UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

Commission File Number: 000-28344

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:

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On May 7, 2021,11, 2022, 7,524,9447,559,760 shares of the issuer’s common stock, par value $1.00 per share, were issued and outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months ended March 31, 20212022 and March 31, 20202021

(Unaudited)

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements (Unaudited)

Note 1—Nature of Business and Basis of Presentation

Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated balance sheets, and the consolidated statements of income, comprehensive income, changes in shareholders’ equity, and the cash flows of First Community Corporation (the “Company”) and its wholly owned subsidiary, First Community Bank (the “Bank”), present fairly in all material respects the Company’s financial position at March 31, 20212022 and December 31, 2020,2021, and the Company’s results of operations and cash flows for the three months ended March 31, 20212022 and 2020.2021. The results of operations for the three months ended March 31, 20212022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.2022.

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 Quarterly Reports on Form 10-Q. The information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20202021 should be referred to in connection with these unaudited interim financial statements.

Risk and Uncertainties

The coronavirus (COVID-19)COVID-19 pandemic which was declared a national emergency inand variants of the United States in March 2020, continuesvirus continue to create extensive disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world.

The impact of As the COVID-19 pandemic is fluidhas evolved from its emergence in early 2020, so has its impact. While vaccine availability and uptake has increased, the longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries, including the collateral underlying certain of our loans. Moreover, with the potential for new strains of COVID-19 to emerge, governments and businesses may re-impose aggressive measures to help slow its spread in the future. For this reason, among others, as the COVID-19 pandemic continues, the potential or lasting impacts on our business, financial condition and results of operations remains uncertain and difficult to evolve, adversely affecting manyassess. Our business, financial condition and results of operations generally rely upon the Bank’s customers.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 unprecedented and rapid spread of COVID-19 and its variants and their associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities hashave resulted and continue to result in less economic activity, significantand volatility and disruption in financial markets, andmarkets.

Commercial activity has had an adverse effect onimproved, but has not returned to the Company’s business, financial condition and results of operations. The ultimate extentlevels existing before the outbreak of the impact ofpandemic, which may result in our borrowers’ inability to meet their loan obligations. Economic pressures and uncertainties related to the COVID-19 pandemic onhave also resulted in changes in consumer spending behaviors, which may negatively impact the Company’s business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including the effect of governmental and private sector initiatives, the effect of the recent rollout of vaccinations for the virus, whether such vaccinations will be effective against any resurgence of the virus, including any new strains, and the ability for customers and businesses to return to their pre-pandemic routines.

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 productsservices we offer. In addition, our loan portfolio includes customers in industries such as hotels, restaurants and servicesassisted living facilities, all of which have been significantly impacted by the Bank offers, which are highly dependentCOVID-19 pandemic. We recognize that these industries may take longer to recover as consumers may be hesitant to return to full social interaction or may change their spending habits on the business environment in the Bank’s primary markets where it operates and in the United Statesa more permanent basis as a whole.result of the pandemic. We continue to monitor these customers closely.

In addition, due to the COVID-19 pandemic, market interest rates declined significantly, withto historical lows and the 10-year Treasury bond falling to a low of 0.52% in early August 2020, but increasing significantly since that time to 1.75% at March 31, 2021. In March 2020, the Federal Open Market Committee reduced the targeted federal funds interest rate range to 0% to 0.25% percent, and this low targeted rate was still in effect as of March 31, 2021. These reductions in interest rates, low interest rate environment, and the other effects of the COVID-19 pandemic have had and are expected to continue to have, possibly materially, an adverse effect on the Company’sour business, financial condition and results of operations. For instance, the pandemic has hadHowever, during 2022, market interest rates have started to increase. Changes in market interest rates can have a negative effectsignificant impact on the Bank’s net interest margin, provision for loan losses,level of income and deposit service charges, salariesexpense recorded on a large portion of our interest-earning assets and benefits, occupancy expense,interest-bearing liabilities, and equipment expense. Other financial impacts could occur though such potential impact is unknown at this time.on the market value of all interest-earning assets, other than those possessing a short term to maturity.

Beginning in March 2020, the Company proactively offered payment deferrals for up to 90 days to its loan customers. The Company continues to consider potential deferrals with respect to certain customers, which are evaluated on a case-by-case basis. At its peak, which occurred during the second quarter of 2020, the Company granted payment deferments on loans totaling $206.9 million. As a result of payments being resumed by loan customers at the conclusion of their payment deferral period, loans for which payments were being deferred decreased from the peak of $206.9 million to $175.0 million at June 30, 2020, to $27.3 million at September 30, 2020, to $16.1 million at December 31, 2020, and to $8.7 million at March 31, 2021. Deferrals were $118.3 million at March 31, 2020. Some of these deferments were to businesses that temporarily closed or reduced operations and some were requested as a pre-cautionary measure to conserve cash.  The Company proactively offered deferrals to its customers regardless of the impact of the pandemic on their business or personal finances.

The Company has evaluated its exposure to certain industry segments most impacted by the COVID-19 pandemic as of March 31, 2021:

Note 2—Earnings Per Common Share

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

Schedule of Earning Per Common Share 

(In thousands except average market price and per share data)

Non-Employee Director Deferred Compensation Plan

In 2006,Under the Company established aCompany’s Non-Employee Director Deferred Compensation Plan, wherebyas amended and restated effective as of January 1, 2021, 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 atas of the timelast day of such calendar quarter during which the 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 resignationwithin 30 days following such director’s separation from service from the board of directors. At March 31, 20212022 and December 31, 2020,2021, there were 91,50088,748 and 88,41285,765 units in the plan, respectively. The accrued liability related to the plan at March 31, 20212022 and December 31, 20202021 amounted to $1.11.2 million million and $1.1 million million,, respectively, and is included in “Other liabilities” on the balance sheet.

First Community Corporation 2011 Stock Incentive Plan

In 2011, the Company and its shareholders adopted a stock incentive plan whereby 350,000 shares were reserved for issuance by the Company upon the grant of stock options or restricted stock awards under the plan (the “2011 Plan”). The 2011 Plan provided for the grant of options to key employees and directors as determined by a stock option committee made up of at least two members of the board of directors. Options are exercisable for a period of ten years from the date of grant. There were no stock options outstanding and exercisable at March 31, 2021,2022, December 31, 20202021 and March 31, 2020. At December 31, 2020, the Company had 94,910 shares reserved for future grants2021. The 2011 Plan expired on March 15, 2021 and no new awards may be granted under the 2011 Plan.

However, any awards outstanding under the 2011 Plan will continue to be outstanding and governed by the provisions of the 2011 Plan.

Under the 2011 Plan, the employee restricted shares and units generally cliff vest over a three-year period and the non-employee director shares vest approximately one year after issuance. The unrecognized compensation cost at March 31, 20212022 and December 31, 20202021 for non-vested shares amountsamounted to $572.9243.6 thousand thousand and $283.1293.9 thousand thousand,, respectively. Each unit is convertible into one share of common stock at the time the unit vests. The related compensation cost for time-based units (“TRSUs”) is accrued over the vesting period and was $60.612.2 thousand and $7.1 thousand respectively, for the three months ended March 31, 2022 and March 31, 2021.

Historically, the Company granted time-based equity awards that vested based on continued service. Beginning in 2021 and in addition to time-based equity awards, the Company began granting performance-based equity awards in the form of performance-based restricted stock units, with the target number of performance-based restricted stock units for the Company’s Chief Executive Officer and other executive officers representing 50% of total target equity awards. These performance-based restricted stock units cliff vest over three years and include conditions based on the following performance measures: total shareholder return, return on average equity, and non-performing assets. The Company granted 13,302 performance-based restricted stock units (“PRSUs”) with a fair value of $234.0 thousand during 2021. The related compensation cost for the PRSUs is accrued over the vesting period and was $19.5 thousand and $107.4$6.5 thousand, respectively, during the three months ended March 31, 2022 and March 31, 2021. The total accrued liability was $124.3 thousand and $144.0 thousand at March 31, 2021,2022, and December 31, 2020, respectively.2021, respectively, including both time-based and performance-based restricted stock units.

First Community Corporation 2021 Omnibus Equity Incentive Plan

The 2011 Plan expired on March 15,In 2021, and the Company has submitted a newand its shareholders adopted an omnibus equity incentive plan whereby 225,000 shares were reserved for consideration atissuance by the Company’sCompany to help the company attract, retain and motivate directors, officers, employees, consultants and advisors of the Company and its subsidiaries (the “2021 Plan”). The 2021 annual meetingPlan replaced the 2011 Plan. No awards were granted under the 2021 Plan as of shareholders.

March 31, 2021. During the three months ended March 31, 2022, the Company granted 7,358 restricted stock awards to Directors with a fair value of $154,000. The restricted stock awards will fully vest on January 1, 2023. At March 31, 2022 the unrecognized compensation cost for non-vested shares amounted to $128.3 thousand. During the three months ended March 31, 2022, the Company granted 11,738 TRSUs and 11,738 PRSUs with a total fair value of $245.7 thousand and $245.7 thousand respectively. The related compensation cost for TRSUs and PRSUs is accrued over the vesting period and was $13.7 thousand and $13.7 thousand respectively, for the three months ended March 31, 2022. At March 31, 2022 and December 31, 2021, the Company had 195,654 and 225,000 shares, respectively, reserved for future grants under the 2021 Plan.

Note 3—Investment Securities

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

AVAILABLE-FOR-SALE:

Schedule of Investment Available-For-Sale

AVAILABLE-FOR-SALE:

There were no investment securities listed as held-to-maturity as of March 31, 20212022 or December 31, 2020.2021.

During the three months ended March 31, 20212022 and 2020,2021, the Company did not receive any proceeds from the sale of investment securities available-for-sale. For the three months ended March 31, 2021,2022, and 20202021 there were no gross realized gains from the sale of investment securities available-for-sale and no gross realized losses.

At March 31, 2021,2022, corporate and other securities available-for-sale included the following at fair value: corporate fixed-to-float bonds at $3.38.6 million million,, mutual funds at $9.712.0 thousand thousand,, and foreign debt of $10.0 thousand thousand.. As required by Accounting Standards Update (“ASU”) 2016-01-Financial Instruments-Overall (Subtopic 825-10), the Company measured its equity investments at fair value with changes in the fair value recognized through net income. For the three months ended March 31, 20212022 and 2020,2021, a $1.70.4 thousand thousand gain and a $3.81.7 thousand thousand lossgain were recognized on a mutual fund, respectively. At December 31, 2020,2021, corporate and other securities available-for-sale included the following at fair value: corporate fixed-to-float bonds at $3.38.0 million million,, mutual fund at $8.011.6 thousand thousand and foreign debt of $10.0 thousand thousand.. Other investments, at cost, include Federal Home Loan Bank (“FHLB”) stock in the amount of $698.3792.1 thousand thousand and corporate stock in the amount of $1.0 million million, and a venture capital fund in the amount of $86.7 thousand at March 31, 2021.2022. The Company held $1.1698.4 thousand million of FHLB stock and $1.0 million million in corporate stock, and a venture capital fund in the amount of $86.7 thousand at December 31, 2020.2021.

The following tables show gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position, at March 31, 20212022 and December 31, 2020.2021.

Schedule of gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous loss position