ended September 30, 2019	Commercial				Investment
Three months ended March 31, 2020															Commercial				Investment
(Dollars in thousands)	and Retail		Mortgage		advisory and										and Retail		Mortgage		advisory and
	Banking		Banking		non-deposit		Corporate			Eliminations			Consolidated		Banking		Banking		non-deposit		Corporate			Eliminations			Consolidated

Dividend and Interest Income	$	31,081	$	745	$	—	$	6,077		$	(6,059	)	$	31,844	$	10,404	$	300	$	—	$	1,068		$	(1,062	)	$	10,710
Interest expense		3,772		—		—		583			—			4,355		1,125		—		—		168			—			1,293
Net interest income	$	27,309	$	745	$	—	$	5,494		$	(6,059	)	$	27,489	$	9,279	$	300	$	—	$	900		$	(1,062	)	$	9,417
Provision for loan losses		139		—		—		—			—			139		1,075		—		—		—			—			1,075
Noninterest income		4,039		3,333		1,436		—			—			8,808		1,312		982		634		—			—			2,928
Noninterest expense		21,416		2,754		1,302		281			—			25,753		7,495		963		468		112			—			9,038
Net income before taxes	$	9,793	$	1,324	$	134	$	5,213		$	(6,059	)	$	10,405	$	2,021	$	319	$	166	$	788		$	(1,062	)	$	2,232
Income tax provision (benefit)		2,330		—		—		(199	)		—			2,131
Net income (loss)	$	7,463	$	1,324	$	134	$	5,412		$	(6,059	)	$	8,274

Nine months ended September 30, 2018	Commercial				Investment
(Dollars in thousands)	and Retail		Mortgage		advisory and
	Banking		Banking		non-deposit		Corporate			Eliminations			Consolidated

Dividend and Interest Income	$	28,513	$	622	$	—	$	2,779		$	(2,779	)	$	29,135
Interest expense		2,251		—		—		528			—			2,779
Net interest income	$	26,262	$	622	$	—	$	2,251		$	(2,779	)	$	26,356
Provision for loan losses		252		—		—		—			—			252
Noninterest income		4,051		3,126		1,207		—			—			8,384
Noninterest expense		20,105		2,515		1,047		286			—			23,953
Net income before taxes	$	9,956	$	1,233	$	160	$	1,965		$	(2,779	)	$	10,535
Income tax provision (benefit)		2,173		—		—		(181	)		—			1,992		497		—		—		(59	)		—			438
Net income	$	7,783	$	1,233	$	160	$	2,146		$	(2,779	)	$	8,543	$	1,524	$	319	$	166	$	847		$	(1,062	)	$	1,794