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 ~~June 30, 2021~~March 31, 2022

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 Number: 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 Capital Market

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: On ~~August 10, 2021,~~May 11, 2022, ~~7,539,587~~7,559,760 shares of the issuer’s common stock, par value $1.00 per share, were issued and outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income (Loss)	3
	Consolidated Statements of Changes in Shareholders’ Equity	4
	Consolidated Statements of ~~Changes in Shareholders’ Equity~~Cash Flows	5
	~~Consolidated Statements of Cash Flows~~	8
	Notes to Consolidated Financial Statements	96
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3026
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4846
Item 4.	Controls and Procedures	46

PART II – OTHER INFORMATION		47
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults Upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48

~~PART II – OTHER INFORMATION~~SIGNATURES		49

~~Item 1.~~	~~Legal Proceedings~~	49
~~Item 1A.~~	~~Risk Factors~~	49
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	49
~~Item 3.~~	~~Defaults Upon Senior Securities~~	49
~~Item 4.~~	~~Mine Safety Disclosures~~	49
~~Item 5.~~	~~Other Information~~	49
~~Item 6.~~	~~Exhibits~~	50

~~SIGNATURES~~		51

~~INDEX TO EXHIBITS~~

~~EX-31.1 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER~~

~~EX-31.2 RULE 13A-14(A) CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER~~

~~EX-32 SECTION 1350 CERTIFICATIONS~~

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED BALANCE SHEETS

	March 31,
(Dollars in thousands, except par values)	2022			December 31,
	(Unaudited)			2021
ASSETS
Cash and due from banks	$	32,623		$	21,973
Interest-bearing bank balances		68,169			47,049
Investment securities available-for-sale		577,820			564,839
Other investments, at cost		1,879			1,785
Loans held-for-sale		12,095			7,120
Loans held-for-investment		875,797			863,702
Less, allowance for loan losses		11,063			11,179
Net loans held-for-investment		864,734			852,523
Property and equipment - net		32,497			32,831
Lease right-of-use asset		2,793			2,842
Bank owned life insurance		29,410			29,231
Other real estate owned		1,146			1,165
Intangible assets		879			919
Goodwill		14,637			14,637
Other assets		13,597			7,594
Total assets	$	1,652,279		$	1,584,508
LIABILITIES
Deposits:
Non-interest bearing	$	467,265		$	444,688
Interest bearing		963,483			916,603
Total deposits		1,430,748			1,361,291
Securities sold under agreements to repurchase		68,060			54,216
Junior subordinated debt		14,964			14,964
Lease liability		2,906			2,950
Other liabilities		10,221			10,089
Total liabilities		1,526,899			1,443,510
SHAREHOLDERS’ EQUITY
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; NaN issued and outstanding		—			—
Common stock, par value $1.00 per share; 20,000,000 shares authorized; issued and outstanding 7,559,760 at March 31, 2022, 7,548,638 at December 31, 2021		7,560			7,549
Nonvested restricted stock		(369	)		(294	)
Additional paid in capital		92,361			92,139
Retained earnings		40,837			38,325
Accumulated other comprehensive income (loss)		(15,009	)		3,279
Total shareholders’ equity		125,380			140,998
Total liabilities and shareholders’ equity	$	1,652,279		$	1,584,508

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

June 30,
(Dollars in thousands, except par value) 2021 December 31,
(Unaudited) 2020
ASSETS
Cash and due from banks $ 23,671 $ 18,930
Interest-bearing bank balances 52,316 46,062
Investment securities available-for-sale 468,951 359,866
Other investments, at cost 1,718 2,053
Loans held-for-sale 11,416 45,020
Loans held-for-investment 878,318 844,157
Less, allowance for loan losses 10,638 10,389
Net loans held-for-investment 867,680 833,768
Property and equipment - net 33,882 34,458
Lease right-of-use asset 2,938 3,032
Premises held-for-sale 591 591
Bank owned life insurance 28,033 27,688
Other real estate owned 1,182 1,194
Intangible assets 1,011 1,120
Goodwill 14,637 14,637
Other assets 6,947 6,963
Total assets $ 1,514,973 $ 1,395,382
LIABILITIES
Deposits:
Non-interest bearing $ 417,895 $ 385,511
Interest bearing 871,988 803,902
Total deposits 1,289,883 1,189,413
Securities sold under agreements to repurchase 60,487 40,914
Junior subordinated debt 14,964 14,964
Lease liability 3,033 3,114
Other liabilities 8,679 10,640
Total liabilities 1,377,046 1,259,045
SHAREHOLDERS’ EQUITY
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; NaN issued and outstanding — —
Common stock, par value $1.00 per share; 20,000,000 shares authorized; issued and outstanding 7,539,587 at June 30, 2021 7,500,338 at December 31, 2020 7,540 7,500
Nonvested restricted stock (480 ) (283 )
Additional paid in capital 91,964 91,380
Retained earnings 31,457 26,453
Accumulated other comprehensive income 7,446 11,287
Total shareholders’ equity 137,927 136,337
Total liabilities and shareholders’ equity $ 1,514,973 $ 1,395,382


(Dollars in thousands, except per share amounts)	Three Months ended March 31,
	2022			2021
Interest and dividend income:
Loans, including fees	$	9,003		$	9,451
Investment securities - taxable		1,779			1,345
Investment securities - non taxable		380			389
Other short term investments		33			33
Total interest income		11,195			11,218
Interest expense:
Deposits		333			519
Securities sold under agreement to repurchase		25			28
Other borrowed money		104			104
Total interest expense		462			651
Net interest income		10,733			10,567
Provision for (release of) loan losses		(125	)		177
Net interest income after provision for (release of) loan losses		10,858			10,390
Non-interest income:
Deposit service charges		265			246
Mortgage banking income		839			990
Investment advisory fees and non-deposit commissions		1,198			877
Gain on sale of other assets		—			77
Other		1,072			1,106
Total non-interest income		3,374			3,296
Non-interest expense:
Salaries and employee benefits		6,119			5,964
Occupancy		705			730
Equipment		332			275
Marketing and public relations		361			396
FDIC Insurance assessments		130			169
Other real estate expense		47			29
Amortization of intangibles		39			57
Other		2,221			1,920
Total non-interest expense		9,954			9,540
Net income before tax		4,278			4,146
Income tax expense		789			891
Net income	$	3,489		$	3,255

Basic earnings per common share	$	0.46		$	0.44
Diluted earnings per common share	$	0.46		$	0.43

See Notes to Consolidated Financial Statements

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Dollars in thousands)


	Three months ended March 31,
	2022			2021

Net income	$	3,489		$	3,255

Other comprehensive loss:
Unrealized loss during the period on available-for-sale securities, net of tax benefit of $4,862 and $1,637, respectively		(18,288	)		(6,161	)

Other comprehensive loss		(18,288	)		(6,161	)
Comprehensive loss	$	(14,799	)	$	(2,906	)

See Notes to Consolidated Financial Statements

~~FIRST COMMUNITY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF INCOME~~

~~(Unaudited)~~3

FIRST COMMUNITY CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

Three Months ended March 31, 2022 and March 31, 2021

(Unaudited)

(Dollars in thousands, except per share amounts) Six Months ended June 30,
2021 2020
Interest and dividend income:
Loans, including fees $ 19,191 $ 17,845
Investment securities - taxable 2,852 2,662
Investment securities - non taxable 776 675
Other short term investments and CDs 63 194
Total interest income 22,882 21,376
Interest expense:
Deposits 967 1,755
Securities sold under agreement to repurchase 47 140
Other borrowed money 209 321
Total interest expense 1,223 2,216
Net interest income 21,659 19,160
Provision for loan losses 345 2,325
Net interest income after provision for loan losses 21,314 16,835
Non-interest income:
Deposit service charges 458 609
Mortgage banking income 2,133 2,554
Investment advisory fees and non-deposit commissions 1,834 1,305
Gain on sale of other real estate owned 77 6
Other 2,212 1,841
Total non-interest income 6,714 6,315
Non-interest expense:
Salaries and employee benefits 11,912 11,493
Occupancy 1,464 1,322
Equipment 613 616
Marketing and public relations 709 601
FDIC Insurance assessments 315 130
Other real estate expense 84 75
Amortization of intangibles 109 200
Other 4,212 3,732
Total non-interest expense 19,418 18,169
Net income before tax 8,610 4,981
Income tax expense 1,812 970
Net income $ 6,798 $ 4,011

Basic earnings per common share $ 0.91 $ 0.54
Diluted earnings per common share $ 0.90 $ 0.54

																Accumulated
	Common						Additional			Nonvested						Other
(Dollars in thousands)	Shares			Common			Paid-in			Restricted			Retained			Comprehensive
	Issued			Stock			Capital			Stock			Earnings			Income (loss)			Total
Balance, December 31, 2020		7,500		$	7,500		$	91,380		$	(283	)	$	26,453		$	11,287		$	136,337
Net income														3,255						3,255

Other comprehensive loss net of tax benefit of $1,637																	(6,161	)		(6,161	)
Issuance of common stock		2			2			44												46
Issuance of restricted stock		21			21			353			(374	)								—
Amortization of compensation on restricted stock											84									84
Shares retired / forfeited		(4	)		(4	)		(66	)											(70	)
Dividends: Common ($0.12 per share)														(896	)					(896	)
Dividend reinvestment plan		6			6			86												92
Balance, March 31, 2021		7,525		$	7,525		$	91,797		$	(573	)	$	28,812		$	5,126		$	132,687

Balance, December 31, 2021		7,549		$	7,549		$	92,139		$	(294	)	$	38,325		$	3,279		$	140,998
Net income														3,489						3,489

Other comprehensive loss net of tax benefit of $4,862																	(18,288	)		(18,288	)
Issuance of common stock		1			1			27												28
Issuance of restricted stock		7			7			147			(154	)								—
Amortization of compensation on restricted stock											79									79
Shares forfeited		(2	)		(2	)		(40	)											(42	)
Dividends: Common ($0.13 per share)														(977	)					(977	)
Dividend reinvestment plan		5			5			88												93
Balance, March 31, 2022		7,560		$	7,560		$	92,361		$	(369	)	$	40,837		$	(15,009	)	$	125,380

See Notes to Consolidated Financial Statements

~~FIRST COMMUNITY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF INCOME~~

~~(Unaudited)~~4

FIRST COMMUNITY CORPORATION

(Dollars in thousands, except per share amounts) Three Months ended June 30,
2021 2020
Interest and dividend income:
Loans, including fees $ 9,740 $ 9,018
Investment securities - taxable 1,507 1,225
Investment securities - non taxable 387 386
Other short term investments and CDs 30 37
Total interest income 11,664 10,666
Interest expense:
Deposits 448 736
Securities sold under agreement to repurchase 19 36
Other borrowed money 105 151
Total interest expense 572 923
Net interest income 11,092 9,743
Provision for loan losses 168 1,250
Net interest income after provision for loan losses 10,924 8,493
Non-interest income:
Deposit service charges 212 210
Mortgage banking income 1,143 1,572
Investment advisory fees and non-deposit commissions 957 671
Other 1,106 934
Total non-interest income 3,418 3,387
Non-interest expense:
Salaries and employee benefits 5,948 5,840
Occupancy 734 679
Equipment 338 298
Marketing and public relations 313 247
FDIC Insurance assessments 146 88
Other real estate expense 55 40
Amortization of intangibles 52 95
Other 2,292 1,844
Total non-interest expense 9,878 9,131
Net income before tax 4,464 2,749
Income tax expense 921 532
Net income $ 3,543 $ 2,217

Basic earnings per common share $ 0.47 $ 0.30
Diluted earnings per common share $ 0.47 $ 0.30

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31,
(Dollars in thousands)	2022			2021
Cash flows from operating activities:
Net income	$	3,489		$	3,255
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		437			431
Net premium amortization		707			554
(Release of) provision for loan losses		(125	)		177
Write-downs of other real estate owned		19			—
Origination of loans held-for-sale		(28,731	)		(42,664	)
Sale of loans held-for-sale		23,756			64,203
Gain on sale of other real estate owned		—			(77	)
Amortization of intangibles		39			57
Accretion on acquired loans		(14	)		(36	)
Loss on fair value of securities		—			(2	)
(Increase) decrease in other assets		(1,270	)		735
Increase (decrease) in other liabilities		88			(670	)
Net cash (used in) provided by operating activities		(1,605	)		25,963
Cash flows from investing activities:
Purchase of investment securities available-for-sale		(57,492	)		(67,287	)
Purchase of other investment securities		(94	)		—
Maturity/call of investment securities available-for-sale		20,654			12,953
Proceeds from sales of other investments		—			355
Increase in loans		(12,072	)		(24,873	)
Proceeds from sale of other real estate owned		—			201
Purchase of property and equipment		(119	)		(126	)
Net disposal of property and equipment		16			—
Net cash used in investing activities		(49,107	)		(78,777	)
Cash flows from financing activities:
Increase in deposit accounts		69,457			82,027
Increase in securities sold under agreements to repurchase		13,844			19,405
Shares retired / forfeited		(42	)		(70	)
Dividends paid: Common Stock		(977	)		(896	)
Proceeds from issuance of Common Stock		28			46
Change in non-vested restricted stock		79			84
Dividend reinvestment plan		93			92
Net cash provided by financing activities		82,482			100,688
Net increase in cash and cash equivalents		31,770			47,874
Cash and cash equivalents at beginning of period		69,022			64,992
Cash and cash equivalents at end of period	$	100,792		$	112,866
Supplemental disclosure:
Cash paid during the period for:
Interest	$	532		$	1,053
Income taxes	$	—		$	—
Non-cash investing and financing activities:
Unrealized loss on securities	$	(18,288	)	$	(6,161	)
Transfer of loans to foreclosed property	$	—		$	—

See Notes to Consolidated Financial Statements

~~FIRST COMMUNITY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited)~~5

(Dollars in thousands)
Six months ended June 30,
2021 2020

Net income $ 6,798 $ 4,011

Other comprehensive income:
Unrealized (loss) gain during the period on available-for-sale securities, net of (tax benefit) and tax expense of ($1,021) and $2,095, respectively (3,841) 7,882

Comprehensive income $ 2,957 $ 11,893

(Dollars in thousands)
Three months ended June 30,
2021 2020

Net income $ 3,543 $ 2,217

Other comprehensive income:
Unrealized gain during the period on available-for-sale securities, net of tax expense of $616 and $1,196, respectively 2,320 4,501

Comprehensive income $ 5,863 $ 6,718

~~See Notes to Consolidated Financial Statements~~

~~FIRST COMMUNITY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~Six months ended June 30, 2021 and 2020~~

~~(Unaudited)~~

Accumulated
Common Additional Nonvested Other
(Dollars and shares in thousands) Shares Common Paid-in Restricted Retained Comprehensive
Issued Stock Capital Stock Earnings Income (loss) Total
Balance, December 31, 2020 7,500 $ 7,500 $ 91,380 $ (283 ) $ 26,453 $ 11,287 $ 136,337
Net income 6,798 6,798
Other comprehensive loss net of tax benefit of $1,021 (3,841) (3,841)
Issuance of common stock 12 12 124 136
Issuance of restricted stock 21 21 353 (374 ) —
Amortization of compensation on restricted stock 177 177
Shares forfeited (4 ) (4 ) (66 ) (70 )
Dividends: Common ($0.24 per share) (1,794 ) (1,794 )
Dividend reinvestment plan 11 11 173 184
Balance, June 30, 2021 7,540 $ 7,540 $ 91,964 $ (480 ) $ 31,457 $ 7,446 $ 137,927

Accumulated
Common Additional Nonvested Other
(Dollars and shares in thousands) Shares Common Paid-in Restricted Retained Comprehensive
Issued Stock Capital Stock Earnings Income (loss) Total
Balance, December 31, 2019 7,440 $ 7,440 $ 90,488 $ (151 ) $ 19,927 $ 2,490 $ 120,194
Net income 4,011 4,011
Other comprehensive income net of tax of $2,095 7,882 7,882
Issuance of common stock 4 4
Issuance of restricted stock 18 18 348 (366 ) —
Issuance of common stock-deferred compensation 18 18 182 200
Amortization of compensation on restricted stock 121 121
Shares retired (1 ) (1 ) (14 ) (15 )
Dividends: Common ($0.24 per share) (1,783 ) (1,783 )
Dividend reinvestment plan 11 11 176 187
Balance, June 30, 2020 7,486 $ 7,486 $ 91,184 $ (396 ) $ 22,155 $ 10,372 $ 130,801

~~See Notes to Consolidated Financial Statements~~

~~FIRST COMMUNITY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~(Unaudited)~~

Accumulated
Common Additional Nonvested Other
(Dollars in thousands) Shares Common Paid-in Restricted Retained Comprehensive
Issued Stock Capital Stock Earnings Income (loss) Total
Balance, December 31, 2020 7,500 $ 7,500 $ 91,380 $ (283 ) $ 26,453 $ 11,287 $ 136,337
Net income 3,255 3,255
Other comprehensive loss net of tax of $1,637 (6,161 ) (6,161 )
Issuance of common stock 2 2 44 46
Issuance of restricted stock 21 21 353 (374 ) —
Amortization of compensation on restricted stock 84 84
Shares retired / forfeited (4 ) (4 ) (66 ) (70 )
Dividends: Common ($0.12 per share) (896 ) (896 )
Dividend reinvestment plan 6 6 86 92
Balance, March 31, 2021 7,525 $ 7,525 $ 91,797 $ (573 ) $ 28,812 $ 5,126 $ 132,687
Net income 3,543 3,543
Other comprehensive income net of tax of $616 2,320 2,320
Issuance of common stock 10 10 80 90
Amortization of compensation on restricted stock 93 93
Dividends: Common ($0.12 per share) (898 ) (898 )
Dividend reinvestment plan 5 5 87 92
Balance, June 30 2021 7,540 $ 7,540 $ 91,964 $ (480 ) $ 31,457 $ 7,446 $ 137,927

~~See Notes to Consolidated Financial Statements~~

~~FIRST COMMUNITY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY~~

~~(Unaudited)~~

Accumulated
Common Additional Nonvested Other
(Dollars and shares in thousands) Shares Common Paid-in Restricted Retained Comprehensive
Issued Stock Capital Stock Earnings Income (loss) Total
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 )
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
Net income 2,217 2,217
Other comprehensive income net of tax of $1,196 4,501 4,501
Issuance of common stock-Deferred Compensation 18 18 182 200
Amortization of compensation on restricted stock 69 69
Dividends: Common ($0.12 per share) (892 ) (892 )
Dividend reinvestment plan 6 6 86 92
Balance, June 30, 2020 7,486 $ 7,486 $ 91,184 $ (396 ) $ 22,155 $ 10,372 $ 130,801

~~See Notes to Consolidated Financial Statements~~

~~FIRST COMMUNITY CORPORATION~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

Six months ended
June 30,
(Dollars in thousands) 2021 2020
Cash flows from operating activities:
Net income $ 6,798 $ 4,011
Adjustments to reconcile net income to net cash provided (used) from operating activities:
Depreciation 853 807
Net premium amortization 1,089 984
Provision for loan losses 345 2,325
Origination of loans held-for-sale (76,404 ) (85,207 )
Sale of loans held-for-sale 110,008 62,866
Write-down of other real estate owned 33 38
Gain on sale of other real estate owned (77 ) (6 )
Amortization of intangibles 109 200
Accretion on acquired loans (64 ) (179 )
Loss on fair value of securities (2 ) —
Increase (decrease) in other assets 786 (2,221 )
Decrease in other liabilities (2,042 ) 4,385

Net cash provided (used) from operating activities 41,432 (11,997 )
Cash flows from investing activities:
Purchase of investment securities available-for-sale (139,458 ) (22,077 )
Purchase of other investment securities (20) (70 )
Maturity/call of investment securities available-for-sale 24,424 21,948
Proceeds from FHLB stock sales 355 —
Increase in loans (34,338 ) (83,570 )
Proceeds from sale of other securities — 9
Proceeds from sale of other real estate owned 201 —
Purchase of property and equipment (277 ) (527 )
Net cash (used) provided in investing activities (149,113 ) (84,287 )
Cash flows from financing activities:
Increase (decrease) in deposit accounts 100,470 130,672
Increase in securities sold under agreements to repurchase 19,573 12,355
Advances from the Federal Home Loan Bank — 34,001
Repayment of advances from Federal Home Loan Bank — (34,212 )
Shares retired / forfeited (70 ) (15 )
Dividends paid: Common Stock (1,794 ) (1,783 )

Issuance of deferred compensation shares — 200
Proceeds from issuance of Common Stock 136 4
Change in non-vested restricted stock 177 121
Dividend reinvestment plan 184 187
Net cash provided (used) from financing activities 118,676 141,530
Net increase in cash and cash equivalents 10,995 45,246
Cash and cash equivalents at beginning of period 64,992 47,692
Cash and cash equivalents at end of period $ 75,987 $ 92,938
Supplemental disclosure:
Cash paid during the period for:
Interest $ 2,396 $ 3,070
Income taxes $ 2,837 $ —
Non-cash investing and financing activities:
Unrealized gain (loss) on securities $ (3,841 ) $ 9,977
Transfer of loans to foreclosed property $ 145 $ 78

~~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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, and the Company’s results of operations ~~for the three and six months ended June 30, 2021 and 2020~~ and cash flows for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021. The results of operations for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 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, ~~2020~~2021 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 in~~and variants of the ~~United States in March 2020, continues~~virus 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 fluid~~has 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 many~~assess. 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 ~~has~~have resulted and continue to result in less economic activity, ~~significant~~and volatility and disruption in financial markets.

Commercial activity has improved, but has not returned to the levels existing before the outbreak of the pandemic, which may result in our borrowers’ inability to meet their loan obligations. Economic pressures and uncertainties related to the COVID-19 pandemic have also resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. In addition, our loan portfolio includes customers in industries such as hotels, restaurants and assisted living facilities, all of which have been significantly impacted by the COVID-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 a more permanent basis as a result of the pandemic. We continue to monitor these customers closely.

In addition, due to the COVID-19 pandemic, market interest rates declined ~~significantly, with~~to 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 1.74% at March 31, 2021 and then declining to 1.45% at June 30, 2021. In March 2020, the Federal Open Market Committee reduced the targeted federal funds interest rate to a range from 0% to 0.25%, and this low targeted range was still in effect as of June 30, 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’s~~our business, financial condition and results of operations. ~~The ultimate extent of the~~However, during 2022, market interest rates have started to increase. Changes in market interest rates can have a significant impact ~~of the COVID-19 pandemic~~ on the ~~Company’s business, financial condition~~level of income and ~~results~~expense recorded on a large portion of ~~operations is currently uncertain~~our interest-earning assets and ~~will depend~~interest-bearing liabilities, and on ~~various developments and~~the market value of all interest-earning assets, other factors, including the effect of governmental and private sector initiatives, the effect of the continued 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 businessesthan those possessing a short term to ~~return to their pre-pandemic routines.~~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, to $8.7 million at March 31, 2021, and to $4.5 million at June 30, 2021. 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 June 30, 2021:~~

Industry Segments Outstanding % of Loan Avg. Loan Avg. Loan to
(Dollars in millions) Loan Balance Portfolio Size Value
Hotels $ 33.9 3.9 % $ 2.3 69 %
Restaurants $ 21.3 2.4 % $ 0.7 70 %
Assisted Living $ 8.7 1.0 % $ 1.4 46 %
Retail $ 83.0 9.5 % $ 0.7 57 %

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)


	Three months ended
	March 31,
	2022		2021
Numerator (Net income available to common shareholders)	$	3,489	$	3,255
Denominator
Weighted average common shares outstanding for:
Basic shares		7,518		7,476
Dilutive securities:
Deferred compensation		33		36
Restricted stock -Treasury stock method		44		11
Diluted shares		7,595		7,523
Earnings per common share:
Basic	$	0.46	$	0.44
Diluted	$	0.46		0.43

The average market price used in calculating assumed number of shares	$	20.99	$	18.43

Six months Three months
Ended June 30, Ended June 30,
2021 2020 2021 2020

Numerator (Net income available to common shareholders) $ 6,798 $ 4,011 $ 3,543 $ 2,217
Denominator
Weighted average common shares outstanding for:
Basic shares 7,478 7,432 7,486 7,436
Dilutive securities:
Deferred compensation 28 26 29 18
Restricted stock – Treasury stock method 22 10 22 11
Diluted shares 7,528 7,468 7,537 7,465
Earnings per common share:
Basic 0.91 0.54 0.47 0.30
Diluted 0.90 0.54 0.47 0.30
The average market price used in calculating assumed number of shares $ 18.95 $ 16.98 $ 19.44 $ 14.97

Non-Employee Director Deferred Compensation Plan

Under the Company’s Non-Employee Director Deferred Compensation Plan, as 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 as of the last 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 within 30 days following such director’s separation ~~form~~from service from the board of directors. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, there were ~~83,198~~88,748 and ~~88,412~~85,765 units in the plan, respectively. The accrued liability related to the plan at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 amounted to $1.2 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 ~~June 30, 2021,~~March 31, 2022, December 31, ~~2020~~2021 and ~~June 30, 2020. At December~~March 31, ~~2020, the Company had~~ ~~94,910~~ ~~shares reserved for future grants under the 2011 Plan.~~2021. 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 for non-vested shares ~~amounts~~amounted to $~~479.5~~ 243.6 thousand~~thousand~~ and $~~283.1~~ 293.9 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 $~~62.4~~ 12.2 thousand~~thousand~~ and $~~107.4~~ 7.1 thousand~~thousand at June 30, 2021,~~ respectively, for the three months ended March 31, 2022 and ~~December~~March 31, ~~2020, respectively.~~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 ~~the first six months of~~ 2021. ~~The Company granted no performance-based restricted stock units in 2020.~~ The related compensation cost for the ~~performance-based restricted stock units~~PRSUs is accrued over the vesting period and was ~~$26.0~~$19.5 thousand and $6.5 thousand, respectively, during the ~~first six~~three months ofended March 31, 2022 and March 31, 2021. The total ~~related compensation cost for restricted stock units~~accrued liability was ~~$88.4~~$124.3 thousand and ~~$107.4~~$144.0 thousand at ~~June 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, respectively, including both time-based and performance-based restricted stock units.

First Community Corporation 2021 Omnibus Equity Incentive Plan

In 2021, the Company and its shareholders adopted an omnibus equity incentive plan whereby 225,000 shares were reserved for issuance by the Company 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 Plan replaced the 2011 Plan. No awards ~~have been~~were granted under the 2021 Plan as of ~~June 30,~~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:

Schedule of Investment Available-For-Sale

AVAILABLE-FOR-SALE:

			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized				Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
June 30, 2021
US Treasury securities	$	15,722	$	—	$	274	$	15,448
Mortgage-backed securities		317,506		5,377		1,642		321,241
Small Business Administration pools		35,558		728		61		36,225
State and local government		84,216		5,417		295		89,338
Corporate and other securities		6,525		174		0		6,699
	$	459,527	$	11,696	$	2,272	$	468,951

			Gross		Gross
	Amortized		Unrealized		Unrealized
(Dollars in thousands)	Cost		Gains		Losses		Fair Value
December 31, 2020
March 31, 2022
US Treasury securities	$	1,501	$	1	$	0	$	1,502	$	60,406	$	—	$	1,811	$	58,595
Government Sponsored Enterprises		996		10		0		1,006		2,499		—		182		2,317
Mortgage-backed securities		222,739		7,375		185		229,929		391,271		217		13,140		378,348
Small Business Administration pools		34,577		928		7		35,498		28,112		209		337		27,984
State and local government		82,495		6,184		76		88,603		105,757		1,182		4,968		101,971
Corporate and other securities		3,272		56		0		3,328		8,774		81		250		8,605
Total									$	596,819	$	1,689	$	20,688	$	577,820
	$	345,580	$	14,554	$	268	$	359,866
											Gross		Gross
									Amortized		Unrealized		Unrealized
(Dollars in thousands)									Cost		Gains		Losses		Fair Value
December 31, 2021
US Treasury securities									$	15,736	$	—	$	300	$	15,436
Government Sponsored Enterprises										2,499		2		0		2,501
Mortgage-backed securities										398,125		3,596		3,992		397,729
Small Business Administration pools										30,835		505		67		31,273
State and local government										105,469		4,918		539		109,848
Corporate and other securities										8,024		157		129		8,052
Total									$	560,688	$	9,178	$	5,027	$	564,839

There were no investment securities listed as held-to-maturity as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020.~~2021.

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company did not receive any proceeds from the sale of investment securities available-for-sale. For the three ~~and six~~ months ended ~~June 30,~~March 31, 2022, and 2021 ~~and 2020,~~ there were no gross realized gains ~~or losses~~ from the sale of investment securities ~~available-for-sale.~~available-for-sale and no gross realized losses.

At ~~June 30, 2021,~~March 31, 2022, corporate and other securities available-for-sale included the following at fair value: corporate fixed-to-float bonds at $~~6.7~~ 8.6 million~~million,~~, mutual funds at $~~10.2~~12.0 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 ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ a $~~2.2~~ 0.4 thousand~~thousand~~ gain and a $~~2.1~~ 1.7 thousand~~thousand loss~~ gain 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 $~~3.3~~ 8.0 million~~million,~~, mutual fund at $~~8.0~~11.6 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 $~~698.3~~ 792.1 thousand~~thousand~~ and corporate stock in the amount of $1.0 million~~million~~, and a venture capital fund in the amount of $86.7 thousandat $~~20.0~~ ~~thousand at June 30, 2021.~~March 31, 2022. The Company held $~~1.1~~ 698.4 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 ~~June 30, 2021~~March 31, 2022 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


(Dollars in thousands)	Less than 12 months				12 months or more				Total				Less than 12 months				12 months or more				Total
June 30, 2021	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2022													Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-sale securities:													Value		Loss		Value		Loss		Value		Loss

US Treasury Securities													$	53,261	$	1,271	$	5,334	$	540	$	58,595	$	1,811
Government Sponsored Enterprise														2,317		182		—		—		2,317		182
Mortgage-backed securities														261,976		8,929		86,207		4,211		348,183		13,140
Small Business Administration pools														12,529		295		2,642		42		15,171		337
State and local government														59,077		4,392		2,961		576		62,038		4,968
Corporate and other securities														4,507		250		—		—		4,507		250
Total													$	393,667	$	15,319	$	97,144	$	5,369	$	490,811	$	20,688

(Dollars in thousands)													Less than 12 months				12 months or more				Total
December 31, 2021													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	$	15,448	$	274	$	—	$	—	$	15,448	$	274	$	14,479	$	264	$	958	$	36	$	15,437	$	300
Mortgage-backed securities		145,058		1,564		12,170		78		157,228		1,642		200,238		3,156		48,570		836		248,808		3,992
Small Business Administration pools		6,151		61		943		—		7,094		61		7,232		67		—		—		7,232		67
State and local government		13,977		295		—		—		13,977		295		21,261		539		—		—		21,261		539
Corporate and other securities														3,621		129		—		—		3,621		129
Total	$	180,634	$	2,194	$	13,113	$	78	$	193,747	$	2,272	$	246,831	$	4,155	$	49,528	$	872	$	296,359	$	5,027

(Dollars in thousands)	Less than 12 months				12 months or more				Total
December 31, 2020	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Available-for-sale securities:	Value		Loss		Value		Loss		Value		Loss

Mortgage-backed securities		21,298		152		1,414		33		22,712		185
Small Business Administration pools		—		—		1,323		7		1,323		7
State and local government		4,930		76		—		—		4,930		76
Total	$	26,228	$	228	$	2,737	$	40	$	28,965	$	268

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 $~~353.1~~419.4 million ~~million~~ and $~~257.3~~429.0 million ~~million~~ and approximate fair value of $~~357.5~~406.3 million ~~million~~ and $~~265.4~~429.0 million ~~million~~ at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Unrealized losses on certain of these investments are not considered to be “other than temporary,” and the Company has the intent and ability to hold these until they mature or recover the current book value. The contractual cash flows of the investments are guaranteed by the GSEs. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost of the Company’s investment. Because the Company does not intend to sell these securities and it is more likely than not that the Company will not be required to 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 ~~June 30, 2021.~~March 31, 2022.

Non-agency Mortgage Backed Securities: The Company held private label mortgage-backed securities (“PLMBSs”), including CMOs, at ~~June 30, 2021~~March 31, 2022 with an amortized cost of $~~51.2~~45.6 thousand ~~thousand~~ and approximate fair value of $~~49.1~~45.3 thousand ~~thousand.~~. The Company held PLMBSs, including CMOs, at December 31, ~~2020~~2021 with an amortized cost of $~~57.4~~48.2 thousand ~~thousand~~ and approximate fair value of $~~54.7~~46.4 thousand ~~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. The Company does not consider these securities to be other-than-temporarily impaired at March 31, 2022.

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 ~~June 30, 2021.~~March 31, 2022.

The following sets forth the amortized cost and fair value of investment securities at ~~June 30, 2021~~March 31, 2022 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.

Schedule of ~~the amortized cost~~Amortized Cost and ~~fair value~~Fair Value of ~~investment securities by expected maturity~~Investment Securities

	Available-for-sale				Available-for-sale
June 30, 2021	Amortized		Fair
March 31, 2022					Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Due in one year or less	$	15,519	$	15,768	$	20,273	$	20,132
Due after one year through five years		159,613		163,332		211,536		207,996
Due after five years through ten years		162,819		168,061		285,494		272,064
Due after ten years		121,576		121,790		79,516		77,658
Total	$	459,527	$	468,951	$	596,819	$	577,820

Note 4—Loans

The following table summarizes the composition of our loan portfolio. Total loans are recorded net of deferred loan fees and costs, which totaled ~~$3.2~~$1.4 million and ~~$2.2~~$1.4 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

Schedule of Loan Portfolio

	June 30,		December 31,		March 31,		December 31,
(Dollars in thousands)	2021		2020		2022		2021
Commercial, financial and agricultural	$	111,449	$	96,688	$	70,565	$	69,952
Real estate:
Construction		95,865		95,282		96,419		94,969
Mortgage-residential		44,594		43,928		42,675		45,498
Mortgage-commercial		592,099		573,258		627,621		617,464
Consumer:
Home equity		26,662		26,442		27,712		27,116
Other		7,649		8,559		10,805		8,703
Total loans, net of deferred loan fees and costs	$	878,318	$	844,157	$	875,797	$	863,702

Commercial, financial, and agricultural category includes $~~47.2~~0.3 million ~~million~~ and $~~42.2~~1.5 million ~~million~~ in PPP loans, net of deferred fees and costs, as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The detailed activity in the allowance for loan losses and the recorded investment in loans receivable as of and for the three months ended March 31, 2022 and ~~six months ended June 30,~~March 31, 2021 ~~and June 30, 2020~~ and for the year ended December 31, ~~2020~~2021 is as follows:

Schedule of activity in the allowance for loan losses and the recorded investment in loans receivable

																												Real estate			Real estate			Consumer
																									Real estate			Mortgage			Mortgage			Home			Consumer
(Dollars in thousands)																						Commercial			Construction			Residential			Commercial			equity			Other			Unallocated			Total
	Commercial		Real estate Construction			Real estate Mortgage Residential		Real estate Mortgage Commercial			Consumer Home equity		Consumer Other			Unallocated			Total
Three months ended June 30, 2021
March 31, 2022
Allowance for loan losses:
Beginning balance March 31, 2021	$	758	$	134		$	480	$	8,137		$	309	$	124		$	621		$	10,563
Beginning balance December 31, 2021																						$	853		$	113		$	560		$	8,570		$	333		$	126		$	624		$	11,179
Charge-offs		—		—			—		(110	)		—		(11	)		—			(121	)		—			—			—			—			—			(14	)		—			(14	)
Recoveries		2		—			—		7			5		14			—			28			11			—			—			6			3			3			—			23
Provisions		134		(9	)		62		(8	)		8		(16	)		(3	)		168			(15	)		(22	)		(47	)		(68	)		(5	)		35			(3	)		(125	)
Ending balance June 30, 2021	$	894	$	125		$	542	$	8,026		$	322	$	111		$	618		$	10,638
Ending balance March 31, 2022																						$	849		$	91		$	513		$	8,508		$	331		$	150		$	621		$	11,063

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

Collectively evaluated for impairment																							849		$	91		$	513		$	8,508		$	331		$	150		$	621		$	11,063

March 31, 2022 Loans receivable:
Ending balance-total																						$	70,565		$	96,419		$	42,675		$	627,621		$	27,712		$	10,805		$	—		$	875,797

Ending balances:
Individually evaluated for impairment																							—			—			42			1,499			—			—			—			1,541

Collectively evaluated for impairment																						$	70,565		$	96,419		$	42,633		$	626,122		$	27,712		$	10,805		$	—		$	874,256

Real estate Real estate Consumer
Real estate Mortgage Mortgage Home Consumer
(Dollars in thousands) Commercial Construction Residential Commercial equity Other Unallocated Total
Six months ended June 30, 2021
Allowance for loan losses:
Beginning balance December 31, 2020 $ 778 $ 145 $ 541 $ 7,855 $ 324 $ 125 $ 621 $ 10,389
Charge-offs — — — (110 ) — (36 ) — (146 )
Recoveries 3 — — 11 6 30 — 50
Provisions 113 (20 ) 1 270 (8 ) (8 ) (3 ) 345
Ending balance June 30, 2021 $ 894 $ 125 $ 542 $ 8,026 $ 322 $ 111 $ 618 $ 10,638

Ending balances:
Individually evaluated for impairment $ — $ — $ — $ 2 $ — $ — $ — $ 2

Collectively evaluated for impairment 894 125 542 8,024 322 111 618 10,636

June 30, 2021 Loans receivable:
Ending balance-total $ 111,449 $ 95,865 $ 44,594 $ 592,099 $ 26,662 $ 7,649 $ — $ 878,318

Ending balances:
Individually evaluated for impairment — — 310 5,163 21 — — 5,494

Collectively evaluated for impairment $ 111,449 $ 95,865 $ 44,284 $ 586,936 $ 26,641 $ 7,649 $ — $ 872,824

(Dollars in thousands)
Commercial Real estate
Construction Real estate
Mortgage
Residential Real estate
Mortgage
Commercial Consumer
Home
equity Consumer
Other Unallocated Total
Three months ended June 30, 2020
Allowance for loan losses:
Beginning balance March 31, 2020 $ 489 $ 148 $ 440 $ 5,531 $ 277 $ 112 $ 697 $ 7,694
Charge-offs — — — — — (25 ) — (25 )
Recoveries 3 — — 3 — 11 — 17
Provisions 277 17 57 935 16 34 (86 ) 1,250
Ending balance June 30, 2020 $ 769 $ 165 $ 497 $ 6,469 $ 293 $ 132 $ 611 $ 8,936

~~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
Six months ended June 30, 2020
Allowance for loan losses:
Beginning balance December 31, 2019 $ 427 $ 111 $ 367 $ 4,602 $ 240 $ 97 $ 783 $ 6,627
Charge-offs — — — — — (48 ) — (48 )
Recoveries 3 — — 9 1 19 — 32
Provisions 339 54 130 1,858 52 64 (172 ) 2,325
Ending balance June 30, 2020 $ 769 $ 165 $ 497 $ 6,469 $ 293 $ 132 $ 611 $ 8,936

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

Collectively evaluated for impairment 769 165 497 6,465 293 132 611 8,932

June 30, 2020 Loans receivable:
Ending balance-total $ 107,184 $ 82,584 $ 45,424 $ 544,670 $ 27,156 $ 10,354 $ — $ 817,372

Ending balances:
Individually evaluated for impairment — — 333 3,020 66 — — 3,419

Collectively evaluated for impairment $ 107,184 $ 82,584 $ 45,091 $ 541,650 $ 27,090 $ 10,354 $ — $ 813,953

						Real estate		Real estate			Consumer																	Real estate			Real estate			Consumer
			Real estate			Mortgage		Mortgage			Home		Consumer												Real estate			Mortgage			Mortgage			Home			Consumer
(Dollars in thousands)	Commercial		Construction			Residential		Commercial			equity		Other			Unallocated			Total			Commercial			Construction			Residential			Commercial			equity			Other			Unallocated		Total
December 31, 2020
March 31, 2021
Allowance for loan losses:
Beginning balance December 31, 2019	$	427	$	111		$	367	$	4,602		$	240	$	97		$	783		$	6,627
Beginning balance December 31, 2020																						$	778		$	145		$	541		$	7,855		$	324		$	125		$	621	$	10,389
Charge-offs		—		(2	)		—		(1	)		—		(107	)		—			(110	)		—			—			—			—			—			(25	)		—		(25	)
Recoveries		130		2			—		23			2		52			—			209			1			—			—			4			1			16			—		22
Provisions		221		34			174		3,231			82		83			(162	)		3,663			(21	)		(11	)		(61	)		278			(16	)		8			—		177
Ending balance December 31, 2020	$	778	$	145		$	541	$	7,855		$	324	$	125		$	621		$	10,389
Ending balance March 31, 2021																						$	758		$	134		$	480		$	8,137		$	309		$	124		$	621	$	10,563

Ending balances:
Individually evaluated for impairment	$	—	$	—		$	—	$	2		$	—	$	—		$	—		$	2		$	—		$	—		$	—		$	2		$	—		$	—		$	—	$	2

Collectively evaluated for impairment		778		145			541		7,853			324		125			621			10,387			758			134			480			8,135			309			124			621		10,561

December 31, 2020 Loans receivable:
March 31, 2021 Loans receivable:
Ending balance-total	$	96,688	$	95,282		$	43,928	$	573,258		$	26,442	$	8,559		$	—		$	844,157		$	110,776		$	104,065		$	38,947		$	582,083		$	25,068		$	8,127		$	—	$	869,066

Ending balances:
Individually evaluated for impairment		—		—			440		5,631			42		—			—			6,113			—			—			436			5,578			21			—			—		6,035

Collectively evaluated for impairment		96,688		95,282			43,488		567,627			26,400		8,559			—			838,044		$	110,776		$	104,065		$	38,511		$	576,505		$	25,047		$	8,127		$	—	$	863,031

(Dollars in thousands)																						Commercial			Real estate Construction			Real estate Mortgage Residential			Real estate Mortgage Commercial			Consumer Home equity			Consumer Other			Unallocated		Total
December 31, 2021
Allowance for loan losses:
Beginning balance December 31, 2020																						$	778		$	145		$	541		$	7,855		$	324		$	125		$	621	$	10,389
Charge-offs																							—			—			—			(110	)		—			(72	)		—		(182	)
Recoveries																							39			—			10			473			69			46			—		637
Provisions																							36			(32	)		9			352			(60	)		27			3		335
Ending balance December 31, 2021																						$	853		$	113		$	560		$	8,570		$	333		$	126		$	624	$	11,179

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

Collectively evaluated for impairment																							853			113			560			8,569			333			126			624		11,179

December 31, 2021 Loans receivable:
Ending balance-total																						$	69,952		$	94,969		$	45,498		$	617,464		$	27,116		$	8,703		$	—	$	863,702

Ending balances:
Individually evaluated for impairment																							—			—			133			1,561			—			—			—		1,694

Collectively evaluated for impairment																							69,952			94,969			45,365			615,903			27,116			8,703			—		862,008

The following tables ~~as of June 30, 2021, June 30, 2020, and December 31, 2020,~~ are by loan category and present March 31, 2022, March 31, 2021, and December 31, 2021 loans individually evaluated and considered impaired under FASB ASC 310 “Accounting by Creditors for Impairment of a Loan.” Impairment includes performing TDRs.

Schedule of loan category and loans individually evaluated and considered impaired

(Dollars in thousands)							Six months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest								Three months ended
	Recorded		Principal		Related		Recorded		income		Recorded		Income				Unpaid				Average		Interest
June 30, 2021	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
(Dollars in thousands)															Recorded		Principal		Related		Recorded		Income
March 31, 2022															Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial															$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		310		361		—		315		7		310		4		42		57		—		42		1
Mortgage-commercial		5,062		7,689		—		5,332		188		5,168		94		1,499		3,492		—		1,737		46
Consumer:
Home equity		21		25		—		21		1		20		—
Home Equity																—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—

With an allowance recorded:
Commercial, financial, agricultural		—		—		—		—		—		—		—
Commercial																—		—		—		—		—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-commercial		101		101		2		111		3		101		1		—		—		—		—		—
Consumer:
Home equity		—		—		—		—		—		—		—
Home Equity																—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—

Total:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial																—		—		—		—		—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		310		361		—		315		7		310		4		42		57		—		42		1
Mortgage-commercial		5,163		7,790		2		5,443		191		5,269		95		1,499		3,492		—		1,737		46
Consumer:
Home equity		21		25		—		21		1		20		—
Home Equity																—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—
	$	5,494		8,176	$	2	$	5,779	$	199	$	5,599	$	99
Total															$	1,541	$	3,549	$	—	$	1,779	$	47

(Dollars in thousands)							Six months ended				Three months ended
			Unpaid				Average		Interest		Average		Interest								Three months ended
	Recorded		Principal		Related		Recorded		income		Recorded		Income				Unpaid				Average		Interest
June 30, 2020	Investment		Balance		Allowance		Investment		Recognized		Investment		Recognized
(Dollars in thousands)															Recorded		Principal		Related		Recorded		Income
March 31, 2021															Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial															$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		333		425		—		337		10		331		7		436		496		—		434		5
Mortgage-commercial		2,827		5,567		—		3,189		147		3,141		74		5,474		8,129		—		5,728		99
Consumer:
Home equity		66		70		—		68		2		66		1
Home Equity																21		26		—		21		1
Other		—		—		—		—		—		—		—		—		—		—		—		—

With an allowance recorded:
Commercial, financial, agricultural		—		—		—		—		—		—		—
Commercial																—		—		—		—		—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-commercial		193		193		4		216		6		193		3		104		104		2		103		2
Consumer:
Home equity		—		—		—		—		—		—		—
Home Equity																—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—		—		—

Total:
Commercial, financial, agricultural	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial																—		—		—		—		—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		333		425		—		337		10		331		7		436		496		—		434		5
Mortgage-commercial		3,020		5,760		4		3,405		153		3,334		77		5,578		8,233		2		5,831		101
Consumer:
Home equity		66		70		—		68		2		66		1
Home Equity																21		26		—		21		1
Other		—		—		—		—		—		—		—		—		—		—		—		—
	$	3,419		6,255	$	4	$	3,810	$	165	$	3,731	$	85	$	6,035	$	8,755	$	2	$	6,286	$	107


			Unpaid				Average		Interest				Unpaid				Average		Interest
(Dollars in thousands)	Recorded		Principal		Related		Recorded		Income		Recorded		Principal		Related		Recorded		Income
December 31, 2020	Investment		Balance		Allowance		Investment		Recognized
With an allowance recorded:
Commercial		—		—		—		—		—
December 31, 2021											Investment		Balance		Allowance		Investment		Recognized
With no allowance recorded:
Commercial	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		440		499		—		440		1		133		151		—		131		6
Mortgage-commercial		5,508		7,980		—		5,770		388		1,521		3,514		—		1,748		223
Consumer:
Home Equity		42		47		—		42		3		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—

With an allowance recorded:
Commercial		—		—		—		—		—		—		—		—		—		—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		—		—		—		—		—		—		—		—		—		—
Mortgage-commercial		123		123		2		123		11		40		40		1		39		5
Consumer:
Home Equity		—		—		—		—		—		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—

Total:
Commercial		—		—		—		—		—		—		—		—		—		—
Real estate:
Construction		—		—		—		—		—		—		—		—		—		—
Mortgage-residential		440		499		—		440		1		133		151		—		131		6
Mortgage-commercial		5,631		8,103		2		5,893		399		1,561		3,554		1		1,787		228
Consumer:
Home Equity		42		47		—		42		3		—		—		—		—		—
Other		—		—		—		—		—		—		—		—		—		—
	$	6,113	$	8,649	$	2	$	6,375	$	403	$	1,694	$	3,705	$	1	$	1,918	$	234

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered as pass rated loans. Based on the most recent analysis performed, the risk category of loans by class of loans is shown in the table below as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020.~~2021. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, no loans were classified as doubtful.

Schedule of loan category and loan by risk categories

(Dollars in thousands)			Special
June 30, 2021	Pass		Mention		Substandard		Doubtful		Total
March 31, 2022											Pass		Special Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	111,273	$	176	$	—	$	—	$	111,449	$	70,473	$	92	$	—	$	—	$	70,565
Real estate:												—		—		—
Construction		95,858		7		—		—		95,865		96,418		—		1		—		96,419
Mortgage – residential		44,111		154		329		—		44,594		42,246		377		52		—		42,675
Mortgage – commercial		579,401		2,529		10,169		—		592,099		620,089		1,002		6,530		—		627,621
Consumer:												—		—		—
Home Equity		25,244		219		1,199		—		26,662		26,347		175		1,190		—		27,712
Other		7,639		—		10		—		7,649		10,708		22		75		—		10,805
Total	$	863,526	$	3,085	$	11,707	$	—	$	878,318	$	866,281	$	1,668	$	7,848	$	—	$	875,797

(Dollars in thousands)			Special
December 31, 2020	Pass		Mention		Substandard		Doubtful		Total
December 31, 2021											Pass		Special Mention		Substandard		Doubtful		Total
Commercial, financial & agricultural	$	96,507	$	181	$	—	$	—	$	96,688	$	69,833	$	119	$	—	$	—	$	69,952
Real estate:												—		—		—
Construction		95,282		—		—		—		95,282		94,966		—		3		—		94,969
Mortgage – residential		43,240		190		498		—		43,928		45,049		305		144		—		45,498
Mortgage – commercial		559,982		7,270		6,006		—		573,258		610,001		1,009		6,454		—		617,464
Consumer:												—		—		—
Home Equity		25,041		95		1,306		—		26,442		25,751		171		1,194		—		27,116
Other		8,538		21		—		—		8,559		8,604		22		77		—		8,703
Total	$	828,590	$	7,757	$	7,810	$	—	$	844,157	$	854,204	$	1,626	$	7,872	$	—	$	863,702

At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, non-accrual loans totaled ~~$4.0 million~~$148 thousand and ~~$4.7 million,~~$250 thousand, respectively.

TDRs that are still accruing and included in impaired loans at ~~June 30, 2021~~March 31, 2022 and at December 31, ~~2020~~2021 amounted to $~~1.5~~1.4 million ~~million~~ and $~~1.6~~1.4 million ~~million,~~, respectively.

Loans greater than 90 days delinquent and still accruing interest were $~~4.2~~173.9 thousand ~~million~~ and $~~1.3~~0 ~~million~~ at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

The following tables are by loan category and present loans past due and on non-accrual status as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:

Schedule of loan category and present loans past due and on non-accrual status

					Greater than														Greater than
(Dollars in thousands)	30-59 Days		60-89 Days		90 Days and				Total						30-59 Days		60-89 Days		90 Days and				Total
June 30, 2021	Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		Total Loans
March 31, 2022															Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		Total Loans

Commercial	$	111	$	—	$	4,164	$	3,654	$	7,929	$	103,520	$	111,449	$	238	$	3	$	—	$	106	$	347	$	70,218	$	70,565
Real estate:
Construction		—		—		—		—		—		95,865		95,865		—		—		—		—		—		96,419		96,419
Mortgage-residential		36		—		—		311		347		44,247		44,594		71		—		4		42		117		42,558		42,675
Mortgage-commercial		—		—		—		—		—		592,099		592,099		—		—		—		0		—		627,621		627,621
Consumer:
Home equity		—		—		—		21		21		26,641		26,662		—		165		169		0		334		27,378		27,712
Other		24		—		1		—		25		7,624		7,649		2		—		1		—		3		10,802		10,805
	$	171	$	—	$	4,165	$	3,986	$	8,322	$	869,996	$	878,318
Total															$	311	$	168	$	174	$	148	$	801	$	874,996	$	875,797

					Greater than
(Dollars in thousands)	30-59 Days		60-89 Days		90 Days and				Total
December 31, 2021	Past Due		Past Due		Accruing		Nonaccrual		Past Due		Current		Total Loans

Commercial	$	125	$	35	$	—	$	118	$	278	$	69,674	$	69,952
Real estate:
Construction		—		—		—		—		—		94,969		94,969
Mortgage-residential		8		4		—		132		144		45,354		45,498
Mortgage-commercial		—		—		—		—		—		617,464		617,464
Consumer:
Home equity		—		62		—		—		62		27,054		27,116
Other		—		1		—		—		1		8,702		8,703
Total	$	133	$	102	$	—	$	250	$	485	$	863,217	$	863,702

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

Commercial $ 165 $ 27 $ — $ 4,080 $ 4,272 $ 92,416 $ 96,688
Real estate:
Construction 424 — 1,260 — 1,684 93,598 95,282
Mortgage-residential 7 — — 440 447 43,481 43,928
Mortgage-commercial — — — — — 573,258 573,258
Consumer:
Home equity — — — 42 42 26,400 26,442
Other 21 21 — — 42 8,517 8,559
$ 617 $ 48 $ 1,260 $ 4,562 $ 6,487 $ 837,670 $ 844,157

The ~~Cares~~CARES Act and Initiatives Related to COVID-19.On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was signed into law. The CARES Act provided for approximately $2.2 trillion in direct economic relief in response to the public health and economic impacts of COVID-19. Many of the CARES Act’s programs ~~are, and remain,~~were dependent upon the direct involvement of financial institutions like the Bank. These programs ~~have been~~were implemented through rules and guidance adopted by federal departments and agencies, including the U.S. Department of Treasury, the Federal Reserve and other federal bank regulatory authorities, including those with direct supervisory jurisdiction over the Company and the Bank. Furthermore, as the COVID-19 pandemic evolves, federal regulatory authorities continue to issue additional guidance with respect to the implementation, life cycle, and eligibility requirements for the various CARES Act programs, as well as industry-specific recovery procedures for COVID-19. On December 27, 2020, the federal government signed into law the Consolidated Appropriations Act, 2021 implementing a second round of stimulusThe relief of $900 billion. The American Rescue Plan Act of 2021, or the American Rescue Plan, the third round of stimulus relief, is a $1.9 trillion dollar economic stimulus bill that was passed by Congress and signed into law on March 11, 2021. The purpose of the American Rescue Plan is to speed up the recovery from the economic and health effects of the COVID-19 pandemic and the ongoing recession. The Company continues to assess the impact ofperiod provided in the CARES Act ~~the Consolidated Appropriations Act, 2021, and the American Rescue Plan, and other statutes, regulations and supervisory guidance related to the COVID-19 pandemic.~~expired on January 1, 2022.

COVID-19 Related Troubled Debt Restructurings and Loan Modifications for Affected Borrowers. The CARES Act, as extended by certain provisions of the Consolidated Appropriations Act, 2021, ~~permits~~permitted banks to suspend requirements under generally accepted accounting principles (“GAAP”) for loan modifications to borrowers affected by COVID-19 that may otherwise be characterized as troubled debt restructurings, or TDRs, and suspend any determination related thereto if (i) the borrower was not more than 30 days past due as of December 31, 2019, (ii) the modifications ~~are~~were related to COVID-19, and (iii) the modification ~~occurs~~occurred between March 1, 2020 and the earlier of 60 days after the date of termination of the national emergency or January 1, 2022. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19.

The Company is focused on servicing the financial needs of its 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. Beginning in March 2020, the Company proactively offered payment deferrals for up to 90 days to its loan customers regardless of the impact of the pandemic on their business or personal finances. 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 at the conclusion of their payment deferral period, loans in 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, to $8.7 million at March 31, 2021, ~~and to~~ $4.5 million at June 30, ~~2021. The Company had no loans remaining on initial deferral status in which both principal and interest were deferred~~2021, $4.1 million at September 30, 2021, $0 at December 31, ~~2020,~~2021 and March 31, ~~2021 and June 30, 2021. The $4.5 million in deferrals at June 30, 2021 consists of two loans: a mixed use office building and an events / meeting center.~~2022.

Troubled Debt Restructurings. 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-month periods ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020.~~March 31, 2021. Additionally, 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 90 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~~its corresponding collateral value. All ~~troubled~~ TDR accruing loans ~~that have a~~where the loan balance ~~that~~ exceeds the present value of cash ~~flows~~flow 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~~Bank will be unable to collect all amounts due including both principal and interest according to the contractual terms of the loan agreement.

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

A summary of changes in the accretable yield for purchased credit-impaired loans for the three months ended March 31, 2022 and ~~six months ended June 30,~~March 31, 2021 ~~and June 30, 2020~~ are as follows:

Schedule for changes in the accretable yield for PCI loans

(Dollars in thousands) Three Months
Ended
June 30, 2021 Three Months
Ended
June 30, 2020

Accretable yield, beginning of period $ 86 $ 116
Accretion (7 ) (7 )
Accretable yield, end of period $ 79 $ 109

(Dollars in thousands) Six Months
Ended
June 30, 2021 Six Months
Ended
June 30, 2020

Accretable yield, beginning of period $ 93 $ 123
Accretion (14 ) (14 )
Accretable yield, end of period $ 79 $ 109

(Dollars in thousands) Three Months
Ended
March 31, 2022 Three Months
Ended
March 31, 2021

Accretable yield, beginning of period $ 64 $ 93
Accretion (8 ) (7 )
Accretable yield, end of period $ 56 $ 86
At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the recorded investment in purchased impaired loans was $109 thousand ~~thousand~~ and $~~110~~109 thousand ~~thousand,~~, respectively. The unpaid principal balance was $~~162~~147 thousand ~~thousand~~ and $~~171~~152 thousand ~~thousand~~ at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, these loans were all secured by commercial real estate.
Related party loans and lines of credit are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and generally do not involve more than the normal risk of collectability. The following table presents related party loan transactions for the three months ended June 30, 2021 and June 30, 2020:
~~Schedule of related party loan~~
(Dollars in thousands) 2021 2020
Beginning Balance December 31, $ 3,297 $ 4,109
New Loans 2 55
Less loan repayments 225 437
Ending Balance June 30, $ 3,074 $ 3,727
Note 5—Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative pronouncements:

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, 2022. Early adoption is permitted for all organizations for periods beginning after December 15, 2018. The Company is currently evaluating the ~~impact~~effect that ~~this~~implementation of the new standard will have on its financial ~~statements.~~
position, results of operations, and cash flows.
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 ~~the Company 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 ASC. 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.
22
In December 2019, the FASB issued guidance to simplify accounting for income taxes by removing specific technical exceptions that often produce information investors have a hard time understanding. The amendments also improve consistent application of, and simplify, GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments became effective for the Company for interim and annual periods beginning after December 15, 2020 and did not have a material effect 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 became effective for the Company for interim and annual periods beginning after December 15, 2020 and did not have a material effect on its financial statements.
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. For public business entities, the amendments were effective upon issuance of the final ASU. For all other entities, the amendments were effective for fiscal years beginning after December 15, 2019, and ~~were~~are effective for interim periods within those fiscal years beginning after December 15, 2020. The effective date of the amendments to ASU 2016-01 were effective 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 (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 is 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. ~~On November 15, 2019, FASB issued ASU 2019-10, which delayed~~During 2021, the ~~effective date for~~Company established a CECL Team to begin the ~~ASU 2016-13 for smaller public business entities, including Community Banks, and nonpublic business entities to January 1, 2023.~~process of implementing CECL. The Company ~~does not expect these amendments~~selected Valuant’s ValuCast as its CECL solution. In conjunction with Valuant, the Company developed a detailed roadmap and implementation plan; collected and validated data; and selected loss methodologies. Currently, the Company and Valuant are working on the reasonable and supportable forecast and qualitative factors. The Company plans to perform mock runs during 2022. Dixon Hughes Goodman, LLP has been engaged to perform model validation services prior to implementation. The implementation of CECL may have a material effect on ~~its~~the Company’s financial statements.
18
In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and exceptions for applying ~~GAAP~~generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ~~This~~The ASU is intended to help stakeholders during the global market-wide reference rate transition period. The amendments are effective through December 31, 2022. The Company does not expect these amendments to have a material effect on its financial statements.
In August 2020, the FASB issued guidance to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The amendments will be effective the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company does not expect these amendments to have a material effect on its financial statements.
In October 2020, the FASB issued guidance to clarify the FASB’s intent that an entity should reevaluate whether a callable debt security that has multiple call dates is within the scope of FASB ASC 310-20-35-33 for each reporting period. The amendments were effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 and did not have a material effect on the Company’s financial statements.
In October 2020, the FASB issued amendments to clarify the ~~ASC~~Accounting Standards Codification and make minor improvements that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments ~~were~~became effective for the Company for annual periods beginning after December 15, 2020 and did not have a material ~~effect~~impact on the Company’s financial statements.
In October 2021, the FASB amended the Business Combinations topic in the Accounting Standard Codification to require entities to apply guidance in the Revenue topic to recognize and measure contract assets and contract liabilities acquired in a business combination. The amendments are effective for the fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments are applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. The Company does not expect these amendments to have a material effect on its financial statements.
In November 2021, the FASB added a topic to the Accounting Standards Codification, Government Assistance, to require certain annual disclosures about transactions with a government that are accounted for by applying grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2021. 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.
23
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. The Company’s 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.
19
Investment Securities Available-for-Sale - 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 mortgage-backed securities issued both by government sponsored enterprises and 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 - 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 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 valuation of loans receivable is estimated using the exit price notion which incorporates factors, such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, impaired loans and all other loans. The results are then adjusted to account for credit risk as described above.

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.

Securities Sold Under Agreements to Repurchase - 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 Debt - The fair value of junior subordinated debt 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.
24
20
The carrying amount and estimated fair value by classification level of the Company’s financial instruments as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are as follows:
Fair Value, by Balance Sheet Grouping

June 30, 2021 March 31, 2022
Fair Value Carrying Fair Value
(Dollars in thousands) Carrying
Amount Total Level 1 Level 2 Level 3 Amount Total Level 1 Level 2 Level 3
Financial Assets:
Cash and short term investments $ 75,987 $ 75,987 $ 75,987 $ — $ — $ 100,792 $ 100,792 $ 100,792 $ — $ —
Investment securities available-for-sale 468,951 468,951 25,576 443,375 —
Available-for-sale securities 577,820 577,820 36,371 541,449 —
Other investments, at cost 1,718 1,718 — — 1,718 1,879 1,879 — — 1,879
Loans held-for-sale 11,416 11,416 — 11,416 —
Loans held for sale 12,095 12,095 — 12,095 —
Net loans receivable 867,680 871,342 — — 871,342 864,734 836,206 — — 836,206
Accrued interest receivable 4,012 4,012 4,012 — —
Accrued interest 3,838 3,838 3,838 — —
Financial liabilities:
Non-interest bearing demand $ 417,895 $ 417,895 $ — $ 417,895 $ — $ 467,265 $ 467,265 $ — $ 467,265 $ —
Interest bearing demand deposits and money market accounts 577,362 577,362 — 577,362 — 658,932 658,932 — 658,932 —
Savings 136,338 136,338 — 136,338 — 150,849 150,849 — 150,849 —
Time deposits 158,288 158,763 — 158,763 — 153,702 153,871 — 153,871 —
Total deposits 1,289,883 1,290,358 — 1,290,358 — 1,430,748 1,430,917 — 1,430,917 —
Securities sold under agreements to repurchase 60,487 60,487 — 60,487 —
Junior subordinated debt 14,964 14,493 — 14,493 —
Federal Home Loan Bank Advances — — — — —
Short term borrowings 68,060 68,060 — 68,060 —
Junior subordinated debentures 14,964 15,653 — 15,653 —
Accrued interest payable 505 505 505 — — 334 334 334 — —

December 31, 2020 December 31, 2021
Carrying Fair Value Carrying Fair Value
(Dollars in thousands) Amount Total Level 1 Level 2 Level 3 Amount Total Level 1 Level 2 Level 3
Financial Assets:
Cash and short term investments $ 64,992 $ 64,992 $ 64,992 $ — $ — $ 69,022 $ 69,022 $ 69,022 $ — $ —
Investment securities available-for-sale 359,866 359,866 20,564 339,302 —
Available-for-sale securities 564,839 564,839 39,829 525,010 —
Other investments, at cost 2,053 2,053 — — 2,053 1,785 1,785 — — 1,785
Loans held for sale 45,020 45,020 — 45,020 — 7,120 7,120 — 7,120 —
Net loans receivable 833,768 829,685 — — 829,685 852,523 851,822 — — 851,822
Accrued interest receivable 4,167 4,167 4,167 — —
Accrued interest 3,927 3,927 3,927 — —
Financial liabilities:
Non-interest bearing demand $ 385,511 $ 385,511 $ — $ 385,511 $ — $ 444,688 $ 444,688 $ — $ 444,688 $ —
Interest bearing demand deposits and money market accounts 520,205 520,205 — 520,205 — 619,057 619,057 — 619,057 —
Savings 123,032 123,032 — 123,032 — 143,765 143,765 — 143,765 —
Time deposits 160,665 161,505 — 61,505 — 153,781 154,030 — 154,030 —
Total deposits 1,189,413 1,190,253 — 1,190,253 — 1,361,291 1,361,540 — 1,361,540 —
Securities sold under agreements to repurchase 40,914 40,914 — 40,914 —
Junior subordinated debt 14,964 11,748 — 11,748 —
Federal Home Loan Bank Advances — — — — —
Short term borrowings 54,216 54,216 — 54,216 —
Junior subordinated debentures 14,964 15,015 — 15,015 —
Accrued interest payable 667 667 667 — — 404 404 404 — —
25
21

The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 that are measured on a recurring basis. There were no liabilities carried at fair value as of ~~June 30, 2021~~March 31, 2022 or December 31, ~~2020~~2021 that are measured on a recurring basis.

Fair Value, Assets Measured on Recurring Basis
~~(Dollars in thousands)~~
Description June 30,
2021 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 $ 15,448 $ — $ 15,448 $ —
Government sponsored enterprises — — — —
Mortgage-backed securities 321,241 22,326 298,915 —
Small Business Administration pools 36,225 — 36,225 —
State and local government 89,338 — 89,338 —
Corporate and other securities 6,699 3,250 3,449 —
Total Available-for-sale securities 468,951 25,576 443,375 —
Loans held-for-sale 11,416 — 11,416 —
Total $ 480,367 $ 25,576 $ 454,791 $ —
(Dollars in thousands)
Description December 31,
2020 (Level 1) (Level 2) (Level 3) March 31,
2022 (Level 1) (Level 2) (Level 3)
Available- for-sale securities ��
US Treasury Securities $ 1,502 $ — $ 1,502 $ — $ 58,595 $ 29,772 $ 28,823 $ —
Government Sponsored Enterprises 1,006 — 1,006 — 2,317 — 2,317 —
Mortgage-backed securities 229,929 17,029 212,900 — 378,348 2,949 375,399 —
Small Business Administration pools 35,498 — 35,498 — 27,984 — 27,984 —
State and local government 88,603 3,535 85,068 — 101,971 2,900 99,071 —
Corporate and other securities 3,328 — 3,328 — 8,605 750 7,855 —
Total Available-for-sale securities 359,866 20,564 339,302 — 577,820 36,371 541,449 —
Loans held for sale 45,020 — 45,020 — 12,095 — 12,095 —
Total $ 404,886 $ 20,564 $ 384,322 $ — $ 589,915 $ 36,371 $ 553,544 $ —

(Dollars in thousands)
Description December 31,
2021 (Level 1) (Level 2) (Level 3)
Available- for-sale securities
US Treasury Securities $ 15,436 $ — $ 15,436 $ —
Government Sponsored Enterprises 2,501 — 2,501 —
Mortgage-backed securities 397,729 25,934 371,796 —
Small Business Administration pools 31,273 — 31,273 —
State and local government 109,848 12,896 96,952 —
Corporate and other securities 8,052 1,000 7,052 —
Total Available-for-sale securities 564,839 39,830 525,010 —
Loans held for sale 7,120 — 7,120 —
Total $ 571,959 $ 39,830 $ 532,130 $ —

The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 that are measured on a non-recurring basis. There were no Level 3 financial instruments for the three months ended ~~June 30,~~March 31, 2022 and March 31, 2021 ~~and June 30, 2020~~ measured on a recurring basis.
Fair Value, ~~Measurements, Nonrecurring~~Assets Measured on Non-Recurring Basis
(Dollars in thousands)

Description June 30,
2021 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) March 31,
2022 (Level 1) (Level 2) (Level 3)
Impaired loans:
Commercial & Industrial $ — $ — $ — $ — $ — $ — $ — $ —
Real estate:
Mortgage-residential 310 — — 310 42 — — 42
Mortgage-commercial 5,163 — — 5,163 1,499 — — 1,499
Consumer:
Home equity 21 — — 21 — — — —
Other — — — — — — — —
Total impaired 5,494 — — 5,494 1,541 — — 1,541
Other real estate owned:
Construction 641 — — 641 1,056 — — 1,056
Mortgage-residential 541 — — 541
Mortgage-commercial 90 — — 90
Total other real estate owned 1,182 — — 1,182 1,146 — — 1,146
Total $ 6,676 $ — $ — $ 6,676 $ 2,687 $ — $ — $ 2,687
26
22
(Dollars in thousands)

Description December 31,
2020 (Level 1) (Level 2) (Level 3) December 31,
2021 (Level 1) (Level 2) (Level 3)
Impaired loans:
Commercial & Industrial $ — $ — $ — $ — $ — $ — $ — $ —
Real estate:
Mortgage-residential 440 — — 440 133 — — 133
Mortgage-commercial 5,629 — — 5,629 1,560 — — 1,560
Consumer:
Home equity 42 — — 42 — — — —
Other — — — — — — — —
Total impaired 6,111 — — 6,111 1,693 — — 1,694
Other real estate owned:
Construction 600 — — 600 624 — — 624
Mortgage-commercial 594 — — 594 541 — — 541
Total other real estate owned 1,194 — — 1,194 1,165 — — 1,165
Total $ 7,305 $ — $ — $ 7,305 $ 2,859 $ — $ — $ 2,859

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 ~~$5.5~~$1.5 million and ~~$6.1~~$1.7 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the significant unobservable inputs used in the fair value measurements were as follows:
Fair Value Measurement Inputs and Valuation Techniques
(Dollars in thousands) Fair Value as
of March 31,
2022 Valuation Technique Significant
Observable
Inputs Significant
Unobservable
Inputs
OREO $ 1,146 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 $ 1,541 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,
2021 Valuation Technique Significant
Observable
Inputs Significant
Unobservable
Inputs
OREO $ 1,165 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 $ 1,694 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 June 30,
2021 Valuation Technique Significant
Observable
Inputs Significant
Unobservable
Inputs
OREO $ 1,182 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 $ 5,494 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,
2020 Valuation Technique Significant
Observable
Inputs Significant
Unobservable
Inputs
OREO $ 1,194 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 $ 6,111 Appraisal Value Appraisals and or sales of comparable properties Appraisals discounted 6% to 16% for sales commissions and other holding cost
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Note 7—Deposits
The Company’s total deposits are comprised of the following at the dates indicated:
Schedule of Total Deposits
June 30, December 31, March 31, December 31,
(Dollars in thousands) 2021 2020 2022 2021
Non-interest bearing demand deposits $ 417,895 $ 385,511 $ 467,265 $ 444,688
Interest bearing demand deposits and money market accounts 577,362 520,205 658,932 619,057
Savings 136,338 123,032 150,849 143,765
Time deposits 158,288 160,665 153,702 153,781
Total deposits $ 1,289,883 $ 1,189,413 $ 1,430,748 $ 1,361,291

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had time deposits that ~~meet or~~ exceed the $250,000 FDIC insurance limit of $~~27.9~~29.4 million ~~million~~ and $~~28.6~~27.9 million ~~million,~~, respectively.

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 the Bank.
The following tables present selected financial information for the Company’s reportable business segments for the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and ~~June 30, 2020.~~March 31, 2021.
~~Schedule of Segment Reporting Information, by Segment~~
(Dollars in thousands) Commercial Investment
Six months ended June 30, 2021 and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 22,260 $ 616 $ — $ 2,014 $ (2,008 ) $ 22,882
Interest expense 1,014 — — 209 — 1,223
Net interest income $ 21,246 $ 616 $ — $ 1,805 $ (2,008 ) $ 21,659
Provision for loan losses 345 — — — — 345
Noninterest income 2,747 2,133 1,834 — — 6,714
Noninterest expense 15,412 2,407 1,180 419 — 19,418
Net income before taxes $ 8,236 $ 342 $ 654 $ 1,386 $ (2,008 ) $ 8,610
Income tax provision (benefit) 1,931 — — (119 ) — 1,812
Net income (loss) $ 6,305 $ 342 $ 654 $ 1,505 $ (2,008 ) $ 6,798

(Dollars in thousands) Commercial Investment
Six months ended June 30, 2020 and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 20,634 $ 732 $ — $ 2,129 $ (2,119 ) $ 21,376
Interest expense 1,903 — — 313 — 2,216
Net interest income $ 18,731 $ 732 $ — $ 1,816 $ (2,119 ) $ 19,160
Provision for loan losses 2,325 — — — — 2,325
Noninterest income 2,456 2,554 1,305 — — 6,315
Noninterest expense 14,713 2,276 924 256 — 18,169
Net income before taxes $ 4,149 $ 1,010 $ 381 $ 1,560 $ (2,119 ) $ 4,981
Income tax provision (benefit) 1,089 — — (119 ) — 970
Net income (loss) $ 3,060 $ 1,010 $ 381 $ 1,679 $ (2,119 ) $ 4,011
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(Dollars in thousands) Commercial Investment
Three months ended June 30, 2021 and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 11,399 $ 263 $ — $ 1,007 $ (1,005 ) $ 11,664
Interest expense 468 — — 104 — 572
Net interest income $ 10,931 $ 263 $ — $ 903 $ (1,005 ) $ 11,092
Provision for loan losses 168 — — — — 168
Noninterest income 1,318 1,143 957 — — 3,418
Noninterest expense 7,788 1,232 596 262 — 9,878
Net income before taxes $ 4,293 $ 174 $ 361 $ 641 $ (1,005 ) $ 4,464
Income tax provision (benefit) 997 — — (76 ) — 921
Net income $ 3,296 $ 174 $ 361 $ 717 $ (1,005 ) $ 3,543

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

Dividend and Interest Income $ 10,230 $ 432 $ — $ 1,061 $ (1,057 ) $ 10,666
Interest expense 778 — — 145 — 923
Net interest income $ 9,452 $ 432 $ — $ 916 $ (1,057 ) $ 9,743
Provision for loan losses 1,250 — — — — 1,250
Noninterest income 1,144 1,572 671 — — 3,387
Noninterest expense 7,218 1,312 457 144 — 9,131
Net income before taxes $ 2,128 $ 692 $ 214 $ 772 $ (1,057 ) $ 2,749
Income tax provision (benefit) 592 — — (60 ) — 532
Net income $ 1,536 $ 692 $ 214 $ 832 $ (1,057 ) $ 2,217

Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated
Total Assets as of June 30, 2021 $ 1,491,909 $ 22,342 $ 1 $ 140,337 $ (139,616 ) $ 1,514,973
Total Assets as of December 31, 2020 $ 1,335,320 $ 59,372 $ 2 $ 140,256 $ (139,568 ) $ 1,395,382

Schedule of Company’s Reportable Segment
Three months ended March 31, 2022 Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 10,990 $ 202 $ — $ 1,084 $ (1,081 ) $ 11,195
Interest expense 358 — — 104 — 462
Net interest income $ 10,632 $ 202 $ — $ 980 $ (1,081 ) $ 10,733
Provision for (release of) loan losses (125 ) — — — — (125 )
Noninterest income 1,337 839 1,198 — — 3,374
Noninterest expense 7,991 1,016 763 184 — 9,954
Net income before taxes $ 4,103 $ 25 $ 435 $ 796 $ (1,081 ) $ 4,278

Income tax provision (benefit) 849 — — (60 ) — 789
Net income $ 3,254 $ 25 $ 435 $ 856 $ (1,081 ) $ 3,489

Three months ended March 31, 2021 Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Dividend and Interest Income $ 10,861 $ 353 $ — $ 1,007 $ (1,003 ) $ 11,218
Interest expense 546 — — 105 — 651
Net interest income $ 10,315 $ 353 $ — $ 902 $ (1,003 ) $ 10,567
Provision for loan losses 177 — — — — 177
Noninterest income 1,429 990 877 — — 3,296
Noninterest expense 7,624 1,175 584 157 — 9,540
Net income before taxes $ 3,943 $ 168 $ 293 $ 745 $ (1,003 ) $ 4,146

Income tax provision (benefit) 934 — — (43 ) — 891
Net income $ 3,009 $ 168 $ 293 $ 788 $ (1,003 ) $ 3,255
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Commercial Investment
(Dollars in thousands) and Retail Mortgage advisory and
Banking Banking non-deposit Corporate Eliminations Consolidated

Total Assets as of March 31, 2022 $ 1,631,193 $ 20,300 $ 2 $ 152,973 $ (152,189 ) $ 1,652,279

Total Assets as of December 31, 2021 $ 1,566,949 $ 16,798 $ 2 $ 152,928 $ (152,169 ) $ 1,584,508

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

Total Assets as of March 31, 2021 $ 1,456,436 $ 35,340 $ 2 $ 140,238 $ (139,522 ) $ 1,492,494

Total Assets as of December 31, 2020 $ 1,335,320 $ 59,372 $ 2 $ 140,256 $ (139,568 ) $ 1,395,382
Note 9—Leases
~~During~~The Company has operating leases on three of its facilities. The leases have maturities ranging from September 2024 to December 2038, some of which include extensions of multiple five-year terms. The following tables present information about the ~~three-month period ended June 30, 2021 and June 30, 2020, the Company made cash~~Company’s leases:
Schedule of Lease Information
(dollars in thousands) March 31,
2022 December 31,
2021
Right-of-use assets $ 2,793 $ 2,842
Lease liabilities $ 2,906 $ 2,950
Weighted average remaining lease term 14.92 years 15.08 years
Weighted average discount rate 4.42 % 4.42 %

Three Months Ended March 31,
Lease cost (in thousands) 2022 2021
Operating lease cost $ 80.8 $ 80.8
Cash paid for amounts included in the measurement of lease liabilities $ 75.3 $ 73.9
The following table shows future undiscounted lease payments for operating leases ~~in the amount~~with initial terms of $~~74.1~~ ~~thousand and $72.7~~ ~~thousand, respectively. During the six-month period ended June 30, 2021 and June 30, 2020, the Company made cash payments for operating leases in the amount~~one year or more as of $~~148.0~~ ~~thousand and $145.3~~ ~~thousand, respectively. The lease expense recognized during this three-month period amounted to $80.8~~ ~~thousand at both June 30, 2021 and June 30, 2020, respectively. The lease expense recognized during this six-month period amounted to $161.5~~ ~~thousand at both June 30, 2021 and June 30, 2020, respectively. The lease liability was reduced by $40.7~~ ~~thousand and $37.7~~ ~~thousand at three-month ended June 30, 2021 and June 30, 2020, respectively. The lease liability was reduced by $81.2~~ ~~thousand and $74.8~~ ~~thousand at six-month ended June 30, 2021 and June 30, 2020, respectively. At June 30, 2021 and June 30, 2020, the weighted average lease term was~~ ~~15.43~~ ~~years and~~ ~~16.16~~ ~~years, respectively. The weighted average discount rate for June 30, 2021 and June 30, 2020 was~~ ~~4.42%~~ ~~and~~ ~~4.41%, respectively. The following table is a maturity analysis of the operating lease liabilities.~~March 31, 2022, are as follow:
Schedule of Future Undiscounted Operating Lease Payments
(Dollars in thousands) Liability Liability
Year Cash Lease Expense Reduction Cash Lease Expense Reduction
2021 $ 150 $ 66 $ 83
2022 303 126 177 $ 228 $ 94 $134
2023 309 118 191 309 118 191
2024 282 110 172 282 110 172
2025 222 104 118 222 104 118
2026 226 99 127
Thereafter 2,978 687 2,292 2,751 587 2164
Total $ 4,244 $ 1,211 $ 3,033 $ 4,018 $ 1,112 $2,906

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 no subsequent events occurred requiring accrual or that require disclosure and have not been disclosed in the footnotes to the Company’s unaudited consolidated financial statements as of ~~June 30, 2021.~~March 31, 2022.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report, including information included or incorporated by reference in this report, contains statements which constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may relate to, among other matters, the financial condition, results of operations, plans, objectives, future performance, and business of our 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, ~~2020~~2021 as filed with the U.S. Securities and Exchange Commission (the “SEC”) on March ~~12, 2021~~16, 2022 and the following:
● ~~The~~· the continuing impact of ~~the outbreak of the novel coronavirus, or~~ COVID-19 and its variants, on our business, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy, ~~(including, without limitation, the CARES Act, the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act of 2021),~~ and the resulting effect of these items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;
●· 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 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;
· increases in competitive pressure in the banking and financial services industries;
· changes in the interest rate environment, which could reduce anticipated or actual margins; temporarily reduce the market value of our available-for-sale investment securities and temporarily reduce accumulated other comprehensive income or increase accumulated other comprehensive loss, which temporarily could reduce shareholders’ equity;
· changes in political conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry, including as a result of the presidential administration and congressional elections;
· general economic conditions resulting in, among other things, a deterioration in credit quality;
· changes occurring in business conditions and inflation;
· changes in access to funding or increased regulatory requirements with regard to funding;
· cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;
· changes in deposit flows;
· changes in technology;
· our current and future products, services, applications and functionality and plans to promote them;
· changes in monetary and tax policies, including potential changes in tax laws and regulations;
· changes in accounting standards, policies, estimates and practices as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board;
· our assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results;
· the rate of delinquencies and amounts of loans charged-off;
· the rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio;
· our ability to maintain appropriate levels of capital, including levels of capital required under the capital rules implementing Basel III;
· our ability to successfully execute our business strategy;
· our ability to attract and retain key personnel;
· our ability to retain our existing customers, including our deposit relationships;
· adverse changes in asset quality and resulting credit risk-related losses and expenses;
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· the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics (including COVID-19), war or terrorist activities, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs;
· risks associated with our participation in the Paycheck Protection Program, otherwise the PPP, established by the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, including but not limited to, 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 that we would have otherwise extended credit;
● ~~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 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;
● ~~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 or social conditions or the legislative or regulatory environment, including governmental initiatives affecting the financial services industry, including as a result of the presidential administration and congressional elections;
● ~~general economic conditions resulting in, among other things, a deterioration in credit quality;~~
● ~~changes occurring in business conditions and inflation;~~
● ~~changes in access to funding or increased regulatory requirements with regard to funding;~~
● cybersecurity risk related to our dependence on internal computer systems and the technology of outside service providers, as well as the potential impacts of third party security breaches, which subject us to potential business disruptions or financial losses resulting from deliberate attacks or unintentional events;
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● ~~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, including potential changes in tax laws and regulations;~~
● changes in accounting standards, policies, estimates and practices as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC and the Public Company Accounting Oversight Board;
● ~~our assumptions and estimates used in applying critical accounting policies, which may prove unreliable, inaccurate or not predictive of actual results;~~
● ~~the rate of delinquencies and amounts of loans charged-off;~~
● ~~the rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio;~~
● ~~our ability to maintain appropriate levels of capital, including levels of capital required under the capital rules implementing Basel III;~~
● ~~our ability to successfully execute our business strategy;~~
● ~~our ability to attract and retain key personnel;~~
● ~~our ability to retain our existing customers, including our deposit relationships;~~
● ~~adverse changes in asset quality and resulting credit risk-related losses and expenses;~~
● the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as the results of political elections, epidemics and pandemics (including COVID-19), war or terrorist activities, disruptions in our customers’ supply chains, disruptions in transportation, 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, ~~2020, in Part II, Item 1A of our Quarterly Report on Form 10-Q,~~2021, 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, ~~2020.~~2021. 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, except as required by applicable law.

Overview

The following discussion describes our results of operations for the ~~six months and~~ three months ended ~~June 30, 2021~~March 31, 2022 as compared to the ~~six months and three months~~three-month period ended ~~June 30, 2020;~~March 31, 2021 and analyzes our financial condition as of ~~June 30, 2021~~March 31, 2022 as compared to December 31, ~~2020.~~2021. 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 and borrowings. Another key measure is the spread between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. 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 or crediting 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.
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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 analysis identify 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
The COVID-19 pandemic and variants of the virus continue to create disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world. As the COVID-19 pandemic has 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 assess. Our business, financial ~~performance~~condition and results of operations generally ~~and in particular~~rely upon the ability of our borrowers to repay their loans, the value of collateral ~~securing those~~underlying our secured loans, ~~as well as~~and demand for loans and other products and services we offer, iswhich 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~~unprecedented and ~~related restrictive measures taken by governments, businesses and individuals to contain the~~rapid spread of ~~the virus caused unprecedented uncertainty,~~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 have resulted and continue to result in less economic activity, and volatility and disruption in financial ~~markets and in governmental, commercial and consumer activity in the United States and globally, including our local~~ markets. As these restrictive measures have begun to ease in the second half of 2020 and into 2021, the U.S. economy has begun to recover and, with the broad availability and distribution of COVID-19 vaccines, we anticipate continued improvements in commercial and consumer activity, our local economy, and the U.S. economy.
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~~While there are reasons for optimism, we recognize that our customers are experiencing varying degrees of financial distress, which we expect to continue into the second half of 2021.~~ Commercial activity has improved, but has not returned to the levels existing before the outbreak of the pandemic, which may result in our borrowers’ inability to meet their loan obligations. Economic pressures and uncertainties related to the COVID-19 pandemic have also resulted in changes in consumer spending behaviors, which may negatively impact the demand for loans and other services we offer. In addition, our loan portfolio includes customers in industries such as hotels, restaurants and assisted living facilities, all of which have been significantly impacted by the COVID-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 a more permanent basis as a result of the pandemic. We continue to monitor these customers closely. ~~As of June 30, 2021, the State of South Carolina, like most of the nation, is open with limited restrictions.~~

In addition, due to the COVID-19 pandemic, market interest rates declined ~~significantly, with~~to 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 1.74% at March 31, 2021 and then declining to 1.45% at June 30, 2021. In March 2020, the Federal Open Market Committee reduced the targeted federal funds interest rate to a range from 0% to 0.25%, and this low range was still in effect as of June 30, 2021. Furthermore, one-month to three-year Treasury yields ranged from 0.05% to 0.46% at June 30, 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 our business, financial condition and results of operations.
~~The ultimate extent~~ However, during 2022, market interest rates have started to increase. Changes in market interest rates can have a significant impact on the level of income and expense recorded on a large portion of our interest-earning assets and interest-bearing liabilities, and on the ~~impact~~market value of ~~the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and~~all interest-earning assets, 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 businessesthan those possessing a short term to ~~return to their pre-pandemic routine.~~maturity.

Lending Operations and Accommodations to Borrowers; Impact of COVID-19 on Asset Quality and Value of Investment Securities

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. Beginning in March 2020, we proactively offered payment deferrals for up to 90 days to our loan customers regardless of the impact of the pandemic on their business or personal finances. ~~Some~~As a result of these deferments were to businesses that temporarily closed or reduced operations and some were requested as a pre-cautionary measure to conserve cash. We continue to consider potential deferrals with respect to certain customers, which we evaluate on a case-by-case basis. Loans onpayments being resumed at the conclusion of their payment deferral period, loans in which payments ~~have been~~were being deferred ~~declined~~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, to $8.7 million at March 31, 2021, to $4.5 million at June 30, 2021, ~~from $16.1~~to $4.1 million at September 30, 2021, and to zero at December 31, ~~2020~~2021 and ~~from $175.0 million at June 30, 2020. We had no loans remaining on initial deferral status in which both principal and interest were deferred at December~~March 31, 2020 and June 30, 2021. The $16.1 million in deferrals at December 31, 2020 consisted of seven loans on which only principal was being deferred. We had two loans totaling $4.5 million in continuing deferral status in which only principal is being deferred at June 30, 2021. One of these loans is for a mixed use office building and the other loan is for an events / meeting center.2022.

We ~~are~~were also a small business administration approved lender and participated in the ~~Paycheck Protection Program, or~~ PPP, established under the CARES Act. ~~We had~~During 2020 and 2021, we originated 1,417 PPP loans totaling ~~$49.1~~$88.5 million, ~~gross of deferred fees and costs and $47.2 million net of deferred fees and costs at June 30, 2021. We had~~which includes 843 PPP loans totaling ~~$43.3~~$51.2 million ~~gross~~originated in 2020 and 574 PPP loans totaling $37.3 million originated in 2021. Furthermore, during 2020, we facilitated the origination of ~~deferred fees~~111 PPP loans totaling $31.2 million for our customers through a third party prior to establishing our own PPP platform. As of March 31, 2022, 1,412 PPP loans totaling $88.2 million (841 PPP loans totaling $51.2 million originated in 2020 and ~~costs and $42.2~~571 PPP loans totaling $37.0 million ~~net of deferred fees and costs at December 31, 2020. The~~originated in 2021) were forgiven through the SBA PPP ~~deferred fees net of deferred costs will be recognized as interest income over the remaining life of the PPP loans.~~forgiveness process.
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Our asset quality metrics as of ~~June 30, 2021~~March 31, 2022 remained sound. At March 31, 2022, our non-performing assets were not materially impacted by the economic pressures of the COVID-19 pandemic. The non-performing asset ratio was ~~0.62%~~0.09% of total assets with the nominal level of ~~$9.3~~$1.5 million in non-performing assets at ~~June 30, 2021~~March 31, 2022 compared to ~~0.50%~~0.09% and ~~$7.0~~$1.4 million at December 31, ~~2020. The increase~~2021. Non-accrual loans declined to $148 thousand at March 31, 2022 from $250 thousand at December 31, 2021. We had $174 thousand in ~~the non-performing asset ratio was due to one $4.2 million loan, which was an~~ accruing ~~loan~~loans past due 90 days or more at ~~June 30,~~March 31, 2022 compared to zero accruing loans past due 90 days or more at December 31, 2021. ~~Subsequent to June 30, 2021, this loan was paid current in both principal and interest.~~ Loans past due 30 days or more represented ~~0.49%~~0.07% of the loan portfolio at ~~June 30, 2021~~March 31, 2022 compared to ~~0.23%~~0.03% at December 31, ~~2020. The increase in loans past due 30 days or more was due to the previously referenced $4.2 million loan that was paid current in both principal and interest subsequent to June 30,~~ 2021. The ratio of classified loans plus OREO and repossessed assets ~~increased~~declined to ~~9.45%~~6.13% of total bank regulatory risk-based capital at ~~June 30, 2021~~March 31, 2022 from ~~6.89%~~6.27% at December 31, ~~2020 due to one loan relationship, which was impacted by the COVID-19 pandemic.~~2021. During the three months ended ~~June 30, 2021,~~March 31, 2022, we experienced net loan ~~charge-offs~~recoveries of ~~$87~~$19 thousand and net overdraft charge-offs of $6$10 thousand.
At June 30, 2021, our non-performing assets were not yet materially impacted by the economic pressures of the COVID-19 pandemic. 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 June 30, 2021:
Industry Segments Outstanding % of Loan Avg. Loan Avg. Loan to
(Dollars in millions) Loan Balance Portfolio Size Value
Hotels $ 33.9 3.9 % $ 2.3 69 %
Restaurants $ 21.3 2.4 % $ 0.7 70 %
Assisted Living $ 8.7 1.0 % $ 1.4 46 %
Retail $ 83.0 9.5 % $ 0.7 57 %

We are also monitoring the impact of the COVID-19 pandemic and the recent increase in market interest rates on the operations and value of our investments. We mark to market our ~~publicly traded~~available-for-sale 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 ~~June 30, 2021.~~March 31, 2022. However, ~~because of changing economic and~~additional changes in the interest rate environment may temporarily reduce the 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.~~available-for-sale investment securities, which temporarily could reduce shareholders’ equity.

Capital and Liquidity

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, 2022
Leverage Ratio 8.43 % 5.00 % 4.00 % $ 55,152 $ 71,233
Common Equity Tier 1 Capital Ratio 13.89 % 6.50 % 4.50 % 72,135 91,649
Tier 1 Capital Ratio 13.89 % 8.00 % 6.00 % 57,500 77,014
Total Capital Ratio 15.03 % 10.00 % 8.00 % 49,049 68,563
December 31, 2021
Leverage Ratio 8.45 % 5.00 % 4.00 % $ 54,297 $ 70,021
Common Equity Tier 1 Capital Ratio 13.97 % 6.50 % 4.50 % 71,086 90,111
Tier 1 Capital Ratio 13.97 % 8.00 % 6.00 % 56,817 75,843
Total Capital Ratio 15.15 % 10.00 % 8.00 % 48,971 67,996
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Our capital remained strong and exceeded the well-capitalized regulatory requirements at June 30, 2021. Total shareholders’ equity increased $1.6 million or 1.2% to $137.9 million at June 30, 2021 from $136.3 million at December 31, 2020. The $1.6 million increase was due to a $5.0 million increase in retention of earnings less dividends paid and a $0.4 million increase due to employee and director stock awards partially offset by a $3.8 million reduction in accumulated other comprehensive income. The decline in accumulated other comprehensive income was due to an increase in longer-term market interest rates, which resulted in a reduction in the net unrealized gains in our investment securities portfolio. 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.strong. Each of the regulatory capital ratios for the Bank exceeds the well capitalized minimum levels currently required by regulatory statute at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020. Refer to the Liquidity and Capital Resources 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
June 30, 2021
Leverage Ratio 8.48 % 5.00 % 4.00 % $ 51,561 $ 66,395
Common Equity Tier 1 Capital Ratio 13.52 % 6.50 % 4.50 % 65,275 83,877
Tier 1 Capital Ratio 13.52 % 8.00 % 6.00 % 51,323 69,925
Total Capital Ratio 14.66 % 10.00 % 8.00 % 43,359 61,961
December 31, 2020
Leverage Ratio 8.84 % 5.00 % 4.00 % $ 52,270 $ 65,893
Common Equity Tier 1 Capital Ratio 12.83 % 6.50 % 4.50 % 59,406 78,169
Tier 1 Capital Ratio 12.83 % 8.00 % 6.00 % 45,334 64,097
Total Capital Ratio 13.94 % 10.00 % 8.00 % 36,961 55,723
2021. 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 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.
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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;~~deposits, our ability to borrow against approved lines of credit (federal funds purchased) from correspondent ~~banks;~~banks, and our ability to obtain advances secured by certain securities and loans from the Federal Home Loan Bank (“FHLB”).

Critical Accounting ~~Policies~~Estimates
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 ~~June 30, 2021~~March 31, 2022 and our notes included in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 as filed with the SEC on March ~~12, 2021.~~16, 2022.

Certain accounting policies inherently involve a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. We consider these accounting policies and estimates to be critical accounting policies. We have identified the determination of the allowance for loan losses, ~~goodwill and other intangibles,~~ income taxes, and deferred tax assets ~~and deferred tax liabilities, other-than-temporary impairment, business combinations, and method of accounting for loans acquired~~ to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, management has reviewed and approved these critical accounting policies and estimates and has discussed these policies with our Audit and Compliance Committee. A brief discussion of each of these areas appears in our ~~2020~~2021 Annual Report on Form 10-K. During the first ~~six~~three months of ~~2021,~~2022, we did not significantly alter the manner in which we applied our ~~Critical Accounting Policies~~critical accounting policies or developed related assumptions and estimates.

There have been no significant changes to our critical accounting ~~policies~~estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Comparison of Results of Operations for ~~Six~~Three Months Ended ~~June 30, 2021~~March 31, 2022 to the ~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2021

Net Income

Our net income for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$6.8~~$3.5 million, or ~~$0.90~~$0.46 diluted earnings per common share, as compared to ~~$4.0~~$3.3 million, or ~~$0.54~~$0.43 diluted earnings per common share, for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The ~~$2.8 million~~$234 thousand increase in net income between the two periods is primarily due to a ~~$2.5 million~~$166 thousand increase in net interest income, a ~~$399~~$78 thousand increase in non-interest income, ~~and~~ a ~~$2.0 million~~$302 thousand reduction in provision for loan losses, and a $102 thousand reduction in income tax expense partially offset by a ~~$1.2 million~~$414 thousand increase in non-interest ~~expense and $842 thousand increase in income tax~~ expense. The increase in net interest income results from an increase of $247.6 million in average earning assets partially offset by a 25 basis point decline in the net interest margin between the two periods. The increase in non-interest income is primarily related to increases in investment advisory fees and non-deposit commissions of $529 thousand, ATM/debit card income of $259 thousand, gains on sale of assets of $71 thousand, and $100 thousand from the collection of a summary judgment related to a loan charged off at a bank we acquired, partially offset by lower mortgage loan fees of $421 thousand and lower deposit service charges of $151 thousand. The reduction in 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 during the first six months of 2020. The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of $419 thousand, increased occupancy expense of $142 thousand, increased marketing and public relations expense of $108 thousand, increased FDIC assessment of $185 thousand, and increased computer service expense of $283 thousand partially offset by lower amortization of intangibles of $91 thousand. Our effective tax rate was 21.05% during the first six months of 2021 compared to 19.47% during the same period in 2020.

· The increase in net interest income results from an increase of $176.3 million in average earning assets partially offset by a 33 basis point decline in the net interest margin between the two periods.
· The increase in non-interest income is primarily related to increases in investment advisory fees and non-deposit commissions of $321 thousand, ATM/debit card income of $28 thousand, deposit service charges of $19 thousand, income on bank owned life insurance of $12 thousand, rental income of $11 thousand, and wire transfer fees of $8 thousand partially offset by declines in mortgage banking income of $151 thousand, gains on sale of assets of $77 thousand, and other non-recurring income of $96 thousand.
o The reduction in other non-recurring income was related to the collection of a $100 thousand summary judgment related to a loan charged off at a bank, which we subsequently acquired, during the three months ended March 31, 2021. We recorded $4 thousand in other non-recurring income related to a gain on insurance proceeds during the three months ended March 31, 2022.
· The reduction in provision for loan losses is primarily related to a decrease in our COVID-19 qualitative factor in our allowance for loan losses methodology related to declines in COVID-19 cases, hospitalizations, and deaths in our markets; and net recoveries during the first three months of 2022 partially offset by increases in our economic conditions qualitative factor due to inflation, supply chain bottlenecks, labor shortages in certain industries, and the war in Ukraine; by our changes in staff qualitative factor due to the addition of a new team and new market in the Piedmont Region of South Carolina in March 2022; and by loan growth.
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· The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of $155 thousand, increased equipment expense of $57 thousand, increased other real estate expense of $18 thousand, increased ATM/debit card and data processing expense of $150 thousand, increased travel, meals, and entertainment expense of $28 thousand, increased courier expense of $25 thousand, and increased fraud expense of $108 thousand partially offset by lower occupancy expense of $25 thousand, lower marketing and public relations expense of $35 thousand, lower FDIC assessment of $39 thousand, and lower amortization of intangibles of $18 thousand.
· Our effective tax rate was 18.4% during the three months ended March 31, 2022 compared to 21.5% during the three months ended March 31, 2021.
o The reduction in the effective tax rate was primarily due to a $153 thousand non-recurring reduction to income tax expense during the three months ended March 31, 2022.
Net Interest Income

Net interest income is our primary source of revenue. Net interest income is the difference between income earned on assets and interest paid on deposits and borrowings used to support such assets. Net interest income is determined by the rates earned on our interest-earning assets and the rates paid on our interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, and the degree of mismatch and the maturity and repricing characteristics of our interest-earning assets and interest-bearing liabilities.

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 average yields on assets and average rates on interest-bearing liabilities during the ~~six-month~~three-month periods ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ along with average balances and the related interest income and interest expense amounts.
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Net interest income increased ~~$2.5 million,~~$166 thousand, or ~~13.0%~~1.6%, to ~~$21.7~~$10.7 million for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 from ~~$19.2~~$10.6 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Our net interest margin declined by 2533 basis points to ~~3.18%~~2.87% during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 from ~~3.43%~~3.20% during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Our net interest margin, on a taxable equivalent basis, was ~~3.22%~~2.91% for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~3.46%~~3.23% for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Average earning assets increased ~~$247.6~~$176.3 million, or ~~22.0%~~13.2%, to ~~$1.4~~$1.5 billion for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$1.1~~$1.3 billion in the same period of ~~2020.~~2021. The increase in net interest income was primarily due to a higher level of average earning assets partially offset by lower net interest margin. The increase in average earning assets was due to increases in non-PPP loans and securities partially offset by declines in PPP loans and other short-term ~~investments primarily due to Non-PPP loan growth, PPP loans, organic deposit growth, and excess liquidity from PPP loan proceeds and other stimulus funds related to the COVID-19 pandemic.~~investments. The decline in net interest margin was primarily due to the Federal Reserve reducing the target range of the federal funds rate two times totaling 150 basis points during the first quarter of 2020 and the excess liquidity generated from PPP loan proceeds, ~~and~~ other stimulus funds related to the COVID-19 pandemic, and organic deposit growth being deployed in lower yielding securities and other short-term investments. Furthermore, interest income on PPP loans declined to $45 thousand during the three months ended March 31, 2022 from $684 thousand during the three months ended March 31, 2021 due to a reduction in PPP loans. Lower market rates, the competitive loan pricing environment, and the COVID-19 pandemic put downward pressure on our net interest margin during ~~2020~~2021 and the first ~~six~~three months of ~~2021.~~2022.

Average loans ~~increased $101.8~~declined $10.0 million, or ~~12.9%~~1.1%, to ~~$891.0~~$876.3 million for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 from ~~$789.3~~$886.4 million for the same period in ~~2020.~~2021. Average PPP loans ~~increased $39.7 million to $55.6~~declined $54.9 million and average Non-PPP loans increased ~~$62.1~~$44.9 million to ~~$835.5~~$609 thousand and $875.7 million, respectively, for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. Average loans represented ~~65.0%~~57.8% of average earning assets during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~70.2%~~66.2% of average earning assets during the same period in ~~2020.~~2021. The decline in average loans as a percentage of average earning assets was primarily due to increases in deposits of ~~$232.1~~$166.7 million and securities sold under agreements to repurchase of ~~$7.2 million.~~$19.3 million; and a $54.9 reduction in average PPP loans. The growth in our deposits and securities sold under agreements to repurchase ~~was higher than~~and the ~~growth~~decline in our loans ~~which~~ resulted in the excess funds being deployed in our securities ~~portfolio and other short-term investments and to reduce the amount of our FHLB advances.~~portfolio. The yield on loans declined 2115 basis points to ~~4.34%~~4.17% during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 from ~~4.55%~~4.32% during the same period in ~~2020.~~2021. The ~~yield on PPP loans was 5.23% and the~~ yield on Non-PPP loans was ~~4.28%~~4.15% during the ~~six~~three months ended ~~June 30, 2021. Interest income on PPP loans~~March 31, 2022. Average securities for the three months ended March 31, 2022 increased ~~$1.2~~$198.5 million, or 53.2%, to ~~$1.4~~$571.8 million during the ~~first six~~three months ~~of 2021~~ended March 31, 2022 from ~~$217 thousand~~$373.3 million during the same period in ~~2020. The $1.4~~2021. Other short-term investments declined $12.1 million ~~in interest income on PPP loans~~to $67.2 million during the ~~first six~~three months ended March 31, 2022 from $79.3 million during the same period in 2021 due to the deployment of ~~2021 includes $1.2 million in accretion of deferred fees net of deferred costs. Average securities and average~~lower yielding other short-term investments ~~for the six months ended June 30, 2021 increased $111.6 million and $34.2 million, respectively, from the prior year period.~~into higher yielding securities. The yield on our securities portfolio declined to ~~1.82%~~1.53% for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 from ~~2.31%~~1.88% for the same period in ~~2020; and the yield on our other short-term investments declined to 0.16% for the six months ended June 30, 2021 from 0.88% for the same period in 2020.~~2021. These declines were primarily related to the Federal Reserve reducing the target range of the federal funds rate as described above. The yield on our other short-term investments increased to 0.20% for the three months ended March 31, 2022 from 0.17% for the same period in 2021 due to a 25 basis point increase in the target range of federal funds to 0.25% - 0.50% on March 16, 2022. The yield on earning assets for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021 were 3.00% and ~~2020 was 3.36% and 3.82%~~3.40%, respectively. The cost of interest-bearing liabilities was at 2718 basis points during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to 5829 basis points during the same period in ~~2020.~~2021.
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The cost of deposits, including demand deposits, was 10 basis points during the three months ended March 31, 2022 compared to 17 basis points during the same period in 2021. The cost of funds, including demand deposits, was 13 basis points during the three months ended March 31, 2022 compared to 21 basis points during the same period in 2021. We continue to focus on growing our pure deposits (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, and IRAs) as these accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, these deposits averaged ~~89.6%~~91.3% of total deposits as compared to ~~86.4%~~89.2% during the same period of ~~2020.~~2021. This increase was due to PPP loan proceeds, other stimulus funds related to the COVID-19 pandemic, and organic ~~deposit~~ growth.
Provision and Allowance for Loan Losses

We account for our allowance for loan losses under the incurred loss model. ~~As discussed above, the CECL model will become effective for us on January 1, 2023.~~ At ~~June 30, 2021,~~March 31, 2022, the allowance for loan losses was ~~$10.6~~$11.1 million, or ~~1.21%~~1.26% of total loans (excluding loans held-for-sale), compared to ~~$10.4~~$11.2 million, or ~~1.23%~~1.29% of total loans (excluding loans held-for-sale) at December 31, ~~2020, and $8.9 million, or 1.09% of total loans (excluding loans held-for-sale), at June 30, 2020.~~2021. Excluding PPP loans and loans held-for-sale, the allowance for loan losses was ~~1.28%~~1.26% of total loans at ~~June 30, 2021~~March 31, 2022 compared to 1.30% of total loans at December 31, ~~2020, and 1.16% at June 30, 2020.~~2021. The ~~increase~~decline in the allowance for loan losses compared to ~~June 30, 2020~~December 31, 2021 is primarily related to ~~an increase~~a reduction in the loss emergence period assumption in the COVID-19 qualitative ~~factors in~~factor, which was added to our allowance for loan losses methodology during 2020, to 12 months at March 31, 2022 from 21 months at December 31, 2021 due to reductions in the number of COVID-19 related tocases, hospitalizations, and deaths within our markets. This reduction was partially offset by loan growth of $12.1 million; $9 thousand in net recoveries; an increase in our economic conditions qualitative factor by approximately 3.6 basis points during the first quarter of 2022 due to higher inflation, supply chain bottlenecks, labor shortages in certain industries, and ~~economic uncertainties caused~~the war in Ukraine; and a one basis point increase in our change in staff qualitative factor due to the addition of a new team and new market in the Piedmont Region of South Carolina in March 2022. During 2020, we added a qualitative factor for the COVID-19 pandemic to our allowance for loan losses methodology. This new qualitative factor was based on the dollar amount of our deferrals and a one-year loss emergence period based on the highest period of annual historical loss rate since the Bank’s inception. As the pandemic worsened, we added our exposure to certain industry segments most impacted by the COVID-19 ~~pandemic.~~pandemic (hotels, restaurants, assisted living, and retail) to the COVID-19 qualitative factor and we extended the loss emergence period to two years based on the highest two periods of annual historical loss rates since the Bank’s inception. At March 31, 2022 and December 31, 2021, the COVID-19 qualitative factor represented $1.3 million and $1.9 million, respectively, of our allowance for loan losses.

Loans that we acquired in our acquisition of Cornerstone Bancorp, otherwise referred to herein as Cornerstone, in 2017 as well as in our acquisition of Savannah River Financial Corp., otherwise referred to herein as Savannah 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the remaining credit component on loans attributable to acquired loans in the Cornerstone and Savannah River transactions was ~~$201~~$116 thousand and ~~$264~~$130 thousand, respectively.
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Our provision for loan losses was ~~$345~~a credit of $125 thousand for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$2.3 million~~$177 thousand expense during the same period in ~~2020.~~2021. The ~~decline~~reduction in ~~the~~ provision for loan losses is primarily related to ~~an increase during the first six months of 2020~~a decrease in ~~the~~our COVID-19 qualitative ~~factors~~factor in our allowance for loan losses methodology related to ~~the deteriorating economic conditions and economic uncertainties caused by the~~declines in COVID-19 pandemic. During the first six months of 2020, we added a qualitative factor for the COVID-19 pandemic to our allowance for loan losses methodology. This new qualitative factor was based on the dollar amount of our deferrals and a one-year loss emergence period based on the highest period of annual historical loss rate since the Bank’s inception. As the pandemic worsened, we added our exposure to certain industry segments most impacted by the COVID-19 pandemic (hotels, restaurants, assisted living, and retail) to the COVID-19 qualitative factor and we extended the loss emergence period to two years based on the highest two periods of annual historical loss rates since the Bank’s inception. At June 30, 2021, we reduced the loss emergence period in the COVID-19 qualitative factor to 18 months from two years due to a reduction in the number of COVID-19 related cases, hospitalizations, and deaths ~~within~~in our ~~markets. This reduction was~~markets; and net recoveries during the first three months of 2022 partially offset by ~~an increase~~increases in our economic conditions qualitative factor ~~related to economic conditions~~ due to ~~an increase in~~ inflation, supply chain bottlenecks, ~~and~~ labor shortages in certain industries, and the war in Ukraine; by our ~~markets.~~changes in staff qualitative factor due to the addition of a new team and new market in the Piedmont Region of South Carolina in March 2022; and by loan growth.

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 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 knowledge 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 qualitative factors such as changes in the lending policies and procedures, changes in the ~~local/~~local or national ~~economy,~~economies, 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. ~~During the first quarter of 2020, we added a new qualitative factor related to the economic uncertainties caused by the 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 uncertainties related to the COVID-19 pandemic.

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We perform an analysis quarterly to assess the risk within the loan portfolio. The portfolio is segregated into similar risk components for which historical loss ratios are calculated and adjusted for identified changes in current portfolio characteristics. Historical loss ratios are calculated by product type and by regulatory credit risk classification (See Note 4 to the Consolidated Financial Statements). The annualized weighted average loss ratios over the last 36 months for loans classified as substandard, special mention and pass have been approximately ~~0.161%~~0.21%, ~~0.018%~~0.03% and ~~0.004%~~0.00%, 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. 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 experienced a modest net recovery. We currently believe the unallocated portion of our allowance represents potential risk associated throughout a full economic cycle; however, the COVID-19 pandemic and the government and economic responses thereto may materially affect the risk within our loan portfolios.
We have a significant portion of our loan portfolio with real estate as the underlying collateral. At ~~June 30,~~December 31, 2021 and December 31, ~~2020,~~2021, approximately ~~86.4%~~90.7% and ~~87.5%~~90.9%, respectively, of the loan portfolio had real estate collateral. The reduction in the percent of our loan portfolio with real estate as the underlying collateral is due to the increase in PPP loans, which increased to $47.2 million at June 30, 2021 from $42.2 at December 31, 2020. 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.
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~~Non-performing assets were $9.3 million (0.62% of total assets) at June 30, 2021 as compared to $7.0 million (0.50% of total assets) at December 31, 2020.~~
The ~~increase in the~~ non-performing asset ratio was ~~due~~0.09% of total assets with the nominal level of $1.5 million in non-performing assets at March 31, 2022 compared to ~~one $4.2~~0.09% and $1.4 million ~~loan, which was an accruing loan~~at December 31, 2021. Non-accrual loans declined to $148 thousand at March 31, 2022 from $250 thousand at December 31, 2021. Accruing loans past due 90 days or more ~~at June 30, 2021. Subsequent to June 30, 2021, this loan was paid current in both principal and interest. Total loans past due~~ increased to ~~$4.3 million, or 0.49% of total loans,~~$174 thousand at ~~June 30, 2021 compared to $1.9 million, or 0.23% of total loans,~~March 31, 2022 from none at December 31, ~~2020. The increase in loans~~2021. Loans past due 30 days or more ~~was due to the previously referenced $4.2 million loan that was paid current in both principal and interest subsequent to June 30, 2021. We continue to monitor the impact~~represented 0.07% of the ~~COVID-19 pandemic on our customer base~~loan portfolio at March 31, 2022 compared to 0.03% at December 31, 2021. The ratio of ~~local businesses~~classified loans plus OREO and ~~professionals.~~ repossessed assets declined to 6.13% of total bank regulatory risk-based capital at March 31, 2022 from 6.27% at December 31, 2021.
There were 20eight loans totaling ~~$8.2 million (0.93%~~$322 thousand (0.04% of total loans) included on non-performing status (non-accrual loans and loans past due 90 days and still accruing) at ~~June 30, 2021. Of the 20~~March 31, 2022. Five of these loans totaling ~~$4.0 million, 16~~$148 thousand were on non-accrual ~~status at June 30, 2021.~~status. The largest loan included on non-accrual status is in the amount of ~~$1.7 million and is secured by commercial real estate located in North Augusta, South Carolina.~~$96 thousand. The average balance of the remaining 15four loans on non-accrual status is approximately ~~$154~~$13 thousand with a range between $0$2 and ~~$1.2 million,~~$39 thousand, and the majority of these loans are secured by first mortgage liens. The remaining three loans totaling $174 thousand were loans past due 90 days and still accruing. The largest loan included in loans past due 90 days and still accruing was a home equity loan totaling $170 thousand. Furthermore, we had ~~$1.5~~$1.4 million in accruing trouble debt restructurings, or TDRs, at ~~June 30, 2021~~March 31, 2022 compared to ~~$1.6~~$1.4 million at December 31, ~~2020.~~2021. 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 contractual terms of the loan agreement. Nonaccrual loans and accruing TDRs are considered impaired. At ~~June 30, 2021,~~March 31, 2022, we had 18seven impaired loans totaling ~~$5.6~~$1.5 million compared to 2310 impaired loans totaling ~~$6.1~~$1.7 million at December 31, ~~2020.~~2021. These loans were measured for impairment under the fair value of collateral method or present value of expected cash flows method. For collateral dependent loans, the fair value of collateral method is used and the fair value is determined by an independent appraisal less estimated selling costs. At ~~June 30, 2021,~~March 31, 2022, we had loans totaling ~~$172~~$479 thousand that were delinquent 30 days to 89 days representing ~~0.02%~~0.05% of total loans compared to ~~$665~~$235 thousand or ~~0.08%~~0.03% of total loans at December 31, ~~2020.~~2021.

~~During~~Beginning in March 2020, the ~~ongoing COVID-19 pandemic and because of our proactive offering of~~Company proactively offered payment deferrals ~~loans on which payments have been deferred declined~~for up to $4.5 million at June 30, 2021, from $8.7 million at March 31, 2021, from $16.1 million at December 31, 2020, from $27.3 million at September 30, 2020, from $175.0 million at June 30, 2020 and from $118.3 million at March 31, 2020. The $16.1 million in deferrals at December 31, 2020 consisted of seven loans on which only principal was being deferred. We had two loans totaling $4.5 million in continuing deferral status in which only principal was being deferred at June 30, 2021. One of these loans is for a mixed use office building and the other90 days to its loan is for an events / meeting center. 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. We proactively offered initial deferrals to our customers regardless of the impact of the pandemic on their business or personal finances. ~~We obtained additional information~~As a result of payments being resumed at the conclusion of their payment deferral period, loans in which payments were being deferred decreased from ~~customers who requested second or continuing deferrals~~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, to $8.7 million at March 31, 2021, $4.5 million at June 30, 2021, $4.1 million at September 30, 2021, $0 at December 31, 2021 and ~~we performed additional analyses to justify the need for the second or continuing deferral requests.~~March 31, 2022. Our management continuously monitors non-performing, classified and past due loans to identify deterioration regarding the condition of these loans and given the ongoing and uncertain impact of the COVID-19 pandemic, we will continue to monitor our loan portfolio for potential 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

Six Months Ended Three Months Ended
June 30, March 31,
(Dollars in thousands) 2021 2020 2022 2021
Average loans outstanding (including loans held-for-sale) $ 891,021 $ 789,250
Average loans outstanding (excluding loans held-for-sale) $ 867,216 $ 854,304
Loans outstanding at period end (excluding loans held-for-sale) $ 878,318 $ 817,372 $ 875,797 $ 869,066
Non-performing assets:
Nonaccrual loans $ 3,986 $ 1,806 $ 148 $ 4,521
Loans 90 days past due still accruing 4,165 — 174 1,070
Foreclosed real estate 1,182 1,449 1,146 —
Repossessed-other — — — 7
Total non-performing assets $ 9,333 $ 3,255 $ 1,468 $ 5,598

Beginning balance of allowance $ 10,389 $ 6,627 $ 11,179 $ 10,389
Loans charged-off:
Commercial — — — —
Real Estate - Construction — — — —
Real Estate Mortgage - Residential — — — —
Real Estate Mortgage - Commercial 110 1 — —
Consumer - Home Equity — — — —
Consumer - Other 37 47 14 25
Total loans charged-off 147 48 14 25
Recoveries:
Commercial 3 3 11 1
Real Estate - Construction — — — —
Real Estate Mortgage - Residential — — — —
Real Estate Mortgage - Commercial 11 9 6 4
Consumer - Home Equity 6 1 3 1
Consumer - Other 31 19 3 16
Total recoveries 51 32 23 22
Net loan charge offs 96 16 9 3
Provision for loan losses 345 2,325 (125 ) 177
Balance at period end $ 10,638 $ 8,936 $ 11,063 $ 10,563

Net charge offs to average loans (annualized) 0.02 % 0.00 % 0.00 % 0.00 %
Allowance as percent of total loans 1.21 % 1.09 % 1.26 % 1.22 %
Non-performing assets as % of total assets 0.62 % 0.25 % 0.09 % 0.38 %
Allowance as % of non-performing loans 130.51 % 274.53 % 3,435.71 % 233.28 %
Nonaccrual loans as % of total loans 0.02 % 0.52 %
Allowance as % of nonaccrual loans 7,475.00 % 233.64 %
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The following table details net charge-offs to average loans outstanding by loan category for the three months ended March 31,
Three Months Ended March 31,
2022 2021
Net Charge-
Offs
(Recoveries) Average
Loans HFI⁽¹⁾ Net
Charge-Off
Ratio Net Charge-
Offs
(Recoveries) Average
Loans HFI Net
Charge-Off
Ratio
Commercial, financial & agricultural (11) 71,149 -0.02 % (1) 102,860 0.00 %
Real estate:
Construction — 96,824 0.00 % — 97,471 0.00 %
Mortgage-residential — 44,695 0.00 % — 41,925 0.00 %
Mortgage-commercial (6) 619,680 0.00 % (4) 577,739 0.00 %
Consumer:
Home Equity (3) 26,716 -0.01 % (1) 26,190 0.00 %
Other 11 8,152 0.15 % 9 8,119 0.11 %
Total: (9) 867,216 0.00 % 3 854,304 0.00 %
⁽¹⁾ Average loans exclude loans held for sale
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) June 30, 2021 December 31, 2020 March 31, 2022 December 31, 2021
% of
allowance in % of
allowance in % of
allowance in % of
allowance in
Amount Category Amount Category Amount Category Amount Category
Commercial, Financial and Agricultural $ 894 8.4 % $ 778 7.5 % $ 849 7.7 % $ 853 7.6 %
Real Estate – Construction 125 1.2 % 145 1.4 % 91 0.8 % 113 1.0 %
Real Estate Mortgage:
Residential 542 5.1 % 541 5.2 % 513 4.6 % 560 5.0 %
Commercial 8,026 75.4 % 7,855 75.6 % 8,508 76.9 % 8,570 76.7 %
Consumer:
Home Equity 322 3.0 % 324 3.1 % 331 3.0 % 333 3.0 %
Other 111 1.0 % 125 1.2 % 150 1.4 % 126 1.1 %
Unallocated 618       5.9 % 621 6.0 % 621 5.6 % 624 5.6 %
Total $ 10,638 100.0 % $ 10,389 100.0 % $ 11,063 100.0 % $ 11,179 100.0 %

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 nonaccrual status when it becomes 90 days or more past due. At the time a loan is placed in 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 ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$6.7~~$3.4 million compared to ~~$6.3~~$3.3 million during the same period in ~~2020.~~2021. Deposit service charges ~~declined $151~~increased $19 thousand to $265 thousand during the ~~six~~three months ended ~~June 30, 2021 compared to~~March 31, 2022 from $246 thousand during the same period in ~~2020~~2021 primarily due to ~~lower~~higher non-sufficient funds and overdraft fees. Mortgage banking income declined by ~~$421~~$151 thousand to $2.1 million during the six months ended June 30, 2021 from $2.6 million during the same period in 2020 due to both a reduction in mortgage production the gain-on-sale margin. Mortgage production during the six months ended June 30, 2021 was $76.4 million compared to $89.2 million during the same period in 2020. The gain on sale margin was 2.79% in the six months ended June 30, 2021 compared to 2.86% during the same period in 2020. The gain on sale margin was 3.39% during the three months ended June 30, 2021 and 2.32%$839 thousand during the three months ended March 31, 2021. The gain on sale margin was limited during 2020 and the first quarter of 2021 as we worked on certain loans not yet sold, in an effort to resolve processing and delivery issues. We anticipate the future gain-on-sale margin will be approximately 3.00% to 3.25%. Investment advisory fees increased $5292022 from $990 thousand ~~to $1.8 million~~ during the ~~six~~same period in 2021. Mortgage production during the three months ended ~~June 30, 2021 from $1.3~~March 31, 2022 was $30.0 million compared to $42.7 million during the same period in ~~2020.~~2021 while the gain on sale margin increased to 2.80% during the three months ended March 31, 2022 from 2.32% during the same period in 2021. The reduction in mortgage production was primarily due to low levels of home inventories and a higher interest rate environment. With the headwinds of low housing inventories and rising interest rates, we are exploring additional mortgage products to help offset anticipated mortgage production challenges. These additional products may include 5/1, 7/1, and 10/1 adjustable rate mortgage (ARM) loans that are originated for our loans held-for-investment portfolio. Investment advisory fees increased $321 thousand to $1.2 million during the three months ended March 31, 2022 from $877 thousand during the same period in 2021. Total assets under management increased to ~~$577.5~~$632.8 million at ~~June 30, 2021~~March 31, 2022 compared to ~~$501.6~~$519.3 million at ~~December~~March 31, ~~2020 and $390.7 million at June 30, 2020.~~2021. Management continues to focus on ~~increasing~~ both the mortgage banking income as well as the investment advisory fees and commissions. Gain on sale of other assets was ~~$77 thousand~~zero during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to $6$77 thousand during the same period in ~~2020.~~2021.
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Non-interest income, other ~~increased $371~~declined $34 thousand during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to the same period in ~~2020~~2021 primarily due to ~~$100~~a decline in other non-recurring income of $96 thousand ~~received from~~partially offset by increases in ATM/debit card income of $28 thousand, income on bank owned life insurance of $12 thousand, rental income of $11 thousand, and wire transfer fees of $8 thousand. The reduction in other non-recurring income was related to the collection of a $100 thousand summary judgment related to a loan charged off at a bank, which we subsequently acquired, ~~a $259 thousand increase in ATM debit card income, and a $23 thousand increase in rental income partially offset by a $20 thousand reduction in income on bank owned life insurance.~~
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~~The following is a summary of the components of other non-interest income for the periods indicated:~~
(Dollars in thousands) Six months ended
June 30,
2021 2020
ATM debit card income $ 1,323 $ 1,064
Income on bank owned life insurance 345 365
Rental income 149 126
Other service fees and safe deposit box fees 118 116
Wire transfer fees 56 43
Other 221 127
Total $ 2,212 $ 1,841
Non-interest expense increased $1.2 million during the six months ended June 30, 2021 to $19.4 million compared to $18.2 million during the same period in 2020. Salary and benefit expense increased $419 thousand to $11.9 million during the six months ended June 30, 2021 from $11.5 million during the same period in 2020. This increase is primarily a result of the normal salary adjustments and increased mortgage and financial planning and investment advisory commissions. We had 249 full time equivalent employees at June 30, 2021 compared to 242 at June 30, 2020. Occupancy expense increased $142 thousand to $1.5 million during the six months ended June 30, 2021 compared to $1.3 million during the same period in 2020. Marketing and public relations expense increased $108 thousand to $709 thousand during the six months ended June 30, 2021 from $601 thousand during the same period in 2020. FDIC assessments increased $185 thousand due to a higher assessment rate in 2021 related to a decrease in our leverage ratio and an increase in our assessment base due to higher average assets as well as $39 thousand of small bank assessment credits utilized in the six months ended June 30, 2020. The reduction in our leverage ratio and the increase in our assessment base were partially related to PPP loans and the excess liquidity generated from PPP loan proceeds and other stimulus funds related to the COVID-19 pandemic. Furthermore, we received FDIC small bank assessment credits during the six months ended June 30, 2020 compared to none during the same period in 2021. The FDIC small bank assessment credits were fully utilized during the first quarter of 2020.
Non-interest expense, other increased $480 thousand in the first six months of 2021 as compared to the same period in 2020 primarily due to higher data processing expense of $282 thousand, which includes ATM debit card expense, higher telephone expense of $19 thousand, higher legal expenses of $132 thousand, higher director fees of $19 thousand, and higher shareholder expense of $18 thousand.
~~The following is a summary of the components of other non-interest expense for the periods indicated:~~
(Dollars in thousands) Six months ended
June 30,
2021 2020
Data processing $ 1,815 $ 1,533
Telephone 190 171
Correspondent services 145 136
Insurance 159 156
Legal, professional, and brokerage fees 817 683
Director fees 191 172
Shareholder expense 116 98
Dues 80 72
Loan closing costs/fees 165 176
Other 534 535
Total $ 4,212 $ 3,732
~~Income Tax Expense~~
Our effective tax rate was 21.05% and 19.47% in the first six months of 2021 and 2020, respectively. The effective rate in 2021, 2020, and 2019 is or was impacted by the passing of the 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 rate was lowered to 21%.
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~~Comparison of Results of Operations for Three Months Ended June 30, 2021 to the Three Months Ended June 30, 2020~~
~~Net Income~~
Our net income for the three months ended June 30, 2021 was $3.5 million, or $0.47 diluted earnings per common share, as compared to $2.2 million, or $0.30 diluted earnings per common share, for the three months ended June 30, 2020. The $1.3 million increase in net income between the two periods is primarily due to a $1.3 million increase in net interest income, a $31 thousand increase in non-interest income, and a $1.1 million reduction in provision for loan losses partially offset by a $747 thousand increase in non-interest expense and $389 thousand increase in income tax expense. The increase in net interest income results from an increase of $233.1 million in average earning assets partially offset by an 18 basis point decline in the net interest margin between the two periods. The increase in non-interest income is primarily related to increases in investment advisory fees and non-deposit commissions of $286 thousand, ATM/debit card income of $144 thousand, and rental income of $18 thousand partially offset by a reduction in mortgage banking income of $429 thousand. The reduction in 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 during the first six months of 2020. We reduced the loss emergence period assumption on our COVID-19 qualitative factor to 18 months from 24 months at June 30, 2021 due to reductions in the number of COVID-19 cases, hospitalizations, and deaths in our markets. However, we partially offset this reduction by increasing our economic conditions qualitative factor by two basis points due to higher inflation, supply chain bottlenecks, and labor shortages in certain industries. The increase in non-interest expense is primarily related to increased salaries and employee benefits expense of $108 thousand, increased occupancy expense of $55 thousand, increased equipment expense of $40 thousand, increased marketing and public relations expense of $66 thousand, increased FDIC assessment of $58 thousand, and increased other expense of $448 thousand partially offset by lower amortization of intangibles of $43 thousand. The increase in the other category included some non-recurring legal expenses as well as one-time costs related to product and service enhancements and expenses associated with our conversion to a new mortgage origination system. Our effective tax rate was 20.63% during the three months ended ~~June 30, 2021 compared~~March 31, 2021. We recorded $4 thousand in other non-recurring income related to ~~19.35% during the same period in 2020.~~
~~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 average yields~~a gain on assets and average rates on interest-bearing liabilities during the three-month periods ended June 30, 2021 and 2020, along with average balances and the related interest income and interest expense amounts.
Net interest income increased $1.3 million, or 13.8%, to $11.1 million for the three months ended June 30, 2021 from $9.7 million for the three months ended June 30, 2020. Our net interest margin declined by 18 basis points to 3.17%insurance proceeds during the three months ended June 30, 2021 from 3.35% during the three months ended June 30, 2020. Our net interest margin, on a taxable equivalent basis, was 3.20% for the three months ended June 30, 2021 compared to 3.38% for the three months ended June 30, 2020. Average earning assets increased $233.1 million, or 19.9%, to $1.4 billion for the three months ended June 30, 2021 compared to $1.2 billion in the same period of 2020. The increase in net interest income was primarily due to a higher level of average earning assets partially offset by lower net interest margin. The increase in average earning assets was due to increases in loans, securities, and other short-term investments primarily due to Non-PPP loan growth, PPP loans, organic deposit growth, and excess liquidity from PPP loan proceeds and other stimulus funds related to the COVID-19 pandemic. The decline in net interest margin was primarily due to the Federal Reserve reducing the target range of the federal funds rate two times totaling 150 basis points during the first quarter of 2020 and the excess liquidity generated from PPP loan proceeds and other stimulus funds related to the COVID-19 pandemic being deployed in lower yielding securities and other short-term investments. Lower market rates, the competitive loan pricing environment, and the COVID-19 pandemic put downward pressure on our net interest margin during 2020 and the first six months of 2021.
Average loans increased $70.8 million, or 8.6%, to $895.6 million for the three months ended June 30, 2021 from $824.8 million for the same period in 2020. Average PPP loans increased $23.8 million to $55.6 million and average Non-PPP loans increased $47.0 million to $895.6 million for the three months ended June 30, 2021. Average loans represented 63.8% of average earning assets during the three months ended June 30, 2021 compared to 70.4% of average earning assets during the same period in 2020. The decline in average loans as a percentage of average earning assets was primarily due to increases in deposits of $225.0 million and securities sold under agreements to repurchase of $6.5 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 the amount of our FHLB advances. The yield on loans declined four basis points to 4.36% during the three months ended June 30, 2021 from 4.40% during the same period in 2020. The yield on PPP loans was 5.45% and the yield on Non-PPP loans was 4.29% during the three months ended June 30, 2021. Interest income on PPP loans increased $539 thousand to $756 thousand during the first three months of 2021 from $217 thousand during the same period in 2020. The $756 thousand in interest income on PPP loans during the first three months of 2021 includes $611 thousand in accretion of deferred fees net of deferred costs. Average securities and average other short-term investments for the three months ended June 30, 2021 increased $136.0 million and $26.3 million, respectively, from the prior year period. The yield on our securities portfolio declined to 1.76% for the three months ended June 30, 2021 from 2.20% for the same period in 2020; and the yield on our other short-term investments declined to 0.15% for the three months ended June 30, 2021 from 0.29% for the same period in 2020. These declines were primarily related to the Federal Reserve reducing the target range of the federal funds rate as described above. The yield on earning assets for the three months ended June 30, 2021 and 2020 was 3.33% and 3.66%, respectively. The cost of interest-bearing liabilities was at 24 basis points during the three months ended June 30, 2021 compared to 48 basis points during the same period in 2020. The cost of deposits, including demand deposits, was 14 basis points during the three months ended June 30, 2021 compared to 28 basis points during the same period in 2020. The cost of funds, including demand, deposits was 17 basis points during the three months ended June 30, 2021 compared to 33 basis points during the same period in 2020.
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~~Non-interest Income and Non-interest Expense~~
Non-interest income during the three months ended June 30, 2021 was $3.4 million compared to $3.4 million during the same period in 2020. Mortgage banking income declined by $429 thousand to $1.1 million during the three months ended June 30, 2021 from $1.6 million during the same period in 2020 due to a reduction in mortgage production partially offset by an increase in the gain-on-sale margin. Mortgage production during the three months ended June 30, 2021 was $33.7 million compared to $53.9 million during the same period in 2020. The gain on sale margin was 3.39% in the three months ended June 30, 2021 compared to 2.92% during the same period in 2020. The gain on sale margin was limited during 2020 and the first quarter of 2021 as we worked on certain loans not yet sold, in an effort to resolve processing and delivery issues. We anticipate the future gain-on-sale margin will be approximately 3.00% to 3.25%. Investment advisory fees increased $286 thousand to $957 thousand during the three months ended June 30, 2021 from $671 thousand during the same period in 2020. Total assets under management increased to $577.5 million at June 30, 2021 compared to $501.6 million at DecemberMarch 31, ~~2020 and $390.7 million at June 30, 2020. Management continues to focus on increasing both the mortgage banking income as well as the investment advisory fees and commissions.~~
Non-interest income, other increased $172 thousand during the three months ended June 30, 2021 compared to the same period in 2020 primarily due to a $144 thousand increase in ATM debit card income and an $18 thousand increase in rental income partially offset by a $20 thousand reduction in income on bank owned life insurance.2022.

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

(Dollars in thousands) Three months ended
June 30, Three months ended
March 31,
2021 2020 2022 2021
ATM debit card income $ 696 $ 552 $ 656 $ 628
Income on bank owned life insurance 179 183 179 167
Rental income 78 60 81 70
Other service fees and safe deposit box fees 57 56
Other service fee and safe deposit box fees 60 62
Wire transfer fees 30 23 34 26
Other 66 60 62 153
Total $ 1,106 $ 934 $ 1,072 $ 1,106
Non-interest expense increased ~~$747~~$414 thousand during the three months ended ~~June 30, 2021~~March 31, 2022 to ~~$9.9~~$10.0 million compared to ~~$9.1~~$9.5 million during the same period in ~~2020. Salary~~2021. The $414 thousand increase in non-interest expense is primarily related to increased salaries and ~~benefit~~employee benefits expense of $155 thousand, increased equipment expense of $57 thousand, increased other real estate expense of $18 thousand, increased ATM/debit card and data processing expense of $150 thousand, increased travel, meals, and entertainment expense of $28 thousand, increased courier expense of $25 thousand, and increased fraud expense of $108 thousand ~~to $5.9 million during the three months ended June 30, 2021 from $5.8 million during the same period in 2020. This increase is primarily a result~~partially offset by lower occupancy expense of the normal salary adjustments and increased mortgage and financial planning and investment advisory commissions. We had 249 full time equivalent employees at June 30, 2021 compared to 242 at June 30, 2020. Occupancy expense increased $55$25 thousand, to $734 thousand during the three months ended June 30, 2021 compared to $679 thousand during the same period in 2020. Equipment expense increased $40 thousand to $338 thousand during the three months ended June 30, 2021 compared to $298 thousand during the same period in 2020. Marketinglower marketing and public relations expense ~~increased $66~~of $35 thousand, ~~to $313~~lower FDIC assessment of $39 thousand, during the three months ended June 30, 2021 from $247 thousand during the same period in 2020. FDIC assessments increased $58 thousand due to a higher assessment rate in 2021 related to a decrease in our leverage ratio and an increase in our assessment base due to higher average assets. The reduction in our leverage ratio and the increase in our assessment base were partially related to PPP loans and the excess liquidity generated from PPP loan proceeds and other stimulus funds related to the COVID-19 pandemic. Amortizationlower amortization of intangibles ~~declined $43 thousand to $52 thousand during the three months ended June 30, 2021 compared to $95 thousand during the same period in 2020.~~of $18 thousand.

Non-interest expense, other increased $448 thousand during the three months ended June 30, 2021 as compared to the same period in 2020 primarily due to higher data processing expense, which includes ATM debit card expense, higher telephone expense, higher legal expenses, and higher shareholder expense. The increase in the other category included certain non-recurring legal expenses as well as one-time costs related to product and service enhancements and expenses associated with the conversion to a new mortgage origination system.
· Salary and benefit expense increased $155 thousand to $6.1 million during the three months ended March 31, 2022 from $6.0 million during the same period in 2021. This increase is primarily a result of normal salary adjustments, financial planning and investment advisory commissions, and the addition of four employees in our new loan production office in the Piedmont Region of South Carolina partially offset by lower mortgage commissions and open positions. We had 251 full time equivalent employees at March 31, 2022 compared to 243 at March 31, 2021.
· Occupancy expense declined $25 thousand to $705 thousand during the three months ended March 31, 2022 compared to $730 thousand during the same period in 2021 primarily related to lower bank premises taxes due to the sale of two bank owned properties in 2021 and to lower maintenance expense as the result of some 2020 maintenance expenses being performed in 2021 due to the COVID-19 Pandemic.
· Equipment expense increased $57 thousand to $332 thousand during the three months ended March 31, 2022 compared to $275 thousand during the same period in 2021 primarily due to increases in ATM and security monitoring and service agreements.
· Marketing and public relations expense declined $35 thousand to $361 thousand during the three months ended March 31, 2022 compared to $396 thousand during the same period in 2021 due to the timing of planned media campaigns.
· FDIC assessments declined $39 thousand to $130 thousand during the three months ended March 31, 2022 compared to $169 thousand during the same period in 2021 due to a reduction in our FDIC assessment rate.
· Other real estate expenses increased $18 thousand to $47 thousand during the three months ended March 31, 2022 compared to $29 thousand during the same period in 2021 due to a $19 thousand write-down on one property during the three months ended March 31, 2022.
· Amortization of intangibles declined $18 thousand to $39 thousand during the three months ended March 31, 2022 compared to $57 thousand during the same period in 2021.
· Other expense increased $301 thousand to $2.2 million during the three months ended March 31, 2022 compared to $1.9 million during the same period in 2021.
o ATM/debit card and data processing expense increased $150 thousand primarily due to higher ATM debit card customer activity, core processing system expenses, and enhanced technology solutions.
o Fraud expense increased $108 thousand related to an isolated fraud incident.
o Travel, meals, and entertainment increased $28 thousand due to more in-person meetings from eased COVID-19 restrictions.
o Courier expense increased $25 thousand due to higher fuel costs.
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The following is a summary of the components of other non-interest expense for the periods indicated:
(Dollars in thousands) Three months ended
March 31,
2022 2021
ATM/debit card and data processing* $ 1,006 $ 856
Telephone 80 89
Correspondent services 71 70
Insurance 85 79
Legal and professional fees 258 263
Investment advisory fees 114 113
Director fees 78 95
Shareholder expense 50 49
Dues 42 40
Loan closing costs/fees 36 50
Other 401 215
$ 2,221 $ 1,920
*Data processing includes core processing, bill payment, online banking, remote deposit capture and postage costs for printing and mailing customer notices and statements

(Dollars in thousands) Three months ended
June 30,
2021 2020
Data processing $ 960 $ 756
Telephone 101 89
Correspondent services 75 70
Insurance 79 78
Legal, professional, and brokerage fees 441 352
Director fees 96 90
Shareholder expense 67 48
Dues 40 36
Loan closing costs/fees 115 106
Other 318 219
$ 2,292 $ 1,844
41Income Tax Expense
We incurred income tax expense of $789 thousand and $891 thousand for the three months ended March 31, 2022 and 2021, respectively. Our effective tax rate was 18.4% and 21.5% for the three months ended March 31, 2022 and 2021, respectively. The reduction in the effective tax rate was primarily due to a $153 thousand non-recurring reduction to income tax expense during the three months ended March 31, 2022.
Financial Position

Assets totaled ~~$1.5~~$1.7 billion at ~~June 30, 2021~~March 31, 2022 and ~~$1.4~~$1.6 billion at December 31, ~~2020.~~2021. Loans (excluding loans held-for-sale) increased ~~$34.1~~$12.1 million to ~~$878.3~~$875.8 million at ~~June 30, 2021~~March 31, 2022 from ~~$844.2~~$863.7 million at December 31, ~~2020.~~2021.

Total loan production excluding PPP loans and a PPP related credit facility was ~~$61.1~~$55.3 million during the three months ended ~~June 30, 2021 and 101.3 million during the six months ended June 30, 2021~~March 31, 2022 compared to ~~$39.3 and $72.8~~$40.2 million during the same ~~periods~~period in ~~2020, respectively.~~2021. Loans held-for-sale ~~declined~~increased to ~~$11.4~~$12.1 million at ~~June 30, 2021~~March 31, 2022 from ~~$45.0~~$7.1 million at ~~December~~March 31, 2020 due to an improvement in the manufacturing process, which has resulted in a reduction in the numbers of days to sell loans to investors, and the movement of 30 loans totaling $7.6 million to loans held-for-investment.2021. Mortgage production was ~~$33.7~~$30.0 million during the three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$53.9~~$42.7 million during the same period in ~~2020. Mortgage production was $76.4 million during the six months ended June 30, 2021 compared to $89.2 million during the same period in 2020.~~2021. The loan-to-deposit ratio (including loans held-for-sale) at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~69.0%~~62.1% and ~~74.8%~~64.0%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 was ~~68.1%~~61.2% and ~~71.0%~~63.5%, respectively. Investment securities increased to ~~$470.7~~$579.7 million at ~~June 30, 2021~~March 31, 2022 from ~~$361.9~~$566.6 million at December 31, ~~2020.~~2021. Other short-term investments increased to ~~$52.3~~$68.2 million at ~~June 30, 2021~~March 31, 2022 from ~~$46.1~~$47.0 million at December 31, ~~2020.~~2021. The increases in investments and other short-term investments are primarily due to organic deposit growth and excess liquidity from customer’s PPP loan proceeds and other stimulus funds related to the COVID-19 pandemic.
Non-PPP loans increased ~~$29.2~~$13.3 million to ~~$831.1~~$875.5 million at ~~June 30, 2021~~March 31, 2022 from ~~$801.9~~$862.2 million at December 31, ~~2020.~~2021. PPP loans ~~increased $5.0~~declined $1.2 million to ~~$47.2 million~~$269 thousand at ~~June 30, 2021~~March 31, 2022 from ~~$42.2~~$1.5 million at December 31, ~~2020.~~2021. During 2020 and 2021, we originated 1,417 PPP loans ~~totaled $49.1~~totaling $88.5 million, gross of deferred fees and costs and $47.2 million net of deferred fees and costs at June 30, 2021. The $1.9 million in PPP deferred fees net of deferred costs at June 30, 2021 will be recognized as interest income over the remaining life of the PPP loans.
~~During 2020, we originated~~which includes 843 PPP loans totaling $51.2 million ~~gross of deferred fees~~originated in 2020 and ~~costs and $49.8~~574 PPP loans totaling $37.3 million ~~net of deferred fees and costs.~~originated in 2021. Furthermore, during 2020, we facilitated the origination of 111 PPP loans totaling $31.2 million for our customers through a third party prior to establishing our own PPP platform. ~~During 2020, 159~~As of March 31, 2022, 1,412 PPP loans totaling ~~$8.0~~$88.2 million (841 PPP loans totaling $51.2 million originated in 2020 and 571 PPP loans totaling $37.0 million originated in 2021) were forgiven through the SBA PPP forgiveness process. As of June 30, 2021, 779 PPP loans originated by the Company totaling $39.0 million, gross of deferred fees, had been forgiven. As of June 30, 2021, we originated 574 PPP loans in 2021, totaling $37.3 million, gross of deferred fees.

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.
36
The following table shows the composition of the loan portfolio by category at the dates indicated:

(Dollars in thousands) June 30, 2021 December 31, 2020 March 31, 2022 December 31, 2021
Amount Percent Amount Percent Amount Percent Amount Percent
Commercial, financial & agricultural $ 111,449 12.7 % $ 96,688 11.5 % $ 70,565 8.1 % $ 69,952 8.1 %
Real estate:
Construction 95,865 10.9 % 95,282 11.3 % 96,419 11.0 % 94,969 11.0 %
Mortgage – residential 44,594 5.1 % 43,928 5.2 % 42,675 4.9 % 45,498 5.3 %
Mortgage – commercial 592,099 67.4 % 573,258 67.9 % 627,621 71.7 % 617,464 71.5 %
Consumer:
Home Equity 26,662 3.0 % 26,442 3.1 % 27,712 3.2 % 27,116 3.1 %
Other 7,649 0.9 % 8,559 1.0 % 10,805 1.1 % 8,703 1.0 %
Total gross loans 878,318 100.0 % 844,157 100.0 % 875,797 100.0 % 863,702 100.0 %
Allowance for loan losses (10,638 ) (10,389 ) (11,063 ) (11,179 )
Total net loans $ 867,680 $ 833,768 $ 864,734 $ 852,523

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%.

The previously referenced PPP loans and PPP related credit facility are included in “Commercial, financial & agricultural” loans above.
The repayment of loans in the loan portfolio as they mature is a source of liquidity. The following table sets forth the loans maturing within specified intervals at March 31, 2022.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
March 31, 2022
(In thousands) One Year
or Less Over One Year
Through Five
Years Over Five Years
Through Fifteen
years Over Fifteen
Years Total
Commercial, financial and agricultural $ 7,462 $ 33,573 $ 29,530 $ 0 $ 70,565
Real estate:
Construction 23,211 39,520 33,169 519 96,419
Mortgage-residential 3,589 14,230 3,726 21,130 42,675
Mortgage-commercial 54,638 266,363 301,657 4,963 627,621
Consumer:
Home equity 2,020 4,487 21,205 0 27,712
Other 1,927 8,085 421 372 10,805
Total $ 92,847 $ 366,258 $ 389,708 $ 26,984 $ 875,797

Loans maturing after one year with:
Variable Rate $ 96,095
Fixed Rate 686,854
$ 782,949
The information presented in the above table is based on the contractual maturities of the individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon their maturity.
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Investment Securities Maturity Distribution and Yields
The following table shows, at amortized cost, the expected maturities and weighted average yield, which is calculated using amortized cost as the weight and tax-equivalent book yield, of securities held at March 31, 2022:
(In thousands) Within One
Year Over One Year
and less than
Five Over Five Years
and less than
Ten Over Ten
years
Available-for-Sale: Amount Yield Amount Yield Amount Yield Amount Yield
US Treasury Securities $ — — $ 44,662 1.67 % 15,743 1.21 % $ — —
Government sponsored enterprises 2,499 0.58 % — — — — — —
Small Business Administration pools 839 0.84 % 22,183 1.84 % 2,959 1.04 % 2,131 2.11 %
Mortgage-backed securities 13,619 1.99 % 120,736 1.09 % 183,676 1.66 % 73,244 1.06 %
State and local government 3,316 1.79 % 18,177 2.92 % 80,132 2.32 % 4,132 3.18 %
Corporate and other securities — — 5,778 3.85 % 2,984 4.19 % 9 3.70 %
Total investment securities available-for-sale $ 20,273 1.74 % $ 211,536 1.52 % $ 285,494 1.85 % $ 79,516 1.20 %
The following table shows, at amortized cost, the expected maturities and weighted average yield, which is calculated using amortized cost as the weight and tax-equivalent book yield, of securities held at December 31, 2021:
(In thousands) Within One
Year Over One Year
and less than
Five Over Five Years
and less than
Ten Over Ten
years
Available-for-Sale: Amount Yield Amount Yield Amount Yield Amount Yield
US Treasury Securities $ — — $ — — $ 15,736 1.21 % $ — —
Government sponsored enterprises 2,499 0.58 % — — — — — —
Small Business Administration pools 466 1.90 % 22,398 1.84 % 5,613 2.27 % 2,359 1.87 %
Mortgage-backed securities 12,828 2.04 % 129,221 1.31 % 135,147 1.65 % 120,931 1.08 %
State and local government 4,244 1.35 % 18,667 2.99 % 78,435 2.33 % 4,123 3.18 %
Corporate and other securities — — 5,029 3.82 % 2,984 4.18 % 9 3.70 %
Total investment securities available-for-sale $ 20,037 1.71 % $ 175,315 1.63 % $ 237,915 1.89 % $ 127,422 1.16 %
38
Deposits increased ~~$100.5~~$69.5 million to ~~$1.3~~$1.4 billion at ~~June 30, 2021~~March 31, 2022 compared to ~~$1.2~~$1.4 billion at December 31, ~~2020.~~2021. Our pure deposits, which are defined as total deposits less certificates of deposits, increased ~~$103.0~~$69.7 million to ~~$1.162~~$1.3 billion at ~~June 30, 2021~~March 31, 2022 from ~~$1.059~~$1.2 billion at December 31, ~~2020.~~2021. 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. We had no brokered deposits and no listing services deposits at ~~June 30, 2021.~~March 31, 2022. Our securities sold under agreements to repurchase, which are related to our customer cash management accounts, increased ~~$19.6~~$13.9 million to ~~$60.5~~$68.1 million at ~~June 30, 2021~~March 31, 2022 from ~~$40.9~~$54.2 million at December 31, ~~2020. This increase was due~~2021.
The following table sets forth the deposits by category:
March 31, December 31,
2022 2021
% of % of
(In thousands) Amount Deposits Amount Deposits
Demand deposit accounts $ 467,265 32.7 % $ 444,688 32.7 %
Interest bearing checking accounts 354,537 24.8 % 331,638 24.4 %
Money market accounts 304,395 21.3 % 287,419 21.1 %
Savings accounts 150,849 10.5 % 143,765 10.6 %
Time deposits less than $100,000 73,526 5.1 % 74,489 5.5 %
Time deposits more than $100,000 80,176 5.6 % 79,792 5.8 %
$ 1,430,748 100.0 % $ 1,361,291 100.0 %
Maturities of Certificates of Deposit and Other Time Deposit of $250,000 or More
At March 31, 2022, time deposits in excess of the FDIC insurance limit were as follows:
March 31, 2022
Within Three After Three
Through After Six
Through After
Twelve
(In thousands) Months Six Months Twelve Months Months Total
Time deposits of $250,000 or more $ 5,896 $ 5,645 $ 13,112 $ 4,796 $ 29,449
Total uninsured deposits amounted to ~~seasonality~~$430.6 million and $392.2 million at March 31, 2022 and December 31, 2021, respectively.
At December 31, 2021, time deposits in ~~our cash management accounts.~~excess of the FDIC insurance limit were as follows:
42
December 31, 2021
Within Three After Three
Through After Six
Through After
Twelve
(In thousands) Months Six Months Twelve Months Months Total
Time deposits of $250,000 or more $ 5,836 $ 5,899 $ 4,208 $ 11,955 $ 27,898
Total shareholders’ equity ~~increased $1.6~~declined $15.6 million, or ~~1.2%~~11.1%, to ~~$137.9~~$125.4 million at ~~June 30, 2021~~March 31, 2022 from ~~$136.3~~$141.0 million at December 31, ~~2020.~~2021. The ~~$1.6~~$15.6 million ~~increase~~decline was due to an $18.3 million reduction in accumulated other comprehensive income (loss) partially offset by a ~~$5.0~~$2.5 million increase in retention of earnings less dividends paid, ~~and~~ a ~~$0.4~~$0.1 million increase due to employee and director stock awards, ~~partially offset by~~and a ~~$3.8 million reduction in accumulated other comprehensive income partially offset by a $2.4~~$0.1 million increase ~~in retention of earnings less dividends paid.~~due to dividend reinvestment plan (DRIP) purchases. The decline in accumulated other comprehensive income was due to an increase in ~~longer-term~~ market interest rates, which ~~resulted in a reduction in~~negatively impacted the ~~net unrealized gains in~~fair value of our investment securities portfolio. In late 2019, we obtained approval of a share repurchase plan of up to 200,000 shares of our outstanding common stock; however, no share repurchases were made under this repurchase plan prior to its expiration on December 31, 2020. On April 12, 2021, we announced that our Board of Directors approved the repurchase of up to 375,000 shares of our common stock (the “2021 ~~repurchase plan”~~Repurchase Plan”), which ~~represents~~represented approximately 5% of our ~~7,539,587~~7,559,760 shares outstanding as of ~~June 30, 2021. The approved 2021 repurchase plan provides us with some flexibility in managing our capital going forward.~~March 31, 2022. No ~~share~~ repurchases were made ~~during~~under the ~~three and six months ended June 30,~~ 2021 ~~and June 30, 2020.~~Repurchase Plan prior to its expiration at the market close on March 31, 2022. On April 20, 2022, we announced that our Board of Directors approved the repurchase of up to 375,000 shares of our common stock (the “2022 Repurchase Plan”), which represented approximately 5% of our 7,559,760 shares outstanding as of March 31, 2022. The 2022 Repurchase Plan expires at the market close on December 31, 2023.
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Market Risk Management
Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest rates. The risk of loss can be measured in either diminished current market values or reduced current and potential net income. Our primary market risk is interest rate risk. We have established an Asset/Liability Management Committee (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.
We employ a monitoring technique ~~that measures~~to measure 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 over a 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. Neither the “gap” analysis or asset/liability modeling are precise indicators of our interest sensitivity position due to the many factors that affect net interest income including, the timing, magnitude and frequency of interest rate changes as well as changes in the volume and mix of earning assets and interest-bearing liabilities.
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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 over the subsequent 12 months. At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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.~~sensitive. As a result, our modeling reflects slight exposure to falling rates and our rising rate exposure trends from neutral to slightly liability sensitive as rates move higher over the first 12 months. This negative impact of rising rates reverses andan increase in net interest income ~~is favorably impacted over~~in a ~~24-month period. During the second 12-month period after 100 basis point~~rising interest rate environment and ~~200 basis point simultaneous and parallel increases~~a reduction in ~~interest rates along the entire yield curve, our~~ net interest income ~~is projected to increase 3.71% and 7.07%, respectively..~~in a declining interest rate environment. In a declining rate environment, the ~~model reflects a~~ decline in net interest ~~income. This~~income is primarily ~~results from~~due to 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 cannot be repriced in proportion to the change in interest rates. The increase and decrease of 100 and 200 basis points, respectively, reflected in the table below assume a simultaneous and parallel change in interest rates along the entire yield curve.
Net Interest Income Sensitivity
Change in short-term interest rates
Hypothetical
percentage change in
net interest income
June 30, 2021 December 31, 2020
+200bp -3.35 % -0.73 %
+100bp -1.01 % +0.08 %
Flat — —
-100bp -4.50 % -3.37 %
-200bp -7.66 % -3.58 %
43
Change in short-term interest rates Hypothetical
percentage change in
net interest income
March 31, 2022 December 31, 2021
+200bp +2.52 % +3.04 %
+100bp +1.36 % +2.12 %
Flat — —
-100bp -2.04 % -5.12 %
-200bp -7.53 % -9.81 %

During the second 12-month period after 100 basis point and 200 basis point simultaneous and parallel increases in interest rates along the entire yield curve, our net interest income is projected to increase 5.96% and 11.89%, respectively, at March 31, 2022 compared to 7.82% and 15.00%, respectively, at December 31, 2021.
We 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 ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the PVE exposure in a plus 200 basis point increase in market interest rates was estimated to be ~~6.76%~~6.64% and ~~11.47%~~9.73%, respectively. The PVE exposure in a down 100 basis point decrease was estimated to be ~~(9.69)~~(6.34)% at ~~June 30, 2021~~March 31, 2022 compared to ~~(14.32)~~(9.86)% at December 31, ~~2020.~~2021.
40
Liquidity and Capital Resources

Liquidity management involves monitoring sources and uses of funds in order to meet our 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 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 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 generate customer deposits in our market area. In addition, liability liquidity is provided through the ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks and to 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.

~~As of June 30, 2021, we have not experienced any unusual pressure on our deposit balances or our liquidity position as a result of the COVID-19 pandemic.~~ We had no brokered deposits and no listing services deposits at ~~June 30, 2021.~~March 31, 2022. 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;~~deposits, our ability to borrow against approved lines of credit (federal funds purchased) from correspondent ~~banks;~~banks, and our ability to obtain advances secured by certain securities and loans from the FHLB.

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.   Furthermore, we believe that we will have access to adequate liquidity and capital to support the long-term operations of the Bank. Shareholders’ equity declined to ~~9.1%~~7.6% of total assets at ~~June 30, 2021~~March 31, 2022 from ~~9.8%~~8.9% at December 31, ~~2020~~2021 due to total asset growth of $67.8 million compared to total shareholders’ equity decline of $15.6 million. The growth in total assets was primarily due to ~~PPP loans and~~ excess liquidity from customer’s PPP loans, other stimulus funds related to the COVID-19 pandemic, organic deposit growth, and loan growth. The $15.6 million decline in shareholders’ equity was due to ~~a $3.8~~an $18.3 million reduction in accumulated other comprehensive ~~income.~~income (loss) partially offset by a $2.5 million increase in retention of earnings less dividends paid, a $0.1 million increase due to employee and director stock awards, and a $0.1 million increase due to dividend reinvestment plan (DRIP) purchases. The Bank maintains federal funds purchased lines in the total amount of $60.0 million with two financial institutions, although these were not utilized at ~~June 30, 2021~~March 31, 2022, and $10 million through the 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.

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 ~~June 30, 2021,~~March 31, 2022, we had issued commitments to extend unused credit of ~~$150.3~~$137.7 million, including ~~$43.0~~$42.7 million in unused home equity lines of credit, through various types of lending arrangements. At December 31, ~~2020,~~2021, we had issued commitments to extend unused credit of ~~$142.6~~$137.4 million, including ~~$42.3~~$42.9 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.

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. Although uncertain, we may encounter stress on liquidity management as a direct result of the COVID-19 pandemic and the Bank’s prior participation in the PPP as a participating lender. We had PPP loans totaling ~~$49.1 million gross of deferred fees and costs and $47.2 million net of deferred fees and costs~~$269 thousand at ~~June 30, 2021~~March 31, 2022 compared to ~~$43.3~~$1.5 million ~~gross of deferred fees and costs and $42.2 million net of deferred fees and costs~~ at December 31, ~~2020.~~2021. As customers manage their own liquidity stress, we could experience an increase in the utilization of existing lines of credit.
41
Regulatory capital rules ~~adopted in July 2013 and fully-phased in~~known as ~~of January 1, 2019, which we refer to~~the Basel III rules or Basel III, impose minimum capital requirements for bank holding companies and banks. ~~In 2018,~~Basel III was released in the ~~Federal Reserve increased~~form of enforceable regulations by each of the ~~asset size~~applicable federal bank regulatory agencies. Basel III is applicable to ~~qualify~~all banking organizations that are subject to minimum capital requirements, including federal and state banks and savings and loan associations, as well as to bank and savings and loan holding companies, other than “small bank holding companies.” A small bank holding company is generally a qualifying bank holding company or savings and loan holding company with less than $3.0 billion in consolidated assets. More stringent requirements are imposed on “advanced approaches” banking organizations—generally those organizations with $250 billion or more in total consolidated assets, $10 billion or more in total foreign exposures applicable to advanced approaches banking organizations.
Based on the foregoing, as a small bank holding ~~company. As a result of this change,~~company, we are generally ~~are~~ not subject to the ~~Federal Reserve~~ capital requirements at the holding company level unless otherwise advised ~~otherwise. The~~by the Federal Reserve; however, our Bank remains subject to the 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.
44
~~Specifically,~~requirements. Accordingly, the Bank is required to maintain hethe following ~~minimum~~ capital ~~requirements:~~
levels:
●· a Common Equity Tier 1 risk-based capital ratio of 4.5%;
●· a Tier 1 risk-based capital ratio of 6%;
●· a total risk-based capital ratio of 8%; and
●· a leverage ratio of 4%.
Basel III also established a “capital conservation buffer” above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 capital, which was phased in over several years. The fully phased-in capital conservation buffer of 2.500%, which became effective on January 1, 2019, resulted in the following effective minimum capital ratios for the Bank beginning in 2019: (i) a Common Equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. Under Basel III, institutions are subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if their capital levels fall below the buffer amount. These limitations establish a maximum percentage of eligible retained income that could be utilized for such actions.

Under ~~the final~~ Basel III, ~~rules,~~ Tier 1 capital ~~was redefined to include~~includes two components: Common Equity Tier 1 capital and additional Tier 1 capital. The 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 is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred ~~securities (as discussed below).~~securities. 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~~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 not in Common Equity Tier 1 capital), subject to certain restrictions. AOCI is presumptively included in Common Equity Tier 1 capital and often would operate to reduce this category of capital. 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~~a large part of this treatment of AOCI. We made this opt-out election and, as a result, retained our pre-existing treatment for AOCI.
42
~~In addition, in order~~On December 21, 2018, the federal banking agencies issued a joint final rule to ~~avoid restrictions on~~revise their regulatory capital ~~distributions~~rules to (i) address the upcoming implementation of a new credit impairment model, the Current Expected Credit Loss, or ~~discretionary bonus payments~~CECL model, an accounting standard under GAAP; (ii) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected 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 risk-based capital). The 2.5% capital conservation buffer was phased in incrementally over time, and became fully effective for us on January 1, 2019, resulting in the following effective minimum capital plus capital conservation buffer ratios: (i) a Common Equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 risk-based capital ratio of 8.5%,experience upon adopting CECL; and (iii) require the use of CECL in stress tests beginning with the 2023 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing. We are currently evaluating the impact the CECL model will have on our accounting, and expect to recognize a ~~total risk-based capital ratio~~one-time cumulative-effect adjustment to our allowance for loan losses as of ~~10.5%.~~the beginning of the first quarter of 2023, the first reporting period in which the new standard is effective. At this time, we cannot yet reasonably determine the magnitude of such one-time cumulative adjustment, if any, or of the overall impact of the new standard on our business, financial condition or results of operations.

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 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 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 above,~~ 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. The final~~ rules, ~~include a two-quarter grace period during which a qualifying community banking organization that temporarily fails~~discussed below. We do not have any immediate plans 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 have not electedelect to use the community bank leverage ratio framework but may make such an election in the 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 ~~June 30, 2021,~~March 31, 2022, 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 Prompt Corrective Action
(PCA) Requirements Excess Capital $s of
PCA Requirements
Capital Ratios Actual Well
Capitalized Adequately
Capitalized Well
Capitalized Adequately
Capitalized Actual Well
Capitalized Adequately
Capitalized Well
Capitalized Adequately
Capitalized
June 30, 2021
March 31, 2022
Leverage Ratio 8.48 % 5.00 % 4.00 % $ 51,561 $ 66,395 8.43 % 5.00 % 4.00 % $ 55,152 $ 71,233
Common Equity Tier 1 Capital Ratio 13.52 % 6.50 % 4.50 % 65,275 83,877 13.89 % 6.50 % 4.50 % 72,135 91,649
Tier 1 Capital Ratio 13.52 % 8.00 % 6.00 % 51,323 69,925 13.89 % 8.00 % 6.00 % 57,500 77,014
Total Capital Ratio 14.66 % 10.00 % 8.00 % 43,359 61,961 15.03 % 10.00 % 8.00 % 49,049 68,563
December 31, 2020
December 31, 2021
Leverage Ratio 8.84 % 5.00 % 4.00 % $ 52,270 $ 65,893 8.45 % 5.00 % 4.00 % $ 54,297 $ 70,021
Common Equity Tier 1 Capital Ratio 12.83 % 6.50 % 4.50 % 59,406 78,169 13.97 % 6.50 % 4.50 % 71,086 90,111
Tier 1 Capital Ratio 12.83 % 8.00 % 6.00 % 45,334 64,097 13.97 % 8.00 % 6.00 % 56,817 75,843
Total Capital Ratio 13.94 % 10.00 % 8.00 % 36,961 55,723 15.15 % 10.00 % 8.00 % 48,971 67,996
45
43
The Bank’s risk-based capital ratios of leverage ratio, Tier 1, and total capital were ~~8.48%~~8.43%, ~~13.52%~~13.89% and ~~14.66%~~15.03%, respectively, at ~~June 30, 2021~~March 31, 2022 as compared to ~~8.84%~~8.45%, ~~12.83%~~13.97%, and ~~13.94%~~15.15%, respectively, at December 31, ~~2020.~~2021. The Bank’s Common Equity Tier 1 ratio at ~~June 30, 2021~~March 31, 2022 was ~~13.52%~~13.89% and at December 31, ~~2020~~2021 was ~~12.83%~~13.97%. Under the Basel III rules, we anticipate that the Bank will remain a well capitalized institution for at least the next 12 months.   Furthermore, based on our strong capital, conservative underwriting, and internal stress testing, we ~~expect~~believe that we will have access to ~~remain well capitalized throughout~~adequate capital to support the ~~remainder~~long-term operations of the ~~COVID-19 pandemic.~~Bank. However, the Bank’s reported and regulatory capital ratios could be adversely impacted by future credit losses related to the COVID-19 ~~pandemic.~~pandemic and or an economic recession.

As a bank holding company, 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 ~~second~~first quarter of ~~2021~~2022 of ~~$0.12~~$0.13 per common share. This dividend is payable on ~~August~~May 17, ~~2021~~2022 to shareholders of record of our common stock as of ~~August~~May 3, ~~2021.~~
2022.
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, the Bank is subject to limitations on the 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.
46
Average Balances, Income Expenses and Rates. The following ~~tables~~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 ~~on an annualized basis~~ by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.
FIRST COMMUNITY CORPORATION
Yields on Average Earning Assets and
Rates on Average Interest-Bearing Liabilities

Six months ended June 30, 2021 Six months ended June 30, 2020
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Assets
Earning assets
  Loans
     PPP loans $ 55,570 $ 1,440 5.23 % $ 15,908 $ 217 2.74 %
     Non-PPP loans 835,451 17,751 4.28 % 773,342 17,628 4.58 %
  Total loans 891,021 19,191 4.34 % 789,250 17,845 4.55 %
  Securities 402,261 3,628 1.82 % 290,624 3,337 2.31 %
  Other short-term investments and CDs 78,543 63 0.16 % 44,339 194 0.88 %
Total earning assets 1,371,825 22,882 3.36 % 1,124,213 21,376 3.82 %
Cash and due from banks 21,797 14,926
Premises and equipment 34,227 34,920
Goodwill and other intangibles 15,700 16,015
Other assets 38,683 40,089
Allowance for loan losses (10,548 ) (7,366 )
Total assets $ 1,471,684 $ 1,222,797

Liabilities
Interest-bearing liabilities
  Interest-bearing transaction accounts $ 291,511 $ 109 0.08 % $ 224,405 $ 162 0.15 %
  Money market accounts 261,137 250 0.19 % 200,967 528 0.53 %
  Savings deposits 129,223 38 0.06 % 106,191 46 0.09 %
  Time deposits 159,724 570 0.72 % 167,696 1,019 1.22 %
  Other borrowings 76,842 256 0.67 % 69,623 461 1.33 %
Total interest-bearing liabilities 918,437 1,223 0.27 % 768,882 2,216 0.58 %
Demand deposits 405,209 315,473
Other liabilities 12,637 13,252
Shareholders’ equity 135,401 125,190
Total liabilities and shareholders’ equity $ 1,471,684 $ 1,222,797

Cost of deposits, including demand deposits 0.16 % 0.35 %
Cost of funds, including demand deposits 0.19 % 0.41 %
Net interest spread 3.09 % 3.24 %
Net interest income/margin $ 21,659 3.18 % $ 19,160 3.43 %
Net interest income/margin (tax equivalent) $ 21,890 3.22 % $ 19,341 3.46 %
47
44
FIRST COMMUNITY CORPORATION
Yields on Average Earning Assets and
Rates on Average Interest-Bearing Liabilities
Three months ended March 31, 2022 Three months ended March 31, 2021
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Assets
Earning assets
Loans
PPP loans $ 609 $ 45 29.97 % $ 55,540 $ 684 4.99 %
Non-PPP loans 875,740 8,958 4.15 % 830,839 8,767 4.28 %
Total Loans 876,349 9,003 4.17 % 886,379 9,451 4.32 %
Non-taxable securities 52,644 380 2.93 % 55,278 389 2.85 %
Taxable securities 519,187 1,779 1.39 % 318,062 1,345 1.71 %
Int bearing deposits in other banks 67,179 33 0.20 % 78,594 33 0.17 %
Fed funds sold 15 — 0.00 % 740 — 0.00 %
Total earning assets 1,515,374 11,195 3.00 % 1,339,053 11,218 3.40 %
Cash and due from banks 28,511 18,429
Premises and equipment 32,722 34,551
Goodwill and other intangibles 15,536 15,726
Other assets 41,348 37,924
Allowance for loan losses (11,226 ) (10,424 )
Total assets $ 1,622,265 $ 1,435,259

Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts $ 331,772 $ 45 0.06 % $ 277,476 $ 58 0.08 %
Money market accounts 295,536 112 0.15 % 254,412 141 0.22 %
Savings deposits 145,340 20 0.06 % 125,981 19 0.06 %
Time deposits 152,884 156 0.41 % 160,321 301 0.76 %
Fed funds purchased — — NA — — NA
Securities sold under agreements to repurchase 82,553 25 0.12 % 63,302 28 0.18 %
Other short-term debt — — NA — — NA
Other long-term debt 14,964 104 2.82 % 14,964 104 2.82 %
Total interest-bearing liabilities 1,023,049 462 0.18 % 896,456 651 0.29 %
Demand deposits 449,281 389,891
Other liabilities 12,690 13,332
Shareholders’ equity 137,245 135,580
Total liabilities and shareholders’ equity $ 1,622,265 $ 1,435,259

Cost of deposits, including demand deposits 0.10 % 0.17 %
Cost of funds, including demand deposits 0.13 % 0.21 %
Net interest spread 2.82 % 3.11 %
Net interest income/margin $ 10,733 2.87 % $ 10,567 3.20 %
Net interest income/margin (tax equivalent) $ 10,864 2.91 % $ 10,675 3.23 %

Three months ended June 30, 2021 Three months ended June 30, 2020
Average Interest Yield/ Average Interest Yield/
Balance Earned/Paid Rate Balance Earned/Paid Rate
Assets
Earning assets
  Loans
     PPP loans $ 55,599 $ 756 5.45 % $ 31,816 $ 217 2.74 %
     Non-PPP loans 840,013 8,985 4.29 % 793,026 8,801 4.46 %
  Total loans 895,612 9,741 4.36 % 824,842 9,018 4.40 %
  Securities 430,865 1,894 1.76 % 294,915 1,611 2.20 %
  Other short-term investments and CDs 77,759 29 0.15 % 51,426 37 0.29 %
Total earning assets 1,404,236 11,664 3.33 % 1,171,183 10,666 3.66 %
Cash and due from banks 25,128 14,820
Premises and equipment 34,105 34,837
Goodwill and other intangibles 15,674 15,967
Other assets 39,235 40,489
Allowance for loan losses (10,670 ) (8,052 )
Total assets $ 1,507,708 $ 1,269,244

Liabilities
Interest-bearing liabilities
  Interest-bearing transaction accounts $ 305,393 $ 51 0.07 % $ 232,611 $ 59 0.10 %
  Money market accounts 267,788 109 0.16 % 203,641 179 0.35 %
  Savings deposits 132,429 19 0.06 % 108,608 17 0.06 %
  Time deposits 159,133 269 0.68 % 165,995 481 1.17 %
  Other borrowings 75,434 124 0.66 % 68,913 187 1.09 %
Total interest-bearing liabilities 940,177 572 0.24 % 779,768 923 0.48 %
Demand deposits 420,358 349,232
Other liabilities 11,950 13,328
Shareholders’ equity 135,223 126,916
Total liabilities and shareholders’ equity $ 1,507,708 $ 1,269,244

Cost of deposits, including demand deposits 0.14 % 0.28 %
Cost of funds, including demand deposits 0.17 % 0.33 %
Net interest spread 3.09 % 3.18 %
Net interest income/margin $ 11,092 3.17 % $ 9,743 3.35 %
Net interest income/margin (tax equivalent) $ 11,215 3.20 % $ 9,846 3.38 %
45
The table below sets forth the relative impact on net interest income of changes in the volume of earning assets and interest-bearing liabilities and changes in rates earned and paid by the Company on such assets and liabilities.
Three Months Ended March 31,
2022 versus 2021
Increase (Decrease)
Due to Changes in (1)
Volume Rate Total
(in thousands)
Interest income:
    Loans $ (106 ) $ (342 ) $ (448 )
Non-taxable securities (19 ) 10 (9 )
Taxable securities 726 (292 ) 434
Interest bearing deposits in other banks (5 ) 5 —
Total interest income 596 (619 ) (23 )

Interest expense:
Interest-bearing transaction accounts 10 (23 ) (13 )
Money market accounts 20 (49 ) (29 )
Savings deposits 3 (2 ) 1
Time deposits (13 ) (132 ) (145 )
Securities sold under agreements to repurchase 7 (10 ) (3 )
Total interest expense 27 (216 ) (189 )
Total net interest income $ 569 $ (403 ) $ 166
(1) The change in interest due to both volume and rate has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
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 ~~June 30, 2021~~March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
48
46
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 us which we believe, if determined adversely, would have a material adverse impact on our financial position, results of operations or cash flows.

Item 1A. Risk Factors.

Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Statement 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(a) Under the Company’s Non-Employee Director Deferred Compensation Plan, as amended and restated effective as of January 1, 2021, during the three months period ended ~~June 30, 2021,~~March 31, 2022, we credited an aggregate of ~~1,335~~2,983 deferred stock units to accounts for directors who elected to defer monthly fees. These deferred stock units include dividend equivalents in the form of additional stock units. The deferred stock units were issued pursuant to an exemption from registration under the Securities Act of 1933 in reliance upon Section 4(a)(2) of the Securities Act of 1933.
(b) Not Applicable.
(c) No share repurchases were made during the three months ended March 31, 2022; however, 2,065 shares were withheld to satisfy tax withholding obligations applicable to the vesting of restricted stock. On April 12, 2021, we announced that our Board of Directors approved the repurchase of up to 375,000 shares of our common stock (the “2021 Repurchase Plan”), which ~~represents~~represented approximately 5% of our ~~7,539,587~~7,559,760 shares outstanding as of ~~June 30, 2021. No share repurchases were made during~~March 31, 2022. The 2021 Repurchase Plan expired at the ~~three months ended June 30, 2021.~~market close on March 31, 2022.
Item 3. Defaults Upon Senior Securities.

Not Applicable.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.
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47
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).
~~10.1~~ ~~First Community Corporation Non-Employee Director Deferred Compensation Plan, as amended and restated effective as of January 1, 2021.~~

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 ~~June 30, 2021,~~March 31, 2022, formatted in iXBRL (inline eXtensible Business Reporting Language; (i) Consolidated Balance Sheets at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, (ii) Consolidated Statements of Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ (iii) Consolidated Statements of Comprehensive Income for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (iv) Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2022 and ~~six months ended June 30,~~ 2021, ~~and 2020,~~ (v) Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ and (vi) Notes to Consolidated Financial Statements.

104 Cover Page Interactive Data File (the cover page XBRL tags are embedded within the iXBRL document).
50
48
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: ~~August 10, 2021~~May 11, 2022 By: /s/ Michael C. Crapps
Michael C. Crapps
President and Chief Executive Officer
(Principal Executive Officer)

Date: ~~August 10, 2021~~May 11, 2022 By: /s/ D. Shawn Jordan
D. Shawn Jordan
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
51
49

	June 30,
(Dollars in thousands, except par value)	2021			December 31,
	(Unaudited)			2020
ASSETS
Cash and due from banks	$	23,671		$	18,930
Interest-bearing bank balances		52,316			46,062
Investment securities available-for-sale		468,951			359,866
Other investments, at cost		1,718			2,053
Loans held-for-sale		11,416			45,020
Loans held-for-investment		878,318			844,157
Less, allowance for loan losses		10,638			10,389
Net loans held-for-investment		867,680			833,768
Property and equipment - net		33,882			34,458
Lease right-of-use asset		2,938			3,032
Premises held-for-sale		591			591
Bank owned life insurance		28,033			27,688
Other real estate owned		1,182			1,194
Intangible assets		1,011			1,120
Goodwill		14,637			14,637
Other assets		6,947			6,963
Total assets	$	1,514,973		$	1,395,382
LIABILITIES
Deposits:
Non-interest bearing	$	417,895		$	385,511
Interest bearing		871,988			803,902
Total deposits		1,289,883			1,189,413
Securities sold under agreements to repurchase		60,487			40,914
Junior subordinated debt		14,964			14,964
Lease liability		3,033			3,114
Other liabilities		8,679			10,640
Total liabilities		1,377,046			1,259,045
SHAREHOLDERS’ EQUITY
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized; NaN issued and outstanding		—			—
Common stock, par value $1.00 per share; 20,000,000 shares authorized; issued and outstanding 7,539,587 at June 30, 2021 7,500,338 at December 31, 2020		7,540			7,500
Nonvested restricted stock		(480	)		(283	)
Additional paid in capital		91,964			91,380
Retained earnings		31,457			26,453
Accumulated other comprehensive income		7,446			11,287
Total shareholders’ equity		137,927			136,337
Total liabilities and shareholders’ equity	$	1,514,973		$	1,395,382


(Dollars in thousands, except per share amounts)	Six Months ended June 30,
	2021		2020
Interest and dividend income:
Loans, including fees	$	19,191	$	17,845
Investment securities - taxable		2,852		2,662
Investment securities - non taxable		776		675
Other short term investments and CDs		63		194
Total interest income		22,882		21,376
Interest expense:
Deposits		967		1,755
Securities sold under agreement to repurchase		47		140
Other borrowed money		209		321
Total interest expense		1,223		2,216
Net interest income		21,659		19,160
Provision for loan losses		345		2,325
Net interest income after provision for loan losses		21,314		16,835
Non-interest income:
Deposit service charges		458		609
Mortgage banking income		2,133		2,554
Investment advisory fees and non-deposit commissions		1,834		1,305
Gain on sale of other real estate owned		77		6
Other		2,212		1,841
Total non-interest income		6,714		6,315
Non-interest expense:
Salaries and employee benefits		11,912		11,493
Occupancy		1,464		1,322
Equipment		613		616
Marketing and public relations		709		601
FDIC Insurance assessments		315		130
Other real estate expense		84		75
Amortization of intangibles		109		200
Other		4,212		3,732
Total non-interest expense		19,418		18,169
Net income before tax		8,610		4,981
Income tax expense		1,812		970
Net income	$	6,798	$	4,011

Basic earnings per common share	$	0.91	$	0.54
Diluted earnings per common share	$	0.90	$	0.54


(Dollars in thousands, except per share amounts)	Three Months ended June 30,
	2021		2020
Interest and dividend income:
Loans, including fees	$	9,740	$	9,018
Investment securities - taxable		1,507		1,225
Investment securities - non taxable		387		386
Other short term investments and CDs		30		37
Total interest income		11,664		10,666
Interest expense:
Deposits		448		736
Securities sold under agreement to repurchase		19		36
Other borrowed money		105		151
Total interest expense		572		923
Net interest income		11,092		9,743
Provision for loan losses		168		1,250
Net interest income after provision for loan losses		10,924		8,493
Non-interest income:
Deposit service charges		212		210
Mortgage banking income		1,143		1,572
Investment advisory fees and non-deposit commissions		957		671
Other		1,106		934
Total non-interest income		3,418		3,387
Non-interest expense:
Salaries and employee benefits		5,948		5,840
Occupancy		734		679
Equipment		338		298
Marketing and public relations		313		247
FDIC Insurance assessments		146		88
Other real estate expense		55		40
Amortization of intangibles		52		95
Other		2,292		1,844
Total non-interest expense		9,878		9,131
Net income before tax		4,464		2,749
Income tax expense		921		532
Net income	$	3,543	$	2,217

Basic earnings per common share	$	0.47	$	0.30
Diluted earnings per common share	$	0.47	$	0.30

(Dollars in thousands)
	Six months ended June 30,
	2021		2020

Net income	$	6,798	$	4,011

Other comprehensive income:
Unrealized (loss) gain during the period on available-for-sale securities, net of (tax benefit) and tax expense of ($1,021) and $2,095, respectively		(3,841)		7,882

Comprehensive income	$	2,957	$	11,893

(Dollars in thousands)
	Three months ended June 30,
	2021		2020

Net income	$	3,543	$	2,217

Other comprehensive income:
Unrealized gain during the period on available-for-sale securities, net of tax expense of $616 and $1,196, respectively		2,320		4,501

Comprehensive income	$	5,863	$	6,718


	Six months ended June 30,
(Dollars in thousands)	2021			2020
Cash flows from operating activities:
Net income	$	6,798		$	4,011
Adjustments to reconcile net income to net cash provided (used) from operating activities:
Depreciation		853			807
Net premium amortization		1,089			984
Provision for loan losses		345			2,325
Origination of loans held-for-sale		(76,404	)		(85,207	)
Sale of loans held-for-sale		110,008			62,866
Write-down of other real estate owned		33			38
Gain on sale of other real estate owned		(77	)		(6	)
Amortization of intangibles		109			200
Accretion on acquired loans		(64	)		(179	)
Loss on fair value of securities		(2	)		—
Increase (decrease) in other assets		786			(2,221	)
Decrease in other liabilities		(2,042	)		4,385

Net cash provided (used) from operating activities		41,432			(11,997	)
Cash flows from investing activities:
Purchase of investment securities available-for-sale		(139,458	)		(22,077	)
Purchase of other investment securities		(20)			(70	)
Maturity/call of investment securities available-for-sale		24,424			21,948
Proceeds from FHLB stock sales		355			—
Increase in loans		(34,338	)		(83,570	)
Proceeds from sale of other securities		—			9
Proceeds from sale of other real estate owned		201			—
Purchase of property and equipment		(277	)		(527	)
Net cash (used) provided in investing activities		(149,113	)		(84,287	)
Cash flows from financing activities:
Increase (decrease) in deposit accounts		100,470			130,672
Increase in securities sold under agreements to repurchase		19,573			12,355
Advances from the Federal Home Loan Bank		—			34,001
Repayment of advances from Federal Home Loan Bank		—			(34,212	)
Shares retired / forfeited		(70	)		(15	)
Dividends paid: Common Stock		(1,794	)		(1,783	)

Issuance of deferred compensation shares		—			200
Proceeds from issuance of Common Stock		136			4
Change in non-vested restricted stock		177			121
Dividend reinvestment plan		184			187
Net cash provided (used) from financing activities		118,676			141,530
Net increase in cash and cash equivalents		10,995			45,246
Cash and cash equivalents at beginning of period		64,992			47,692
Cash and cash equivalents at end of period	$	75,987		$	92,938
Supplemental disclosure:
Cash paid during the period for:
Interest	$	2,396		$	3,070
Income taxes	$	2,837		$	—
Non-cash investing and financing activities:
Unrealized gain (loss) on securities	$	(3,841	)	$	9,977
Transfer of loans to foreclosed property	$	145		$	78

Industry Segments	Outstanding		% of Loan			Avg. Loan		Avg. Loan to
(Dollars in millions)	Loan Balance		Portfolio			Size		Value
Hotels	$	33.9		3.9	%	$	2.3		69	%
Restaurants	$	21.3		2.4	%	$	0.7		70	%
Assisted Living	$	8.7		1.0	%	$	1.4		46	%
Retail	$	83.0		9.5	%	$	0.7		57	%


	Six months				Three months
	Ended June 30,				Ended June 30,
	2021		2020		2021		2020

Numerator (Net income available to common shareholders)	$	6,798	$	4,011	$	3,543	$	2,217
Denominator
Weighted average common shares outstanding for:
Basic shares		7,478		7,432		7,486		7,436
Dilutive securities:
Deferred compensation		28		26		29		18
Restricted stock – Treasury stock method		22		10		22		11
Diluted shares		7,528		7,468		7,537		7,465
Earnings per common share:
Basic		0.91		0.54		0.47		0.30
Diluted		0.90		0.54		0.47		0.30
The average market price used in calculating assumed number of shares	$	18.95	$	16.98	$	19.44	$	14.97

(Dollars in thousands)	Three Months Ended June 30, 2021			Three Months Ended June 30, 2020

Accretable yield, beginning of period	$	86		$	116
Accretion		(7	)		(7	)
Accretable yield, end of period	$	79		$	109

(Dollars in thousands)	Six Months Ended June 30, 2021			Six Months Ended June 30, 2020

Accretable yield, beginning of period	$	93		$	123
Accretion		(14	)		(14	)
Accretable yield, end of period	$	79		$	109

(Dollars in thousands)	Three Months Ended March 31, 2022			Three Months Ended March 31, 2021

Accretable yield, beginning of period	$	64		$	93
Accretion		(8	)		(7	)
Accretable yield, end of period	$	56		$	86

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.


	June 30, 2021										March 31, 2022
			Fair Value								Carrying		Fair Value
(Dollars in thousands)	Carrying Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and short term investments	$	75,987	$	75,987	$	75,987	$	—	$	—	$	100,792	$	100,792	$	100,792	$	—	$	—
Investment securities available-for-sale		468,951		468,951		25,576		443,375		—
Available-for-sale securities												577,820		577,820		36,371		541,449		—
Other investments, at cost		1,718		1,718		—		—		1,718		1,879		1,879		—		—		1,879
Loans held-for-sale		11,416		11,416		—		11,416		—
Loans held for sale												12,095		12,095		—		12,095		—
Net loans receivable		867,680		871,342		—		—		871,342		864,734		836,206		—		—		836,206
Accrued interest receivable		4,012		4,012		4,012		—		—
Accrued interest												3,838		3,838		3,838		—		—
Financial liabilities:
Non-interest bearing demand	$	417,895	$	417,895	$	—	$	417,895	$	—	$	467,265	$	467,265	$	—	$	467,265	$	—
Interest bearing demand deposits and money market accounts		577,362		577,362		—		577,362		—		658,932		658,932		—		658,932		—
Savings		136,338		136,338		—		136,338		—		150,849		150,849		—		150,849		—
Time deposits		158,288		158,763		—		158,763		—		153,702		153,871		—		153,871		—
Total deposits		1,289,883		1,290,358		—		1,290,358		—		1,430,748		1,430,917		—		1,430,917		—
Securities sold under agreements to repurchase		60,487		60,487		—		60,487		—
Junior subordinated debt		14,964		14,493		—		14,493		—
Federal Home Loan Bank Advances												—		—		—		—		—
Short term borrowings												68,060		68,060		—		68,060		—
Junior subordinated debentures												14,964		15,653		—		15,653		—
Accrued interest payable		505		505		505		—		—		334		334		334		—		—

	December 31, 2020										December 31, 2021
	Carrying		Fair Value								Carrying		Fair Value
(Dollars in thousands)	Amount		Total		Level 1		Level 2		Level 3		Amount		Total		Level 1		Level 2		Level 3
Financial Assets:
Cash and short term investments	$	64,992	$	64,992	$	64,992	$	—	$	—	$	69,022	$	69,022	$	69,022	$	—	$	—
Investment securities available-for-sale		359,866		359,866		20,564		339,302		—
Available-for-sale securities												564,839		564,839		39,829		525,010		—
Other investments, at cost		2,053		2,053		—		—		2,053		1,785		1,785		—		—		1,785
Loans held for sale		45,020		45,020		—		45,020		—		7,120		7,120		—		7,120		—
Net loans receivable		833,768		829,685		—		—		829,685		852,523		851,822		—		—		851,822
Accrued interest receivable		4,167		4,167		4,167		—		—
Accrued interest												3,927		3,927		3,927		—		—
Financial liabilities:
Non-interest bearing demand	$	385,511	$	385,511	$	—	$	385,511	$	—	$	444,688	$	444,688	$	—	$	444,688	$	—
Interest bearing demand deposits and money market accounts		520,205		520,205		—		520,205		—		619,057		619,057		—		619,057		—
Savings		123,032		123,032		—		123,032		—		143,765		143,765		—		143,765		—
Time deposits		160,665		161,505		—		61,505		—		153,781		154,030		—		154,030		—
Total deposits		1,189,413		1,190,253		—		1,190,253		—		1,361,291		1,361,540		—		1,361,540		—
Securities sold under agreements to repurchase		40,914		40,914		—		40,914		—
Junior subordinated debt		14,964		11,748		—		11,748		—
Federal Home Loan Bank Advances												—		—		—		—		—
Short term borrowings												54,216		54,216		—		54,216		—
Junior subordinated debentures												14,964		15,015		—		15,015		—
Accrued interest payable		667		667		667		—		—		404		404		404		—		—

Description	June 30, 2021		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	$	15,448	$	—	$	15,448	$	—
Government sponsored enterprises		—		—		—		—
Mortgage-backed securities		321,241		22,326		298,915		—
Small Business Administration pools		36,225		—		36,225		—
State and local government		89,338		—		89,338		—
Corporate and other securities		6,699		3,250		3,449		—
Total Available-for-sale securities		468,951		25,576		443,375		—
Loans held-for-sale		11,416		—		11,416		—
Total	$	480,367	$	25,576	$	454,791	$	—

Description	December 31, 2020		(Level 1)		(Level 2)		(Level 3)		March 31, 2022		(Level 1)		(Level 2)		(Level 3)
Available- for-sale securities				��
US Treasury Securities	$	1,502	$	—	$	1,502	$	—	$	58,595	$	29,772	$	28,823	$	—
Government Sponsored Enterprises		1,006		—		1,006		—		2,317		—		2,317		—
Mortgage-backed securities		229,929		17,029		212,900		—		378,348		2,949		375,399		—
Small Business Administration pools		35,498		—		35,498		—		27,984		—		27,984		—
State and local government		88,603		3,535		85,068		—		101,971		2,900		99,071		—
Corporate and other securities		3,328		—		3,328		—		8,605		750		7,855		—
Total Available-for-sale securities		359,866		20,564		339,302		—		577,820		36,371		541,449		—
Loans held for sale		45,020		—		45,020		—		12,095		—		12,095		—
Total	$	404,886	$	20,564	$	384,322	$	—	$	589,915	$	36,371	$	553,544	$	—

(Dollars in thousands)
Description									December 31, 2021		(Level 1)		(Level 2)		(Level 3)
Available- for-sale securities
US Treasury Securities									$	15,436	$	—	$	15,436	$	—
Government Sponsored Enterprises										2,501		—		2,501		—
Mortgage-backed securities										397,729		25,934		371,796		—
Small Business Administration pools										31,273		—		31,273		—
State and local government										109,848		12,896		96,952		—
Corporate and other securities										8,052		1,000		7,052		—
Total Available-for-sale securities										564,839		39,830		525,010		—
Loans held for sale										7,120		—		7,120		—
Total									$	571,959	$	39,830	$	532,130	$	—

(Dollars in thousands)

Description	June 30, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		March 31, 2022		(Level 1)		(Level 2)		(Level 3)
Impaired loans:
Commercial & Industrial	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate:
Mortgage-residential		310		—		—		310		42		—		—		42
Mortgage-commercial		5,163		—		—		5,163		1,499		—		—		1,499
Consumer:
Home equity		21		—		—		21		—		—		—		—
Other		—		—		—		—		—		—		—		—
Total impaired		5,494		—		—		5,494		1,541		—		—		1,541
Other real estate owned:
Construction		641		—		—		641		1,056		—		—		1,056
Mortgage-residential		541		—		—		541
Mortgage-commercial										90		—		—		90
Total other real estate owned		1,182		—		—		1,182		1,146		—		—		1,146
Total	$	6,676	$	—	$	—	$	6,676	$	2,687	$	—	$	—	$	2,687

(Dollars in thousands)	Fair Value as of March 31, 2022		Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$	1,146	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	$	1,541	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, 2021		Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$	1,165	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	$	1,694	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 June 30, 2021		Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$	1,182	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	$	5,494	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, 2020		Valuation Technique	Significant Observable Inputs	Significant Unobservable Inputs
OREO	$	1,194	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	$	6,111	Appraisal Value	Appraisals and or sales of comparable properties	Appraisals discounted 6% to 16% for sales commissions and other holding cost

Three months ended March 31, 2022	Commercial					Investment
(Dollars in thousands)	and Retail			Mortgage		advisory and
	Banking			Banking		non-deposit		Corporate			Eliminations			Consolidated

Dividend and Interest Income	$	10,990		$	202	$	—	$	1,084		$	(1,081	)	$	11,195
Interest expense		358			—		—		104			—			462
Net interest income	$	10,632		$	202	$	—	$	980		$	(1,081	)	$	10,733
Provision for (release of) loan losses		(125	)		—		—		—			—			(125	)
Noninterest income		1,337			839		1,198		—			—			3,374
Noninterest expense		7,991			1,016		763		184			—			9,954
Net income before taxes	$	4,103		$	25	$	435	$	796		$	(1,081	)	$	4,278

Income tax provision (benefit)		849			—		—		(60	)		—			789
Net income	$	3,254		$	25	$	435	$	856		$	(1,081	)	$	3,489

Three months ended March 31, 2021	Commercial					Investment
(Dollars in thousands)	and Retail			Mortgage		advisory and
	Banking			Banking		non-deposit		Corporate			Eliminations			Consolidated

Dividend and Interest Income	$	10,861		$	353	$	—	$	1,007		$	(1,003	)	$	11,218
Interest expense		546			—		—		105			—			651
Net interest income	$	10,315		$	353	$	—	$	902		$	(1,003	)	$	10,567
Provision for loan losses		177			—		—		—			—			177
Noninterest income		1,429			990		877		—			—			3,296
Noninterest expense		7,624			1,175		584		157			—			9,540
Net income before taxes	$	3,943		$	168	$	293	$	745		$	(1,003	)	$	4,146

Income tax provision (benefit)		934			—		—		(43	)		—			891
Net income	$	3,009		$	168	$	293	$	788		$	(1,003	)	$	3,255


	Three Months Ended March 31,
Lease cost (in thousands)	2022		2021
Operating lease cost	$	80.8	$	80.8
Cash paid for amounts included in the measurement of lease liabilities	$	75.3	$	73.9

(Dollars in thousands)					Liability						Liability
Year	Cash		Lease Expense		Reduction		Cash		Lease Expense		Reduction
2021	$	150	$	66	$	83
2022		303		126		177	$	228	$	94	$134
2023		309		118		191		309		118	191
2024		282		110		172		282		110	172
2025		222		104		118		222		104	118
2026								226		99	127
Thereafter		2,978		687		2,292		2,751		587	2164
Total	$	4,244	$	1,211	$	3,033	$	4,018	$	1,112	$2,906

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, 2022
Leverage Ratio		8.43	%		5.00	%		4.00	%	$	55,152	$	71,233
Common Equity Tier 1 Capital Ratio		13.89	%		6.50	%		4.50	%		72,135		91,649
Tier 1 Capital Ratio		13.89	%		8.00	%		6.00	%		57,500		77,014
Total Capital Ratio		15.03	%		10.00	%		8.00	%		49,049		68,563
December 31, 2021
Leverage Ratio		8.45	%		5.00	%		4.00	%	$	54,297	$	70,021
Common Equity Tier 1 Capital Ratio		13.97	%		6.50	%		4.50	%		71,086		90,111
Tier 1 Capital Ratio		13.97	%		8.00	%		6.00	%		56,817		75,843
Total Capital Ratio		15.15	%		10.00	%		8.00	%		48,971		67,996

(Dollars in thousands)	Three months ended June 30,				Three months ended March 31,
	2021		2020		2022		2021
ATM debit card income	$	696	$	552	$	656	$	628
Income on bank owned life insurance		179		183		179		167
Rental income		78		60		81		70
Other service fees and safe deposit box fees		57		56
Other service fee and safe deposit box fees						60		62
Wire transfer fees		30		23		34		26
Other		66		60		62		153
Total	$	1,106	$	934	$	1,072	$	1,106

	March 31, 2022
(In thousands)	One Year or Less		Over One Year Through Five Years		Over Five Years Through Fifteen years		Over Fifteen Years		Total
Commercial, financial and agricultural	$	7,462	$	33,573	$	29,530	$	0	$	70,565
Real estate:
Construction		23,211		39,520		33,169		519		96,419
Mortgage-residential		3,589		14,230		3,726		21,130		42,675
Mortgage-commercial		54,638		266,363		301,657		4,963		627,621
Consumer:
Home equity		2,020		4,487		21,205		0		27,712
Other		1,927		8,085		421		372		10,805
Total	$	92,847	$	366,258	$	389,708	$	26,984	$	875,797

(In thousands)	Within One Year					Over One Year and less than Five					Over Five Years and less than Ten					Over Ten years
Available-for-Sale:	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
US Treasury Securities	$	—		—		$	44,662		1.67	%		15,743		1.21	%	$	—		—
Government sponsored enterprises		2,499		0.58	%		—		—			—		—			—		—
Small Business Administration pools		839		0.84	%		22,183		1.84	%		2,959		1.04	%		2,131		2.11	%
Mortgage-backed securities		13,619		1.99	%		120,736		1.09	%		183,676		1.66	%		73,244		1.06	%
State and local government		3,316		1.79	%		18,177		2.92	%		80,132		2.32	%		4,132		3.18	%
Corporate and other securities		—		—			5,778		3.85	%		2,984		4.19	%		9		3.70	%
Total investment securities available-for-sale	$	20,273		1.74	%	$	211,536		1.52	%	$	285,494		1.85	%	$	79,516		1.20	%

	March 31, 2022
	Within Three		After Three Through		After Six Through		After Twelve
(In thousands)	Months		Six Months		Twelve Months		Months		Total
Time deposits of $250,000 or more	$	5,896	$	5,645	$	13,112	$	4,796	$	29,449

Change in short-term interest rates	Hypothetical percentage change in net interest income
	June 30, 2021			December 31, 2020
+200bp		-3.35	%		-0.73	%
+100bp		-1.01	%		+0.08	%
Flat		—			—
-100bp		-4.50	%		-3.37	%
-200bp		-7.66	%		-3.58	%

Change in short-term interest rates	Hypothetical percentage change in net interest income
	March 31, 2022			December 31, 2021
+200bp		+2.52	%		+3.04	%
+100bp		+1.36	%		+2.12	%
Flat		—			—
-100bp		-2.04	%		-5.12	%
-200bp		-7.53	%		-9.81	%

FIRST COMMUNITY CORPORATION
Yields on Average Earning Assets and
Rates on Average Interest-Bearing Liabilities

	Six months ended June 30, 2021								Six months ended June 30, 2020
	Average			Interest		Yield/			Average			Interest		Yield/
	Balance			Earned/Paid		Rate			Balance			Earned/Paid		Rate
Assets
Earning assets
Loans
PPP loans	$	55,570		$	1,440		5.23	%	$	15,908		$	217		2.74	%
Non-PPP loans		835,451			17,751		4.28	%		773,342			17,628		4.58	%
Total loans		891,021			19,191		4.34	%		789,250			17,845		4.55	%
Securities		402,261			3,628		1.82	%		290,624			3,337		2.31	%
Other short-term investments and CDs		78,543			63		0.16	%		44,339			194		0.88	%
Total earning assets		1,371,825			22,882		3.36	%		1,124,213			21,376		3.82	%
Cash and due from banks		21,797								14,926
Premises and equipment		34,227								34,920
Goodwill and other intangibles		15,700								16,015
Other assets		38,683								40,089
Allowance for loan losses		(10,548	)							(7,366	)
Total assets	$	1,471,684							$	1,222,797

Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts	$	291,511		$	109		0.08	%	$	224,405		$	162		0.15	%
Money market accounts		261,137			250		0.19	%		200,967			528		0.53	%
Savings deposits		129,223			38		0.06	%		106,191			46		0.09	%
Time deposits		159,724			570		0.72	%		167,696			1,019		1.22	%
Other borrowings		76,842			256		0.67	%		69,623			461		1.33	%
Total interest-bearing liabilities		918,437			1,223		0.27	%		768,882			2,216		0.58	%
Demand deposits		405,209								315,473
Other liabilities		12,637								13,252
Shareholders’ equity		135,401								125,190
Total liabilities and shareholders’ equity	$	1,471,684							$	1,222,797

Cost of deposits, including demand deposits							0.16	%							0.35	%
Cost of funds, including demand deposits							0.19	%							0.41	%
Net interest spread							3.09	%							3.24	%
Net interest income/margin				$	21,659		3.18	%				$	19,160		3.43	%
Net interest income/margin (tax equivalent)				$	21,890		3.22	%				$	19,341		3.46	%

	Three months ended June 30, 2021								Three months ended June 30, 2020
	Average			Interest		Yield/			Average			Interest		Yield/
	Balance			Earned/Paid		Rate			Balance			Earned/Paid		Rate
Assets
Earning assets
Loans
PPP loans	$	55,599		$	756		5.45	%	$	31,816		$	217		2.74	%
Non-PPP loans		840,013			8,985		4.29	%		793,026			8,801		4.46	%
Total loans		895,612			9,741		4.36	%		824,842			9,018		4.40	%
Securities		430,865			1,894		1.76	%		294,915			1,611		2.20	%
Other short-term investments and CDs		77,759			29		0.15	%		51,426			37		0.29	%
Total earning assets		1,404,236			11,664		3.33	%		1,171,183			10,666		3.66	%
Cash and due from banks		25,128								14,820
Premises and equipment		34,105								34,837
Goodwill and other intangibles		15,674								15,967
Other assets		39,235								40,489
Allowance for loan losses		(10,670	)							(8,052	)
Total assets	$	1,507,708							$	1,269,244

Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts	$	305,393		$	51		0.07	%	$	232,611		$	59		0.10	%
Money market accounts		267,788			109		0.16	%		203,641			179		0.35	%
Savings deposits		132,429			19		0.06	%		108,608			17		0.06	%
Time deposits		159,133			269		0.68	%		165,995			481		1.17	%
Other borrowings		75,434			124		0.66	%		68,913			187		1.09	%
Total interest-bearing liabilities		940,177			572		0.24	%		779,768			923		0.48	%
Demand deposits		420,358								349,232
Other liabilities		11,950								13,328
Shareholders’ equity		135,223								126,916
Total liabilities and shareholders’ equity	$	1,507,708							$	1,269,244

Cost of deposits, including demand deposits							0.14	%							0.28	%
Cost of funds, including demand deposits							0.17	%							0.33	%
Net interest spread							3.09	%							3.18	%
Net interest income/margin				$	11,092		3.17	%				$	9,743		3.35	%
Net interest income/margin (tax equivalent)				$	11,215		3.20	%				$	9,846		3.38	%

	Three Months Ended March 31,
	2022 versus 2021
	Increase (Decrease) Due to Changes in (1)
	Volume			Rate			Total
	(in thousands)
Interest income:
Loans	$	(106	)	$	(342	)	$	(448	)
Non-taxable securities		(19	)		10			(9	)
Taxable securities		726			(292	)		434
Interest bearing deposits in other banks		(5	)		5			—
Total interest income		596			(619	)		(23	)

Interest expense:
Interest-bearing transaction accounts		10			(23	)		(13	)
Money market accounts		20			(49	)		(29	)
Savings deposits		3			(2	)		1
Time deposits		(13	)		(132	)		(145	)
Securities sold under agreements to repurchase		7			(10	)		(3	)
Total interest expense		27			(216	)		(189	)
Total net interest income	$	569		$	(403	)	$	166

	(c)	No share repurchases were made during the three months ended March 31, 2022; however, 2,065 shares were withheld to satisfy tax withholding obligations applicable to the vesting of restricted stock. On April 12, 2021, we announced that our Board of Directors approved the repurchase of up to 375,000 shares of our common stock (the “2021 Repurchase Plan”), which ~~represents~~represented approximately 5% of our ~~7,539,587~~7,559,760 shares outstanding as of ~~June 30, 2021. No share repurchases were made during~~March 31, 2022. The 2021 Repurchase Plan expired at the ~~three months ended June 30, 2021.~~market close on March 31, 2022.