Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis identifies 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 Annual Report on Form 10-K.
Overview
We are headquartered in Lexington, South Carolina and serve as the bank holding company for the Bank. We engage in a general commercial and retail banking business characterized by personalized service and local decision making, emphasizing the banking needs of small to medium-sized businesses, professionals and individuals. We operate from our main office in Lexington, South Carolina, and our 21 full-service offices located in the South Carolina counties of Lexington County (6 offices), Richland County (4 offices), Newberry County (2 offices), Kershaw County (1 office), Aiken County (1 office), Greenville County (2 offices), Anderson County (1 office), Pickens County (1 office), and York County (1 office); and in the Georgia counties of Richmond County (1 office) and Columbia County (1 office).
The following discussion describes our results of operations for 2025, as compared to 2024 and 2023, and also analyzes our financial condition as of December 31, 2025, as compared to December 31, 2024. Like most community banks, we derive most of our income from interest we receive on our loans and investments. A 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.
We have included a number of tables to assist in our description of these measures. For example, the “Average Balances” table shows the average balance during 2025, 2024 and 2023 of each category of our assets and liabilities, as well as the yield we earned or the rate we paid with respect to each category. A review of this table shows that our loans typically provide higher interest yields than do other types of interest earning assets, which is why we intend to channel a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” table helps demonstrate the impact of changing interest rates and changing volume of assets and liabilities during the years shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included a “Sensitivity Analysis Table” to help explain this. Finally, we have included a number of tables that provide detail about our investment securities, our loans, our deposits and our borrowings.
There are risks inherent in all loans, so we maintain an allowance for credit losses to absorb expected losses. We establish and maintain this allowance by charging a provision for credit losses against our operating earnings. In the following section, we have included a detailed discussion of this process, as well as several tables describing our allowance for credit losses and the allocation of this allowance among our various categories of loans.
In addition to earning interest on our loans and investments, we earn income through fees and other expenses we charge to our customers. We describe the various components of this noninterest income, as well as our noninterest expense, in the following discussion. The discussion and analysis also identifies 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.
Critical Accounting 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 notes to our consolidated financial statements in this report.
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 credit losses, income taxes and deferred tax assets and liabilities, goodwill and other intangible assets, and derivative instruments 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.
Allowance for Credit Losses
As of January 1, 2023, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standard Update (“ASU”) 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”), which changed the methodology, accounting policies and inputs used in determining the allowance for credit losses (“ACL”). We believe the allowance for credit losses is the critical accounting policy that requires the most significant judgment and estimates used in preparation of our consolidated financial statements.
The allowance for credit losses represents our best estimate of credit losses on financial assets. The allowance for credit losses is assessed at least quarterly and adjustments are recorded in the provision for credit losses. These losses are estimated using historical loss rates and a projection of reasonable and supportable macroeconomic forecast, combined with additional qualitative factors. At December 31, 2025 and 2024, we held an allowance for credit losses for our held-to-maturity investment securities, our loans held-for-investment and our unfunded commitments that are not unconditionally cancelable.
The allowance for credit losses represents an amount which we believe will be adequate to absorb expected losses on existing financial assets that may become uncollectible. Our judgment as to the adequacy of the allowance for credit losses is based on assumptions about future events, which we believe to be reasonable, but which may or may not prove to be accurate. There can be no assurance that charge-offs of financial assets in future periods will not exceed the allowance for credit losses as estimated at any point in time or that provisions for credit losses will not be significant to a particular accounting period.
The allowance for credit losses represents management’s best estimate for our expected losses at December 31, 2025 and 2024, but significant downturns in circumstances relating to asset quality and economic conditions could result in a requirement for additional allowance for credit losses. Likewise, an upturn in asset quality and improved economic conditions may allow a reduction in the required allowance for credit losses. In either instance, unanticipated changes could have a significant impact on results of operations. In addition, regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses. Such agencies may require us to recognize additions to the allowance for credit losses based on their judgments about information available to them at the time of their examination.
Income Taxes, Deferred Tax Assets, and Deferred Tax Liabilities
We are subject to the income tax laws of the U.S., its states, and the municipalities in which we operate. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities.
Income taxes are provided for the tax effects of the transactions reported in our consolidated financial statements and consist of taxes currently due plus deferred taxes related to differences between the tax basis and accounting basis of certain assets and liabilities, including available-for-sale securities, allowance for credit losses, write-downs of OREO properties, write-downs on premises held-for-sale, accumulated depreciation, net operating loss carry forwards, accretion income, deferred compensation, intangible assets, and pension plan and post-retirement benefits. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. A valuation allowance is recorded when it is “more likely than not” that a deferred tax asset will not be realized. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
In establishing our provision for income taxes, our deferred tax assets and liabilities, and our valuation allowance, we must make judgments and interpretations about the application of these inherently complex tax laws. We must also make estimates about when in the future certain items will affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be subject to review/adjudication by the court systems of the various tax jurisdictions or may be settled with the taxing authority upon examination or audit. Although we believe that the judgments and estimates used are reasonable, and we believe our estimates have been reasonably accurate, actual results could differ, and we may be exposed to losses or gains that could be material. To the extent we prevail in matters for which reserves have been established, or are required to pay amounts in excess of our reserves, our effective income tax rate in a given financial statement period could be materially affected. An unfavorable tax settlement would result in an increase in our effective income tax rate in the period of resolution. A favorable tax settlement would result in a reduction in our income tax rate in the period of resolution.
Goodwill and Other Intangible Assets
Goodwill represents the cost in excess of fair value of the net assets we acquired (including identifiable intangibles) in purchase transactions. Other intangible assets represent premiums paid for acquisitions of core deposits (core deposit intangibles) .
We test our goodwill for impairment by evaluating whether the carrying amount exceeds the asset’s fair value. This test is done annually or more frequently if events and circumstances indicate the asset might be impaired.
Derivative Instruments
We utilize derivative instruments to manage risks such as interest rate risk or market risk. Our Derivatives Policy prohibits using derivatives for speculative purposes.
Accounting for derivatives differs significantly depending on whether a derivative is designated as an accounting hedge, which is a transaction intended to reduce a risk associated with a specific asset or liability or future expected cash flow at the time it is purchased. In order to qualify as an accounting hedge, a derivative must be designated as such at inception by management and meet certain criteria. Management must also continue to evaluate whether the instrument effectively reduces the risk associated with that item. To determine if a derivative instrument continues to be an effective hedge, we must make assumptions and judgments about the continued effectiveness of the hedging strategies and the nature and timing of forecasted transactions. If our hedging strategy was to become ineffective, hedge accounting would no longer apply, and the reported results of operations or financial condition could be materially affected.
Financial Highlights
As of or For the Years Ended December 31,
(Dollars in thousands except per share amounts)
Balance Sheet Data:
Total assets
Loans held for sale
Loans
Deposits
Total common shareholders’ equity
Total shareholders’ equity
Average shares outstanding, basic
Average shares outstanding, diluted
Results of Operations:
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income
Non-interest expenses
Income before taxes
Income tax expense
Net income
Net income available to common shareholders
Per Share Data:
Basic earnings per common share
Diluted earnings per common share
Book value at period end
Tangible book value at period end (non-GAAP)
Dividends per common share
Asset Quality Ratios:
Non-performing assets to total assets (3)
Non-performing loans to period end loans
Net charge-offs (recoveries) to average loans
Allowance for credit losses to period-end total loans
Allowance for credit losses to non-performing assets
Selected Ratios:
Return on average assets
Return on average common equity:
Return on average tangible common equity (non-GAAP):
Efficiency Ratio (non-GAAP) (1)
Noninterest income to operating revenue (2)
Net interest margin (tax equivalent)
Equity to assets
Tangible common shareholders’ equity to tangible assets (non-GAAP)
Tier 1 risk-based capital (Bank) (4)
Total risk-based capital (Bank) (4)
Leverage (Bank) (4)
Average loans to average deposits (5)
The efficiency ratio is a key performance indicator in our industry. The ratio is calculated by dividing non-interest expense less merger expenses by net interest income on a tax equivalent basis and non-interest income, excluding loss on sale of securities, gain on sale of other assets, loss on early extinguishment of debt, and other non-recurring noninterest income. The efficiency ratio is a measure of the relationship between operating expenses and net revenue.
Operating revenue is defined as net interest income plus noninterest income.
Includes nonaccrual loans, loans > 90 days delinquent and still accruing interest and other real estate owned (“OREO”).
As a small bank holding company, we are generally not subject to the capital requirements at the holding company level unless otherwise advised by the Federal Reserve; however, our Bank remains subject to capital requirements.
Includes loans held for sale.
Certain financial information presented above is determined by methods other than in accordance with GAAP. These non-GAAP financial measures include “efficiency ratio,” “tangible book value at period end,” “return on average tangible common equity” and “tangible common shareholders’ equity to tangible assets.” The “efficiency ratio” is defined as non-interest expense less merger expenses divided by net interest income on a tax equivalent basis and non-interest income, excluding loss on sale of securities, gain on sale of other assets, loss on early extinguishment of debt, and other non-recurring noninterest income. The efficiency ratio is a measure of the relationship between operating expenses and net revenue. “Tangible book value at period end” is defined as total equity reduced by recorded intangible assets divided by total common shares outstanding. “Return on average tangible common equity” is defined as net income on an annualized basis divided by average total equity reduced by average recorded intangible assets. “Tangible common shareholders’ equity to tangible assets” is defined as total common equity reduced by recorded intangible assets divided by total assets reduced by recorded intangible assets. Our management believes that these non-GAAP measures are useful because they the ability of investors and management to evaluate and compare our operating results from period-to-period in a meaningful manner. Non-GAAP measures have as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.
The table below provides a reconciliation of non-GAAP measures to GAAP for the three years ended December 31:
Tangible book value, dollars in thousands
Tangible common equity (non-GAAP)
Effect to adjust for intangible assets
Book value (GAAP)
Tangible book value per common share, dollars
Tangible common equity per common share (non-GAAP)
Effect to adjust for intangible assets
Book value per common share (GAAP)
Return on average tangible common equity
Return on average tangible common equity (non-GAAP)
Effect to adjust for intangible assets
Return on average common equity (GAAP)
Tangible common shareholders’ equity to tangible assets
Tangible common equity to tangible assets (non-GAAP)
Effect to adjust for intangible assets
Common equity to assets (GAAP)
Results of Operations
Year Ended December 31, 2025 and 2024
Our net income for the twelve months ended December 31, 2025 was $19.2 million, or $2.47 diluted earnings per common share, as compared to $14.0 million, or $1.81 diluted earnings per common share, for the twelve months ended December 31, 2024. The $5.3 million increase in net income between the two periods is primarily due to an increase in net interest income of $10.0 million, a decrease in provision for credit losses of $39 thousand, and an increase in non-interest income of $2.9 million, partially offset by an increase in non-interest expense of $5.9 million and an increase in income tax expense of $1.8 million.
The increase in net interest income results from an increase of $140.0 million in average earning assets combined with a 31 basis point improvement in the net interest margin between the two periods.
The $770 thousand provision for credit losses during the twelve months ended December 31, 2025 is primarily related to a $90.5 million increase in loans held-for-investment partially offset by a reduction of three basis points in our qualitative factors.
The $809 thousand provision for credit losses during the twelve months ended December 31, 2024 is primarily related to a $86.5 million increase in loans held-for-investment partially offset by a $43.7 million decrease in unfunded commitments net of unconditionally cancellable commitments and a reduction of two basis points in our qualitative factors for our reasonable and supportable forecast alternative scenarios qualitative factor. This reduction was driven by an improvement in externally calculated economic forecasts that flow into our model.
The $2.9 million increase in non-interest income is primarily related to an increase in mortgage banking income of $902 thousand, an increase in investment advisory fees of $1.4 million, and an increase in other income of $468 thousand
The increase in mortgage banking income was primarily driven by higher secondary market and construction production and higher gain on sale margin during the twelve months ended December 31, 2025 compared to the prior year period.
The increase in investment advisory fees was primarily driven by higher assets under management during the twelve months ended December 31, 2025 compared to the prior year period.
The increase in other non-interest income was primarily related to an increase in ATM/debit card income and rental income.
Gain on sale of other real estate owned was due to the sale of one of our other real estate owned properties.
The increase in non-interest expense is primarily related to an increase of $2.7 million in salaries and employee benefits, an increase of $310 thousand in marketing and public relations, and an increase of $1.3 million in merger expenses, combined with an increase of $1.5 million in other non-interest expenses.
The increase in other non-interest expense was primarily driven by increases of $219 thousand in core banking/electronic processing and services, $289 thousand in ATM/debit card processing, $316 thousand in software subscriptions and services, and $328 thousand in legal and professional fees.
Our effective tax rate was 22.7% during the twelve months ended December 31, 2025 compared to 21.5% during the twelve months ended December 31, 2024.
The effective tax rates were affected by a $120 thousand reduction to income tax due to purchases of state tax credits during the twelve months ended December 31, 2025 and by a $217 thousand reduction, including $68 thousand related to state tax credits, to income tax during the twelve months ended December 31, 2024.
Year Ended December 31, 2024 and 2023
Our net income for the twelve months ended December 31, 2024 was $14.0 million, or $1.81 diluted earnings per common share, as compared to $11.8 million, or $1.55 diluted earnings per common share, for the twelve months ended December 31, 2023. The $2.1 million increase in net income between the two periods is primarily due to an increase in net interest income of $3.1 million, a decrease in provision for credit losses of $320 thousand, and an increase in non-interest income of $3.6 million, partially offset by an increase in non-interest expense of $4.3 million and an increase in income tax expense of $618 thousand.
The increase in net interest income results from an increase of $154.9 million in average earning assets partially offset by a nine basis point decline in the net interest margin between the two periods.
The $809 thousand provision for credit losses during the twelve months ended December 31, 2024 is primarily related to a $86.5 million increase in loans held-for-investment partially offset by a $43.7 million decrease in unfunded commitments net of unconditionally cancellable commitments and a reduction of two basis points in our qualitative factors for our reasonable and supportable forecast alternative scenarios qualitative factor. This reduction was driven by an improvement in externally calculated economic forecasts that flow into our model.
The $1.1 million provision for credit losses during the twelve months ended December 31, 2023 is primarily related to a $153.2 million increase in loans held-for-investment and a $50.9 million increase in unfunded commitments net of unconditionally cancellable commitments partially offset by a reduction of five basis points in our qualitative factors (four basis points in our changes in total of past due, rated, and nonaccrual / changes in total of 30-89 days past due and other loans especially mentioned qualitative factor and one basis point in our reasonable and supportable forecast alternative scenarios qualitative factor). The one basis point reduction in our reasonable and supportable forecast alternative scenarios factor was driven by an improvement in externally calculated economic forecasts that flow into our model.
The $3.6 million increase in non-interest income is primarily related to an increase in mortgage banking income of $962 thousand, an increase in investment advisory fees of $1.7 million, a decrease in loss on sale of securities of $1.2 million, and an increase of $88 thousand in other non-interest income partially offset by a loss on early extinguishment of debt of $229 thousand and by a decrease in gain on sale of assets of $146 thousand.
The increase in mortgage banking income was primarily driven by higher secondary market production and higher gain on sale margin during the twelve months ended December 31, 2024 compared to the prior year period.
The increase in investment advisory fees was primarily driven by higher assets under management during the twelve months ended December 31, 2024 compared to the prior year period.
The increase in other non-interest income was primarily related to an increase in gains on insurance proceeds of $73 thousand and an increase in rental income of $25 thousand partially offset by a loss on disposition of assets on the closing of our downtown Augusta, Georgia banking office of $6 thousand.
Loss on sale of securities improved by $1.2 million to zero during the twelve months ended December 31, 2024 compared to a loss of $1.2 million during the same period in 2023. The $1.2 million loss on sale of securities during 2023 was related to the $39.9 million sale of book value U.S. Treasuries in our available-for-sale investment securities portfolio.
The loss on early extinguishment of debt of $229 thousand was related to an early payoff of $35.0 million in FHLB advances.
The increase in non-interest expense is primarily related to an increase of $3.4 million in salaries and employee benefits, an increase in FDIC insurance assessments of $273 thousand, an increase of $215 thousand in other real estate expense, and an increase of $597 thousand in other non-interest expense, partially offset by a decline of $63 thousand in occupancy expense, and a decline of $115 thousand in equipment.
The increase in other non-interest expense was primarily driven by increases of $224 thousand in core banking and electronic processing, $206 thousand in ATM/debit card processing, $252 thousand in software subscriptions and services, legal and professional fees of $163 thousand and $80 thousand in shareholder expense, partially offset by declines of $51 thousand in correspondent services, $223 thousand in debit card and fraud losses, and $95 thousand in loan processing and closing costs.
Our effective tax rate was 21.5% during the twelve months ended December 31, 2024 compared to 21.3% during the twelve months ended December 31, 2023.
The effective tax rates were affected by a $149 thousand non-recurring reduction to income tax during the twelve months ended December 31, 2024 and by a $122 thousand non-recurring reduction to income tax during the twelve months ended December 31, 2023. Furthermore, we purchased $500 thousand of South Carolina State Tax Credits for $432.5 thousand in November 2024, which created a $67.5 thousand non-recurring benefit to income taxes during the twelve months ended November 2024.
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.
Year Ended December 31, 2025 and 2024
Net interest income increased $10.0 million, or 19.2%, to $62.0 million for the twelve months ended December 31, 2025 from $52.0 million for the twelve months ended December 31, 2024. Our net interest margin increased by 31 basis points to 3.22% during the twelve months ended December 31, 2025 from 2.91% during the twelve months ended December 31, 2024. Our net interest margin, on a taxable equivalent basis, was 3.23% for the twelve months ended December 31, 2025 compared to 2.92% for the twelve months ended December 31, 2024. Average earning assets increased $140.0 million, or 7.8%, to $1.9 billion for the twelve months ended December 31, 2025 compared to $1.8 billion in the same period of 2024.
The increase in net interest income was primarily due to a higher level of average earning assets combined with a higher net interest margin.
The increase in average earning assets was due to increases in loans, investment securities, and interest bearing deposits in other banks.
An increase in the yield on earning assets and a reduction in cost of funds resulted in net interest margin expansion.
Investment securities represented 25.9% of average total earning assets for the twelve months ended December 31, 2025 compared to 27.5% during the same period in 2024.
Short-term investments represented 8.1% of average total earning assets for the twelve months ended December 31, 2025 compared to 6.2% during the same period in 2024.
Loans represented 66.0% of average total earning assets for the twelve months ended December 31, 2025 compared to 66.3% during the same period in 2024.
Effective May 5, 2023, we entered into the Loan Pay-Fixed Swap Agreement for a notional amount of $150.0 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate loans included in the closed loan portfolio. This fair value hedge converts the hedged loans from a fixed rate to a synthetic floating SOFR rate. The Pay-Fixed Swap Agreement will mature on May 5, 2026, and we will pay a fixed coupon rate of 3.58% while receiving the overnight SOFR rate. This interest rate swap positively impacted interest on loans by $1.0 million and $2.4 million during the twelve months ended December 31, 2025 and 2024, respectively. During the twelve months ended December 31, 2025, the swap benefited loan yields with an increase of eight basis points and net interest margin with an increase of five basis points. During the twelve months ended December 31, 2024, the swap benefited loan yields with an increase of 21 basis points and net interest margin with an increase of 14 basis points.
Average loans increased $86.6 million, or 7.3%, to $1.3 billion for the twelve months ended December 31, 2025 from $1.2 billion for the same period in 2024. Average loans represented 66.0% of average earning assets during the twelve months ended December 31, 2025 compared to 66.3% of average earning assets during the same period in 2024. Our loan (including loans held-for-sale) to deposit ratio on average during 2025 was 73.3%, as compared to 74.4% during 2024. This decrease was due to the growth rate on our average loans (including loans held-for-sale) in 2025 being exceeded by the growth rate on our deposits of during the same time period. The loan to deposit ratio (including loans held-for-sale) increased to 75.5% at December 31, 2025 as compared to 73.4% at December 31, 2024. Our growth in loans from December 31, 2024 to December 31, 2025 exceeded our growth in deposits during the same period.
The growth in our average deposits and securities sold under agreements to repurchase of $174.7 million compared to the growth in our average loans of $86.6 million resulted in a reduction in borrowings. The yield on loans increased 0.18% to 5.79% during the twelve months ended December 31, 2025 from 5.61% during the same period in 2024 due to new and renewed loan rates exceeding maturing loan rates. Average securities for the twelve months ended December 31, 2025 increased $8.7 million, or 1.8%, to $499.7 million from $491.0 million during the same period in 2024. Other short-term investments increased $44.7 million to $155.6 million during the twelve months ended December 31, 2025 from $110.9 million during the same period in 2024 due to the additional cash on hand as deposit growth outpaced loan growth. The yield on our securities portfolio declined to 3.39% for the twelve months ended December 31, 2025 from 3.56% for the same period in 2024. The yield on our other short-term investments declined to 4.16% for the twelve months ended December 31, 2025 from 4.95% for the same period in 2024 due to the Federal Open Market Committee (FOMC) decreasing the target range of federal funds during the twelve months of 2025.
The yield on earning assets for the twelve months ended December 31, 2025 and 2024 were 5.04% and 5.00%, respectively.
The cost of interest-bearing liabilities was 2.52% during the twelve months ended December 31, 2025 compared to 2.88% during the same period in 2024. The cost of deposits, including demand deposits, was 1.80% during the twelve months ended December 31, 2025 compared to 1.96% during the same period in 2024. The cost of funds, including demand deposits, was 1.88% during the twelve months ended December 31, 2025 compared to 2.15% during the same period in 2024. We continue to focus on growing our pure deposits plus customer cash management repurchase agreements (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, IRAs, and customer cash management repurchase agreements) as these accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds. During the twelve months ended December 31, 2025, these pure deposits plus customer cash management repurchase agreements averaged 84.9% of total deposits plus customer cash management repurchase agreements as compared to 83.1% during the same period of 2024.
Year Ended December 31, 2024 and 2023
Net interest income increased $3.1 million, or 6.4%, to $52.0 million for the twelve months ended December 31, 2024 from $48.9 million for the twelve months ended December 31, 2023. Our net interest margin declined by nine basis points to 2.91% during the twelve months ended December 31, 2024 from 3.00% during the twelve months ended December 31, 2023. Our net interest margin, on a taxable equivalent basis, was 2.92% for the twelve months ended December 31, 2024 compared to 3.01% for the twelve months ended December 31, 2023. Average earning assets increased $154.9 million, or 9.5%, to $1.8 billion for the twelve months ended December 31, 2024 compared to $1.6 billion in the same period of 2023.
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 total loans and interest-bearing deposits in other banks, partially offset by declines in securities and other fed funds sold.
Earning asset yield growth, which included the benefit of a pay-fixed/receive-floating interest rate swap (the “Pay-Fixed Swap Agreement”) described below, was more than offset by the rising cost of funding, leading to the net interest margin compression. However, our net interest margin expanded from the low of 2.77% in the month of February 2024 to 3.04% in the month of December 2024. Our cost of funds and cost of deposits peaked in 2024 during the month of August 2024 at 2.23% and 2.05%, respectively. Our cost of funds and cost of deposits were 1.98% and 1.87%, respectively, during the month of December 2024.
Investment securities represented 27.5% of average total earning assets for the twelve months ended December 31, 2024 compared to 33.2% during the same period in 2023.
Short-term investments represented 6.2% of average total earning assets for the twelve months ended December 31, 2024 compared to 2.6% during the same period in 2023.
Loans represented 66.3% of average total earning assets for the twelve months ended December 31, 2024 compared to 64.2% during the same period in 2023.
During 2023, market interest rates increased significantly due to an increase in inflation. During 2024, market interest rates declined as inflation cooled. The target range of federal funds was 4.25% - 4.50% at December 31, 2024 compared to 5.25% - 5.50% at December 31, 2023.
Effective May 5, 2023, we entered into Pay-Fixed Swap Agreement for a notional amount of $150.0 million that was designated as a fair value hedge in order to hedge the risk of changes in the fair value of the fixed rate loans included in the closed loan portfolio. This fair value hedge converts the hedged loans from a fixed rate to a synthetic floating SOFR rate. The Pay-Fixed Swap Agreement will mature on May 5, 2026 and we will pay a fixed coupon rate of 3.58% while receiving the overnight SOFR rate. This interest rate swap positively impacted interest on loans by $2.4 million and $1.6 million during the twelve months ended December 31, 2024 and 2023, respectively. During the twelve months ended December 31, 2024, the swap benefited loan yields with an increase of 21 basis points and net interest margin with an increase of 14 basis points. During the twelve months ended December 31, 2023, the swap benefited loan yields with an increase of 16 basis points and net interest margin with an increase of 10 basis points.
Average loans increased $136.9 million, or 13.1%, to $1.2 billion for the twelve months ended December 31, 2024 from $1.0 billion for the same period in 2023. Average loans represented 66.3% of average earning assets during the twelve months ended December 31, 2024 compared to 64.2% of average earning assets during the same period in 2023. Our loan (including loans held-for-sale) to deposit ratio on average during 2024 was 74.4%, as compared to 73.2% during 2023. This increase was due to the growth rate on our average loans (including loans held-for-sale) of 13.1% in 2024 exceeding the growth rate on our deposits of 11.4% during the same time period. The loan to deposit ratio (including loans held-for-sale) declined to 73.4% at December 31, 2024 as compared to 75.3% at December 31, 2023. Our growth in loans of $91.8 million or 8.1% from December 31, 2023 to December 31, 2024 was exceeded by our growth in deposits of $164.9 million or 10.4% during the same period.
The growth in our average deposits of $162.9 million and securities sold under agreements to repurchase of $2.6 million compared to the growth in our average loans of $136.9 million resulted in a reduction in borrowings. The yield on loans increased 0.62% to 5.61% during the twelve months ended December 31, 2024 from 4.99% during the same period in 2023 due to market interest rates and the Pay-Fixed Swap Agreement. Average securities for the twelve months ended December 31, 2024 declined $50.0 million, or 9.2%, to $491.0 million from $541.1 million during the same period in 2023. Other short-term investments increased $68.0 million to $110.9 million during the twelve months ended December 31, 2024 from $42.9 million during the same period in 2023 due to the additional cash on hand as deposit growth outpaced loan growth. The yield on our securities portfolio increased to 3.90% for the twelve months ended December 31, 2024 from 3.36% for the same period in 2023. The yield on our other short-term investments declined to 4.95% for the twelve months ended December 31, 2024 from 5.11% for the same period in 2023 due to the Federal Open Market Committee (FOMC) decreasing the target range of federal funds during the twelve months of 2024 a total of 1.00% to a target federal funds rate range of 4.25% – 4.50% at December 31, 2024 from a target federal funds rate range of 5.25% – 5.50% at December 31, 2023.
The yield on earning assets for the twelve months ended December 31, 2024 and 2023 were 5.00% and 4.45%, respectively.
The cost of interest-bearing liabilities was 2.88% during the twelve months ended December 31, 2024 compared to 2.06% during the same period in 2023. The cost of deposits, including demand deposits, was 1.96% during the twelve months ended December 31, 2024 compared to 1.16% during the same period in 2023. The cost of funds, including demand deposits, was 2.15% during the twelve months ended December 31, 2024 compared to 1.48% during the same period in 2023. We continue to focus on growing our pure deposits plus customer cash management repurchase agreements (demand deposits, interest-bearing transaction accounts, savings deposits, money market accounts, IRAs, and customer cash management repurchase agreements) as these accounts tend to be low-cost deposits and assist us in controlling our overall cost of funds. During the twelve months ended December 31, 2024, these pure deposits plus customer cash management repurchase agreements averaged 83.1% of total deposits plus customer cash management repurchase agreements as compared to 89.9% during the same period of 2023.
Average Balances, Income Expenses and Rates. The following table depicts, for the periods indicated, certain information related to our average balance sheet and our average yields on assets and average costs of liabilities. Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.
Year ended December 31,
(Dollars in thousands)
Average
Balance
Income/
Expense
Yield/
Rate
Average
Balance
Income/
Expense
Yield/
Rate
Average
Balance
Income/
Expense
Yield/
Rate
Assets
Earning assets
Loans (1)
Non-Taxable Securities
Taxable Securities
Int Bearing Deposits in Other Banks
Fed Funds Sold
Total earning assets
Cash and due from banks
Premises and equipment
Goodwill and other intangible assets
Other assets
Allowance for credit losses-investments
Allowance for credit losses-loans
Total assets
Liabilities
Interest-bearing liabilities
Interest-bearing transaction accounts
Money market accounts
Savings deposits
Time deposits
Fed Funds Purchased
Securities Sold Under Agreements to Repurchase
FHLB Advances
Other Long-Term Debt
Total interest-bearing liabilities
Demand deposits
Allowance for credit losses-unfunded commitments
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Cost of deposits, including demand deposits
Cost of funds, including demand deposits
Net interest spread
Net interest income/margin
Net interest margin (tax equivalent) (2)
All loans and deposits are domestic. Average loan balances include nonaccrual loans and loans held for sale.
Based on a 21.0% marginal tax rate.
The following table presents the dollar amount of changes in interest income and interest expense attributable to changes in volume and the amount attributable to changes in rate. The combined effect related to volume and rate which cannot be separately identified, has been allocated proportionately, to the change due to volume and the change due to rate.
2025 versus 2024
Increase (decrease) due to
2024 versus 2023
Increase (decrease) due to
(In thousands)
Volume
Rate
Net
Volume
Rate
Net
Assets
Earning assets
Loans
Investment securities-taxable
Investment securities- nontaxable
Interest bearing deposits in other banks
Fed Funds sold
Total earning assets
Interest-bearing liabilities
Interest-bearing transaction accounts
Money market accounts
Savings deposits
Time deposits
Fed funds purchased
Securities sold under agreements to repurchase
FHLB Advances
Other long-term debt
Total interest-bearing liabilities
Net interest income
Market Risk and Interest Rate Sensitivity
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 by 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 Committee of the board of directors (the “ALCO”), which has members from our board of directors and management to monitor and manage interest rate risk. Our ALCO:
monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program;
reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and confirmed that any residual risk is acceptable;
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; and
has established policies, policy guidelines, and strategies with respect to interest rate risk exposure and liquidity.
Further, our ALCO and board of directors explicitly review our ALCO policies at least annually and review our ALCO assumptions and policy limits quarterly.
We employ a monitoring technique to measure 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 of 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 in the yield curve. We model the impact on net interest income in an increasing and decreasing rate environment of 100, 200, 300, and 400 basis points. We also periodically stress certain assumptions such as loan prepayment rates, average lives, interest rate betas, and deposit migration 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%, 15%, 20%, and 20%, respectively, in a 100, 200, 300, and 400 basis point change in interest rates over the first 12-month period subsequent to interest rate changes. Interest rate sensitivity can be managed by repricing assets or liabilities, selling securities available-for-sale, replacing an asset or liability at maturity, by adjusting the interest rate during the life of an asset or liability, or by the use of derivatives such as interest rate swaps and other hedging instruments. 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 nor asset/liability modeling is 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.
The following table illustrates our interest rate sensitivity at December 31, 2025.
Interest Sensitivity Analysis
(Dollars in thousands)
Within
One
Year
One to
Three
Years
Three to
Five
Years
Over
Five
Years
Total
Assets
Earning assets
Interest bearing deposits
Loans (1)
Loans Held for Sale
Total Securities (2)
Total earning assets
Liabilities
Interest bearing liabilities
Interest bearing deposits
Interest checking accounts
Money market accounts
Savings deposits
Time deposits
Total interest-bearing deposits
Borrowings
Total interest-bearing liabilities
Period gap
Cumulative gap
Ratio of cumulative gap to total earning assets
Loans classified as nonaccrual as of December 31, 2025 are not included in the balances.
Securities based on amortized cost.
Net Interest Income Sensitivity
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 December 31, 2025 and at December 31, 2024 over the subsequent 12 months.
Change in short-term interest rates
Hypothetical
percentage change in
net interest income
December 31,
December 31,
Policy Limit
Flat
The maximum anticipated negative impacts of the modeled changes in net interest income were within policy limits at December 31, 2025 and December 31, 2024.
Present Value of Equity Sensitivity
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. We have established policy limits for the maximum negative impact of modeled changes in PVE, shown below.
Change in present value of equity
Hypothetical
percentage change in
PVE
December 31,
December 31,
Policy Limit
Flat
Except for the down 400 basis point scenario, the maximum anticipated negative impacts of the modeled changes in PVE were within policy limits at December 31, 2025 and December 31, 2024. We are monitoring the risk posed by the down 400 basis point scenario.
Provision and Allowance for Credit Losses
Year Ended December 31, 2025 and 2024
During the twelve months ended December 31, 2025, the allowance for credit losses on loans increased $671 thousand to $13.8 million, the allowance for credit losses on unfunded commitments increased $51 thousand to $531 thousand, and the allowance for credit loss on held-to-maturity investments declined $4 thousand to $19 thousand compared to December 31, 2024. At December 31, 2025, the combined allowance for credit losses for loans, unfunded commitments, and investments was $14.4 million compared to $13.6 million at December 31, 2024.
The allowance for credit losses on loans as a percentage of total loans held-for-investment was 1.05% at December 31, 2025 and 1.08% at December 31, 2024.
The total ACL is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments. The ACL for loans is further composed of the allowance for individually assessed loans, the allowance for collectively assessed expected losses, the allowance for collectively assessed qualitative adjustments, and the allowance for collectively assessed additional allowance. The allowance for collectively assessed qualitative adjustments is calculated using a set of qualitative factors, which at December 31, 2025 and 2024 included changes in lending policies and procedures, changes in staff, markets, and products, changes in total of 30-89 days past due and other loans especially mentioned, changes in the loan review system, changes in collateral value for non-collateral dependent loans, changes in concentration of credits, changes in the legal or regulatory requirements and competition, data limitations, model imprecision, and reasonable and supportable forecast alternative scenarios.
We have a significant portion of our loan portfolio with real estate as the underlying collateral. As of December 31, 2025 and December 31, 2024, approximately 91.5% and 91.4%, respectively, of the loan portfolio had real estate collateral. When loans, whether commercial or personal, are granted, they are based on the borrower’s ability to generate repayment cash flows from income sources sufficient to service the debt. Real estate is generally taken to reinforce the likelihood of the ultimate repayment and as a secondary source of repayment. We work closely with all our borrowers that experience cash flow or other economic problems, and we believe that we have the appropriate processes in place to monitor and identify problem credits. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for credit losses as estimated at any point in time or that provisions for credit 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.
The non-performing asset ratio was 0.02% of total assets with the nominal level of $372 thousand in non-performing assets at December 31, 2025 compared to 0.04% and $810 thousand at December 31, 2024. Nonaccrual loans decreased to $202 thousand at December 31, 2025 from $219 thousand at December 31, 2024. We had $2 thousand in accruing loans past due 90 days or more at December 31, 2025 compared to $48 thousand at December 31, 2024. Loans past due 30 days or more represented 0.07% of the loan portfolio at December 31, 2025 compared to 0.05% at December 31, 2024. The ratio of classified loans plus OREO and repossessed assets declined to 0.76 % of total bank regulatory risk-based capital at December 31, 2025 from 1.06% at December 31, 2024.
There were four loans totaling $204 thousand (0.02% of total loans) included on non-performing status (nonaccrual loans and loans past due 90 days and still accruing) at December 31, 2025. Two of these loans were on nonaccrual status. The largest loan of the two is $201 thousand and is secured by a first lien mortgage. The balance of the remaining loan on nonaccrual status is $1 thousand, and it is secured by a second lien mortgage. We had five loans totaling $267 thousand that were accruing loans past due 90 days or more at December 31, 2024. At December 31, 2025 and December 31, 2024, we considered loan relationships exceeding $500 thousand and on nonaccrual status as individually assessed loans for the allowance for credit losses. At December 31, 2025 and December 31, 2024, we had no individually assessed loans. The specific allowance for individually assessed loans is based on 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. There were no specific allowances for credit losses on our individually assessed loans at December 31, 2025 and December 31, 2024. At December 31, 2025, we had $934 thousand in loans that were delinquent 30 days to 89 days representing 0.07% of total loans compared to $554 thousand or 0.05% of total loans at December 31, 2024.
Year Ended December 31, 2024 and 2023
On January 1, 2023, we adopted CECL, which resulted in a day one reduction of $14 thousand to the allowance for credit losses on loans offset by increases of $398 thousand to the allowance for credit losses on unfunded commitments and $43.5 thousand to the allowance for credit losses on held-to-maturity investments. Furthermore, deferred tax assets increased $90 thousand and retained earnings declined $337 thousand. During the twelve months ended December 31, 2024, the allowance for credit losses on loans increased $868 thousand to $13.1 million, the allowance for credit losses on unfunded commitments declined $117 thousand to $480 thousand, and the allowance for credit loss on held-to-maturity investments declined $7 thousand to $23 thousand compared to the day one CECL results, the allowance for credit losses on loans increased $945 thousand to $12.3 million at December 31, 2023 from $11.3 million at January 1, 2023; the allowance for credit on commitments increased $199 thousand to $597 thousand as of December 31, 2023 from $398 thousand as of January 1, 2023; and the allowance for credit on held-to-maturity investments $14 thousand to $30 thousand at December 31, 2023 from $43.5 thousand at January 1, 2023. At December 31, 2024, the combined allowance for credit for loans, commitments, and investments was $13.6 million compared to $12.9 million at December 31, 2023 and $11.8 million at January 1, 2023.
The allowance for credit losses on loans as a percentage of total loans held-for-investment was 1.08% at December 31, 2024, 1.08% at December 31, 2023 and 1.15% at January 1, 2023.
The total ACL is composed of three parts: the ACL for loans, the ACL for unfunded commitments, and the ACL for HTM investments. The ACL for loans is further composed of the allowance for individually assessed loans, the allowance for collectively assessed expected losses, the allowance for collectively assessed qualitative adjustments, and the allowance for collectively assessed additional allowance. The allowance for collectively assessed qualitative adjustments is calculated using a set of qualitative factors, which at December 31, 2024 and 2023 included changes in lending policies and procedures, changes in staff, markets, and products, change in total of 30-89 days past due and other loans especially mentioned, changes in the loan review system, changes in collateral value for non-collateral dependent loans, changes in concentration of credits, changes in the legal or regulatory requirements and competition, data limitations, model imprecision, and reasonable and supportable forecast alternative scenarios.
We have a significant portion of our loan portfolio with real estate as the underlying collateral. As of December 31, 2024 and December 31, 2023, approximately 91.4% and 91.7%, respectively, of the loan portfolio had real estate collateral. When loans, whether commercial or personal, are granted, they are based on the borrower’s ability to generate repayment cash flows from income sources sufficient to service the debt. Real estate is generally taken to reinforce the likelihood of the ultimate repayment and as a secondary source of repayment. We work closely with all our borrowers that experience cash flow or other economic problems, and we believe that we have the appropriate processes in place to monitor and identify problem credits. There can be no assurance that charge-offs of loans in future periods will not exceed the allowance for credit losses as estimated at any point in time or that provisions for credit 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.
The non-performing asset ratio was 0.04% of total assets with the nominal level of $810 thousand in non-performing assets at December 31, 2024 compared to 0.05% and $864 thousand at December 31, 2023. Nonaccrual loans increased to $219 thousand at December 31, 2024 from $27 thousand at December 31, 2023. We had $48 thousand in accruing loans past due 90 days or more at December 31, 2024 compared to $215 thousand at December 31, 2023. Loans past due 30 days or more represented 0.05% of the loan portfolio at December 31, 2024 compared to 0.06% at December 31, 2023. The ratio of classified loans plus OREO and repossessed assets declined to 1.06% of total bank regulatory risk-based capital at December 31, 2024 from 1.25% at December 31, 2023.
There were five loans totaling $267 thousand (0.02% of total loans) included on non-performing status (nonaccrual loans and loans past due 90 days and still accruing) at December 31, 2024. Two of these loans were on nonaccrual status. The largest loan of the two is $217 thousand and is secured by a first lien mortgage. The balance of the remaining loan on nonaccrual status is $2 thousand, and it is secured by a second lien mortgage. We had two loans totaling $215 thousand that were accruing loans past due 90 days or more at December 31, 2023. At December 31, 2024 and December 31, 2023, we considered loan relationships exceeding $500 thousand and on nonaccrual status as individually assessed loans for the allowance for credit losses. At December 31, 2024 and December 31, 2023, we had no individually assessed loans. The specific allowance for individually assessed loans is based on 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. There were no specific allowances for credit losses on our individually assessed loans at December 31, 2024 and December 31, 2023. At December 31, 2024, we had $554 thousand in loans that were delinquent 30 days to 89 days representing 0.05% of total loans compared to $498 thousand or 0.04% of total loans at December 31, 2023.
The following table summarizes the activity related to our allowance for credit losses.
Allowance for Credit Losses
(Dollars in thousands)
Average loans outstanding (excluding loans held-for-sale)
Loans outstanding at period end (excluding loans held-for-sale)
Total nonaccrual loans
Loans past due 90 days and still accruing
Beginning balance of allowance
CECL Day 1 Adjustment
Loans charged-off:
Real Estate Mortgage - Commercial
Commercial
Consumer - Other
Total loans charged-off
Recoveries:
Real Estate - Construction
Real Estate Mortgage - Residential
Real Estate Mortgage - Commercial
Consumer - Home equity
Commercial
Consumer - Other
Total recoveries
Net loans (charged off) recovered
Provision for credit losses
Balance at period end
Net charge-offs (recoveries) to average loans and loans held-for-sale
Allowance as percent of total loans
Non-performing loans as % of total loans
Allowance as % of non-performing loans
Nonaccrual loans as % of total loans
Allowance as % of nonaccrual loans
The following table details net charge-offs to average loans outstanding by loan category for the years ended December 31:
(Dollars in thousands)
Commercial
Net (recoveries) charge-offs
Average loans for the year
Net (recoveries) charge-offs /average loans
Real estate:
Construction
Net recoveries
Average loans for the year
Net recoveries/average loans
Mortgage-residential
Net charge-offs (recoveries)
Average loans for the year (1)
Net charge-offs (recoveries)/average loans (1)
Mortgage-commercial
Net charge-offs (recoveries)
Average loans for the year
Net charge-offs (recoveries)/average loans
Consumer:
Home Equity
Net recoveries
Average loans for the year
Net recoveries/average loans
Other
Net charge-offs
Average loans for the year
Net charge-offs/average loans
Total:
Net charge-offs (recoveries)
Average loans for the year (1)
Net charge-offs (recoveries)/average loans (1)
Average loans exclude loans held for sale
Accrual of interest is discontinued on loans when we believe, 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.
The following table shows the allocation of the allowance for credit losses on loans:
Allocation of the Allowance for Credit Losses on Loans
(Dollars in thousands)
Amount
loans in
category
Amount
loans in
category
Amount
loans in
category
Commercial
Real Estate Construction
Real Estate Mortgage:
Commercial
Residential
Consumer - Home Equity
Consumer - Other
Unallocated
Total
Non-interest Income and Expense
Non-interest Income. A source of noninterest income is service charges on deposit accounts. We also originate and sell residential loans on a servicing released basis in the secondary market. These loans are originated in our name. The loans have locked in price commitments to be purchased by investors at the time of closing. Therefore, these loans present very little market risk for us. We typically deliver to, and receive funding from, the investor within 30 days. Other sources of noninterest income are derived from investment advisory fees and commissions on non-deposit investment products, ATM/debit card fees, commissions on check sales, safe deposit box rent, wire transfer, official check fees, rental income, and bank owned life insurance income.
Non-interest income during the twelve months ended December 31, 2025 increased to $16.9 million from $14.0 million during the same period in 2024. The increase in non-interest income is primarily related to increases in mortgage banking income and investment advisory fees and non-deposit commissions.
Mortgage banking income increased $902 thousand to $3.3 million during the twelve months ended December 31, 2025 from $2.4 million during the same period in 2024. Secondary mortgage production during the twelve months ended December 31, 2025 was $115.4 million compared to $79.3 million during the same period in 2024 while the gain on sale margin decreased to 2.82% during the twelve months ended December 31, 2025 from 2.96% during the same period in 2024.
Total mortgage production during the twelve months ended December 31, 2025 was $202.7 million, $115.4 million of the production was originated to be sold in the secondary market, $16.8 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $70.5 million of the loan production was commitments for new construction residential real estate loans. As these ARM and new construction residential real estate loans are being held on our balance sheet as loans held-for-investment, the result is additive to loan growth and interest income but results in less gain on sale fee income, which is reported in noninterest income as mortgage banking income.
Investment advisory fees increased by $1.4 million to $7.6 million during the twelve months ended December 31, 2025 from $6.2 million during the same period in 2024. Total assets under management were $1.2 billion at December 31, 2025 compared to $926.0 million at December 31, 2024. Our net new assets were $83.4 million during the twelve months ended December 31, 2025. Furthermore, our investment performance for the twelve months ended December 31, 2025 was 17.3% compared to 16.4% for the S&P 500.
The $229 thousand loss on early extinguishment of debt included in other income during the twelve months ended December 31, 2024 resulted from our decision to use available cash to reduce FHLB advances to zero, including the pre-payment of $35.0 million in FHLB advances during the fourth quarter of 2024. We believe this reduction in these borrowings positioned us for improvements in net interest income and margin in the future.
Non-interest income during the twelve months ended December 31, 2024 increased to $14.0 million from $10.4 million during the same period in 2023. The $3.6 million increase in non-interest income is primarily related to a reduction in loss on sale of securities of $1.2 million, increases in mortgage banking income of $962 thousand, investment advisory fees and non-deposit commissions of $1.7 million, and an increase in gains on insurance proceeds of $73 thousand partially offset by a decrease in gain on sale of other assets of $146 thousand and a loss on early extinguishment of debt of $229 thousand.
During the third quarter of 2023, we sold $39.9 million of book value U.S. Treasuries in our available-for-sale investment securities portfolio. While this sale created a one-time pre-tax loss of $1.2 million, it provided additional liquidity which was used to pay down borrowings and fund loan growth. The weighted average book yield of the securities sold was 1.75% and the projected earn back period is 1.6 years. There was no such similar sale during 2024.
Mortgage banking income increased $962 thousand to $2.4 million during the twelve months ended December 31, 2024 from $1.4 million during the same period in 2023. Secondary mortgage production during the twelve months ended December 31, 2024 was $79.3 million compared to $49.7 million during the same period in 2023 while the gain on sale margin increased to 2.96% during the twelve months ended December 31, 2024 from 2.83% during the same period in 2023.
During 2022, we began to market an adjustable rate mortgage (ARM) product to provide borrowers with an alternative to fixed-rate mortgages and to help offset anticipated mortgage production challenges. Currently, we are offering 5/6, 7/6, and 10/6 ARM loans that are originated for our loans held-for-investment portfolio. Furthermore, in 2022, we added a new construction residential real estate team and product. Total mortgage production during the twelve months ended December 31, 2024 was $165.6 million, $79.3 million of the production was originated to be sold in the secondary market, while $40.9 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $45.4 million of the loan production was commitments for new construction residential real estate loans. As these ARM and new construction residential real estate loans are being held on our balance sheet as loans held-for-investment, the result is additive to loan growth and interest income but results in less gain on sale fee income, which is reported in noninterest income as mortgage banking income.
Investment advisory fees increased by $1.7 million to $6.2 million during the twelve months ended December 31, 2024 from $4.5 million during the same period in 2023. Total assets under management were $926.0 million at December 31, 2024 compared to $755.4 million at December 31, 2023. Our net new assets were $37.5 million during the twelve months ended December 31, 2024. Furthermore, our investment performance for the twelve months ended December 31, 2024 was 17.6% compared to 23.3% for the S&P 500.
Gain (loss) on sale of other assets declined $146 thousand to a gain of $5 thousand during the twelve months ended December 31, 2024 from $151 thousand during the same period in 2023 due to an income tax recovery in 2024 on a previously sold other real estate owned property and due to a sale of other real estate owned during the twelve months ended December 31, 2023.
The $229 thousand loss on early extinguishment of debt during the twelve months ended December 31, 2024 resulted from our decision to use available cash to reduce FHLB advances to zero, including the pre-payment of $35.0 million in FHLB advances during the fourth quarter of 2024. We believe this reduction in these borrowings positioned us for improvements in net interest income and margin in the future.
The following table sets forth the primary components of noninterest income for the periods indicated:
Year ended December 31,
(In thousands)
Deposit service charges
Mortgage banking income
Investment advisory fees and non-deposit commissions
Loss on sale of securities
Gain on sale of other real estate owned
Loss on sale of other assets
Other non-recurring income
ATM/debit card income
Recurring income on bank owned life insurance
Rental income
Other service fees including safe deposit box fees
Wire transfer fees
Other
Total
Non-interest Expense. In the very competitive financial services industry, we recognize the need to place a great deal of emphasis on expense management and continually evaluate and monitor growth in discretionary expense categories in order to control future increases.
Non-interest expense during the twelve months ended December 31, 2025 increased $5.9 million to $53.3 million from $47.5 million during the same period in 2024. The increase is primarily due to increases in salaries and employee benefits of $2.7 million, increases in equipment of $101 thousand, increases in marketing and public relations of $310 thousand, increases in merger expense of $1.3 million, and increases in other non-interest expenses of $1.5 million.
Salary and benefit expense increased $2.7 million to $31.9 million during the twelve months ended December 31, 2025 from $29.3 million during the same period in 2024. This increase is primarily a result of higher incentive compensation and annual bonuses due to higher than planned performance, and normal salary adjustments. We had 265 full-time employees, 10 part-time employees, and seven seasonal/on-call employees at December 31, 2025 compared to 260 full-time employees, 10 part-time employees, and eight seasonal/on-call employees at December 31, 2024.
Equipment expense increased $101 thousand to $1.6 million during the twelve months ended December 31, 2025 compared to $1.5 million during the same period in 2024 primarily due to higher equipment maintenance and repairs and auto expense.
Marketing and public relations increased $310 thousand to $1.8 million during the twelve months ended December 31, 2025 from $1.5 million during the same period in 2024 primarily due to timing of planned media production and campaigns.
Merger expense increased $1.3 million to $1.3 million during the twelve months ended December 31, 2025 compared to zero during the same period in 2024 due to the acquisition of Signature Bank of Georgia.
Other expense increased $1.5 million to $12.2 million during the twelve months ended December 31, 2025 compared to $10.7 million during the same period in 2024, which included
Core banking and electronic processing and services increased $219 thousand or 8.0% primarily due to an increase in the cost of our core service provider, FIS as a result of higher customer activity and enhanced technology.
ATM/debit card processing increased $289 thousand or 22.6% as EFT processing expense increased during the period.
Software subscriptions and services increased $316 thousand or 25.1% due to new subscriptions and higher renewal rates.
Telephone expense decreased $78 thousand or 15.1% due to a change in our telecommunications vendor, which resulted in paying two vendors for a period of time in 2024 and due to a $29 thousand write-off of the remainder of a contract related to the closing of our downtown Augusta, Georgia banking office in 2024.
Legal and professional fees increased $328 thousand, or 27.2%, primarily due to an increase in auditing costs and higher legal expense.
Non-interest expense during the twelve months ended December 31, 2024 increased $4.3 million to $47.5 million from $43.1 million during the same period in 2023. The increase is primarily due to increases in salaries and employee benefits of $3.4 million, increases in marketing and public relations expense of $15 thousand, increases in FDIC Insurance assessments of $273 thousand, increases in other real estate expense, net, of $215 thousand, and increases in other non-interest expense of $597 thousand, partially offset by a decline in occupancy expense of $63 thousand and equipment expense of $115 thousand.
Salary and benefit expense increased $3.4 million to $29.3 million during the twelve months ended December 31, 2024 from $25.9 million during the same period in 2023. This increase is primarily a result of normal salary adjustments and an increase of approximately $834 thousand in additional annual incentive compensation. We had 260 full-time employees, ten part-time employees, and eight seasonal/on-call employees at December 31, 2024 compared to 268 full-time employees, 14 part-time employees, and five seasonal/on-call employees at December 31, 2023.
Occupancy expense declined $63 thousand to $3.1 million during the twelve months ended December 31, 2024 compared to $3.2 million during the same period in 2023 primarily due to lower building and yard maintenance costs and lease expense partially offset by higher janitorial services.
Equipment expense declined $115 thousand to $1.5 million during the twelve months ended December 31, 2024 compared to $1.6 million during the same period in 2023 primarily due to lower equipment depreciation, equipment maintenance and repairs, and auto expense.
Marketing and public relations increased $15 thousand to $1.5 million during the twelve months ended December 31, 2024 from $1.5 million during the same period in 2023 primarily due to timing of planned media production and campaigns.
FDIC assessments increased $273 thousand to $1.2 million during the twelve months ended December 31, 2024 compared to $904 thousand during the same period in 2023 due to an increase in our FDIC assessment rate and our assets.
Other real estate expenses increased $215 thousand to $103 thousand during the twelve months ended December 31, 2024 from $112 thousand in contra expenses or credits during the twelve months ended December 31, 2023. This was primarily due to a return to normal activity during the twelve months ended December 31, 2024 compared to a significant reversal in accruals for real estate taxes on a non-accrual loan, which were either paid by the borrower or recovered as a result of the sale of the real estate.
Other expenses increased $597 thousand to $10.7 million during the twelve months ended December 31, 2024 compared to $10.1 million during the same period in 2023, which included
Core banking and electronic processing and services increased $224 thousand or 8.9% primarily due to an increase in the cost of our core service provider, FIS as a result of higher customer activity and enhanced technology.
ATM/debit card processing increased $206 thousand or 19.2% as EFT processing expense increased during the period.
Software subscriptions and services increased $252 thousand or 25.0% due to new subscriptions and higher renewal rates.
Debit card and fraud losses declined $223 thousand, or 52.8%, due to a decline in fraud losses. Debit card and fraud losses rose during 2023 due to an extraordinary spike in mail check fraud losses during the third quarter of 2023. We responded to this spike with countermeasures including deploying additional resources, and conducting a formal customer education marketing campaign called “THINK TWICE,” which requests customers who have been a victim of fraud to enhance their check authorization processes and upgrade to our current fraud detection system.
Telephone expense increased $32 thousand or 6.6% due to a change in our telecommunications vendor, which resulted in paying two vendors for a period of time and due to a $29 thousand write-off the remainder of a contract related to the closing of our downtown Augusta, Georgia banking office.
Loan processing and closing costs declined $95 thousand or 28.7% primarily due to lower average new loan sizes in 2024 and fees paid for a home equity campaign in 2023.
Legal and professional fees increased $163 thousand, or 15.6%, primarily due to an increase in auditing costs and higher legal expense.
The following table sets forth the primary components of noninterest expense for the periods indicated:
Year ended December 31,
(In thousands)
Salaries and employee benefits
Occupancy
Equipment
Marketing and public relations
FDIC Insurance assessments
Other real estate expense (income)
Amortization of intangibles
Merger
Core banking and electronic processing and services
ATM/debit card processing
Software subscriptions and services
Supplies
Telephone
Courier
Correspondent services
Insurance
Debit card and Fraud losses
Investment advisory services
Loan processing and closing costs
Director fees
Legal and Professional fees
Shareholder expense
Other
Core banking and electronic processing and services include core processing, bill payment, online banking, remote deposit capture, wire processing services and postage costs for mailing customer notices and statements.
Income Tax Expense
Our income tax expense for the years ended December 31, 2025, 2024, and 2023 were $5.7 million, $3.8 million, and $3.2 million, respectively. See Note 14 “Income Taxes” to the Consolidated Financial Statements for additional information. We recognize deferred tax assets for future deductible amounts resulting from differences in the financial statement and tax bases of assets and liabilities and operating loss carry forwards. The deferred tax assets are established based on the amounts expected to be paid/recovered at existing tax rates. A valuation allowance is established to reduce the deferred tax asset to the level that it is more likely than not that the tax benefit will be realized. Our effective tax rates were 22.7 %, 21.5%, and 21.3%, for the twelve-month periods ended December 31, 2025, 2024, and 2023, respectively. The effective tax rates were affected by a $120 thousand reduction to income tax during the twelve months ended December 31, 2025, by a $217 thousand reduction to income tax expense during the twelve months ended December 31, 2024, and by a $122 thousand reduction to income taxes during the twelve months ended December 31, 2023. The $120 thousand reduction in 2025 and $68 thousand of the reduction in 2024 were related to South Carolina State Tax Credits. As a result of our current level of tax-exempt securities in our investment portfolio and our BOLI holdings, assuming the current corporate rate remains unchanged, our tax rate is expected to be approximately 22.25% to 22.75%.
Financial Position
Assets increased $99.7 million, or 5.1%, to $2.1 billion at December 31, 2025 from $2.0 billion at December 31, 2024. The $99.7 million increase in assets was primarily due to loans (excluding loans held-for-sale), which increased $90.5 million, or 7.4%, to $1.3 billion at December 31, 2025 from $1.2 billion at December 31, 2024.
Earning Assets
Loans and loans held-for-sale
Loans held-for-sale increased to $10.7 million at December 31, 2025 from $9.7 million at December 31, 2024. Loans (excluding loans held-for-sale) increased $90.5 million, or 7.4%, to $1.3 billion at December 31, 2025 from $1.2 billion at December 31, 2024. Total loan production, excluding mortgage secondary market and new construction residential real estate, was $202.6 million during the twelve months ended December 31, 2025 compared to $138.4 million during the same period in 2024. Advances from unfunded commercial construction loans available for draws were $48.8 million during the twelve months ended December 31, 2025. Total mortgage production during the twelve months ended December 31, 2025 was $202.7 million, $115.4 million of the production was originated to be sold in the secondary market, $16.8 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $70.5 million of the loan production was commitments for new construction residential real estate loans. Total mortgage production during the twelve months ended December 31, 2024 was $165.6 million, $79.3 million of the production was originated to be sold in the secondary market, $40.9 million of the loan production was originated as ARM loans for our loans held-for-investment portfolio, and $45.4 million of the loan production was commitments for new construction residential real estate loans. The increase in mortgage production was due to higher secondary market, and new construction loans, partially offset by lower portfolio production. Payoffs and paydowns increased to $120.3 million during the twelve months ended December 31, 2025 compared to $113.2 million during the same period in 2024. The loan-to-deposit ratio (including loans held-for-sale) at December 31, 2025 and December 31, 2024 was 75.5% and 73.4%, respectively. The loan-to-deposit ratio (excluding loans held-for-sale) at December 31, 2025 and December 31, 2024 was 74.9% and 72.8%, respectively.
Based on the Bank’s loan portfolio as of December 31, 2025, its non-owner occupied commercial real estate loans and its construction and land development loans were approximately 307% and 71% of total risk-based capital, respectively. Furthermore, our three-year growth in non-owner occupied commercial real estate loans was 37% from December 31, 2022 to December 31, 2025. We have expertise and a long history in originating and managing commercial real estate loans. We have a strong credit underwriting process, which includes management and board oversight. We perform rigorous monitoring, stress testing, and reporting of these portfolios at the management and board levels, and we continue to monitor the level of the concentration in commercial real estate loans within the Bank’s loan portfolio monthly.
Loans typically provide higher yields than the other types of earning assets. During 2025 and 2024, loans accounted for 66.0% and 66.3% of average earning assets, respectively. The loan portfolio (including held-for-sale) averaged $1.3 billion in 2025 as compared to $1.2 billion in 2024. Quality loan portfolio growth continued to be a strategic focus of ours in 2025. However, with the higher loan yields, there are inherent credit and liquidity risks, which we attempt to control and counterbalance. One of our goals as a community bank continues to be to grow our assets through quality loan growth by providing credit to small and mid-size businesses, as well as individuals within the markets we serve. We remain committed to meeting the credit needs of our local markets, but adverse national and local economic conditions, as well as deterioration of our asset quality, could significantly impact our ability to grow our loan portfolio. Significant increases in regulatory capital expectations beyond the traditional “well capitalized” ratios and significantly increased regulatory burdens could impede our ability to leverage our balance sheet and expand the loan portfolio.
The following table shows the composition of the loan portfolio by category:
(In thousands)
Commercial, financial & agricultural
Real estate:
Construction
Mortgage—residential
Mortgage—commercial
Consumer:
Home equity
Other
Total gross loans
Allowance for credit losses
Total net loans
In the context of this discussion, a real estate mortgage loan is defined as any loan, other than loans for construction purposes, secured by real estate, regardless of the purpose of the loan. We follow the common practice of financial institutions in our market area 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. Generally, we limit the loan-to-value ratio to 80%. The principal components of our loan portfolio at December 31, 2025 and 2024 were commercial mortgage loans in the amount of $863.4 million and $796.4 million, respectively, representing 65.9% and 65.3% of the portfolio, respectively, excluding loans held for sale. Significant portions of these commercial mortgage loans are made to finance owner-occupied real estate. We continue to maintain a conservative philosophy regarding our underwriting guidelines, and believe we will reduce the risk elements of the loan portfolio through strategies that diversify the lending mix.
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 December 31, 2025.
Loan Maturity Schedule and Sensitivity to Changes in Interest Rates
December 31, 2025
(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
Real estate:
Construction (1)
Mortgage-residential
Mortgage-commercial
Consumer:
Home equity
Other
Total
Included in construction loans are construction-to-permanent loans that will move to their permanent loan category upon completion of the construction phase.
Loans maturing after one year with:
Variable Rate
Fixed Rate
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.
Investment Securities
Our investment securities portfolio is a significant component of our total earning assets. Investment securities increased $493 thousand to $492.2 million, net of allowance for credit losses on investments of $19 thousand, at December 31, 2025 from $491.7 million, net of allowance for credit losses on investments of $23 thousand, at December 31, 2024. Our investment securities portfolio averaged $499.7 million in 2025, as compared to $491.0 million in 2024, which represents 25.9% and 27.5% of the average earning assets for the years ended December 31, 2025 and 2024, respectively.
On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS). These securities were transferred at fair value at the time of the transfer, which became the new cost basis for the securities held to maturity. The pretax unrealized net holding loss on the available-for-sale securities on the date of transfer totaled approximately $16.7 million, and continued to be reported as a component of accumulated other comprehensive loss. This net unrealized loss is being amortized to interest income over the remaining life of the securities as a yield adjustment. There were no gains or losses recognized as a result of this transfer. The remaining pretax unrealized net holding loss on these investments was $10.6 million ($8.4 million net of tax) at December 31, 2025. The remaining pretax unrealized net holding loss on these investments was $12.3 million ($9.7 million net of tax) at December 31, 2024.
Our AFS investments totaled $294.1 million or approximately 59.8% of our total investments at December 31, 2025. Our HTM investments totaled $195.1 million and represented approximately 39.6% of our total investments at December 31, 2025. Our investments at cost totaled $2.9 million or approximately 0.16% of our total investments at December 31, 2025. The unrealized losses on our investment securities are related to an increase in market interest rates, which has a temporary negative impact on the fair value of our investment securities portfolio and on accumulated other comprehensive income (loss), which is included in shareholders’ equity.
At December 31, 2025, the estimated weighted average life of our total investment portfolio was 5.2 years, the modified duration was 4.0, the effective duration was 3.1, and the weighted average tax equivalent book yield was 3.61%. At December 31, 2024, the estimated weighted average life of our total investment portfolio was 5.7 years, the modified duration was 4.4, the effective duration was 3.5, and the weighted average tax equivalent book yield was 3.68%.
We held no debt securities rated below investment grade at December 31, 2025 and December 31, 2024.
The following table shows the Available-for Sale investment portfolio composition.
December 31,
(Dollars in thousands)
Securities available-for-sale at fair value:
US Treasury Securities
Government sponsored enterprises
Small Business Administration pools
Mortgage-backed securities
Corporate and Other Securities
Total
The following table shows the Held-to-Maturity investment portfolio composition.
December 31,
(Dollars in thousands)
Securities held-to-maturity at fair value:
Mortgage-backed securities
State and local government
Total
We hold other investments carried at cost totaling $2.9 million and $2.7 million at December 31, 2025 and 2024, respectively. Other investments, at cost, include Federal Home Loan Bank (“FHLB”) stock in the amount of $1.4 million, corporate stock in the amount of $1.0 million, and a venture capital fund in the amount of $571.1 thousand at December 31, 2025. We held FHLB stock in the amount of $1.3 million, corporate stock in the amount of $1.0 million, and a venture capital fund in the amount of $399.2 thousand at December 31, 2024. These are equity securities without readily determinable fair values. Investment in the FHLB of Atlanta is a condition of borrowing from the FHLB of Atlanta. FHLB stock is carried at cost and periodically evaluated for impairment based on an assessment of the ultimate recovery of par value. Both cash and stock dividends are reported as interest income. Dividends received on other investments, at cost are reported as interest income.
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 December 31, 2025:
(In thousands)
Within One Year
After One But
Within Five Years
After Five But
Within Ten Years
After Ten Years
Available-for-sale:
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
US Treasury Securities
Government sponsored enterprises
Small Business Administration pools
Mortgage-backed securities
Corporate and other securities
Total investment securities available-for-sale
(In thousands)
Within One Year
After One But
Within Five Years
After Five But
Within Ten Years
After Ten Years
Held-to-Maturity:
Amount
Yield
Amount
Yield
Amount
Yield
Amount
Yield
Mortgage-backed securities
State and local government
Total investment securities held-to-maturity
Short-Term Investments
Short-term investments, which consist of federal funds sold, securities purchased under agreements to resell and interest-bearing deposits, averaged $155.6 million in 2025, compared to $110.9 million in 2024. The increase in short-term investments in 2025 is primarily due to deposit growth exceeding loan growth, which resulted in additional cash on hand for short-term investments. We maintain the majority of our short-term overnight investments in our account at the Federal Reserve rather than in federal funds at various correspondent banks due to the lower regulatory capital risk weighting. These funds are an immediate source of liquidity and are generally invested in an earning capacity on an overnight basis.
Deposits and Other Interest-Bearing Liabilities
Deposits. Deposits increased $73.6 million, or 4.4%, to $1.8 billion at December 31, 2025 compared to $1.7 billion at December 31, 2024. Our pure deposits, which are defined as total deposits less certificates of deposits, increased $60.1 million, or 4.4%, to $1.44 billion at December 31, 2025 from $1.38 billion at December 31, 2024. 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.
To secure a cost-effective stable funding source, during the third quarter of 2023, we issued $48.2 million in brokered certificates of deposit ranging in terms from six months to three years, with the three year term callable after six months. We had zero and $10.4 million dollars in brokered deposits at December 31, 2025 and December 31, 2024, respectively.
Total uninsured deposits were $581.3 million and $542.9 million at December 31, 2025 and December 31, 2024, respectively. Included in uninsured deposits at December 31, 2025 and December 31, 2024 were $92.4 million and $105.8 million of deposits of states or political subdivisions in the U.S., which are secured or collateralized, respectively. Total uninsured deposits, excluding these deposits that are secured or collateralized, totaled $488.9 million, or 27.9%, of total deposits at December 31, 2025 and $437.1 million, or 26.1%, of total deposits at December 31, 2024.
The average balance of all customer deposit accounts at December 31, 2025 was $29 thousand. The average balance for consumer accounts was $17 thousand and the average balance for non-consumer accounts was $63 thousand.
The following table sets forth the average deposits by category:
December 31,
(In thousands)
Annual
Average
Interest
Rate
Annual
Average
Interest
Rate
Annual
Average
Interest
Rate
Demand deposit accounts
Interest bearing checking accounts
Money market accounts
Savings accounts
Time deposits
Total deposits
The uninsured amount of time deposits at December 31, 2025 and 2024 were $47.1 million and $40.8 million, respectively.
A stable base of deposits is expected to continue to be the primary source of funding to meet both our short-term and long-term liquidity needs in the future. The maturity distribution of time deposits is shown in the following table.
Maturities of Certificates of Deposit and Other Time Deposit of $250,000 or More
At December 31, 2025, time deposits in excess of the FDIC insurance limit were as follows:
December 31, 2025
(In thousands)
Within Three
Months
After Three
Through
Six Months
After Six
Through
Twelve Months
After
Twelve
Months
Total
Time deposits of $250,000 or more
Borrowed funds. Borrowed funds consist of fed funds purchased, securities sold under agreements to repurchase, FHLB advances and long-term debt. Our long-term debt is a result of issuing $15.0 million in trust preferred securities. Short-term borrowings in the form of securities sold under agreements to repurchase averaged $111.9 million, $77.2 million, and $74.6 million during 2025, 2024, and 2023, respectively. The average rates paid during these periods were 2.42%, 2.83%, and 2.22%, respectively. The balances of securities sold under agreements to repurchase were $107.2 million and $103.1 million at December 31, 2025 and December 31, 2024, respectively. The repurchase agreements all mature within one to four days, and are generally originated with customers that have other relationships with us and tend to provide a stable and predictable source of funding. Federal funds purchased averaged $11 thousand, $12 thousand, and $1.1 million during 2025, 2024, and 2023, respectively. The average rates paid during these periods were 9.09%, 4.99%, and 4.73%, respectively. The balances of federal funds purchased were zero at December 31, 2025 and December 31, 2024. As a member of the FHLB, the Bank has access to advances from the FHLB for various terms and amounts. FHLB advances averaged zero, $54.8 million, and $86.6 million during 2025, 2024, and 2023, respectively. The average rates paid during these periods were zero, 5.12%, and 5.02%, respectively. During the twelve months ended December 31, 2024, FHLB were reduced from $90.0 million at December 31, 2023 to zero at December 31, 2024, including the prepayment of $35.0 million of FHLB resulting in a on early extinguishment of debt of $229 thousand. The balances of FHLB were zero and zero at December 31, 2025 and December 31, 2024, respectively.
We issued $15.5 million in trust preferred securities on September 16, 2004. During the fourth quarter of 2015, we redeemed $500 thousand of these securities. Until the cessation of LIBOR on June 30, 2024, the securities accrued and paid distributions quarterly at a rate of three month LIBOR plus 257 basis points, thereafter, such distributions to be paid quarterly transitioned to an adjusted Secured Overnight Financing Rate (SOFR) index in accordance with the Federal Reserve’s final rule implementing the Adjustable Interest Rate Act, which is three-month CME Term SOFR plus 257 basis points plus a tenor spread adjustment of 0.26161%. The remaining debt may be redeemed in full anytime with notice and matures on September 16, 2034. Trust preferred securities averaged $15.0 million during 2025, 2024, and 2023. The average rates paid during these periods were 7.16%, 8.13%, and 7.93%, respectively. The balances of trust preferred securities were $15.0 million as of December 31, 2025 and December 31, 2024.
At December 31, 2025 and at December 31, 2024, there were no FHLB advances.
Capital Adequacy and Dividend Policy
Capital Adequacy
Total shareholders’ equity increased $23.1 million, or 16.0%, to $167.6 million at December 31, 2025 from $144.5 million at December 31, 2024. Shareholders’ equity increased to 8.1% of total assets at December 31, 2025 from 7.4% of total assets at December 31, 2024 due to total shareholder’s equity growth of 16.0% outpacing total asset growth of 5.1%. The $23.1 million increase in shareholders’ equity was due to $19.2 million of net income, $7.1 million of other comprehensive income, $1.2 million of stock-based compensation, and $386,000 of reinvested dividends, partially offset by $4.8 million of dividends.
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 7,606,172 shares outstanding as of December 31, 2023. We made no repurchases under the 2022 Repurchase Plan prior to its expiration at the market close on December 31, 2023.
On May 14, 2024, we announced that our board of directors approved a plan to utilize up to $7.1 million of capital to repurchase shares of our common stock (the “2024 Repurchase Plan”), which represented approximately 5.3% of our shareholders’ equity at the time of the announcement. We made no repurchases under the 2025 Repurchase Plan prior to its expiration at the market close on May 13, 2025.
On May 9, 2025, we announced that our board of directors approved a plan to utilize up to $7.5 million of capital to repurchase shares of our Common Stock (“the 2025 Repurchase Plan”), which represented approximately 5.0% of our shareholders equity at the time of the announcement. No repurchases have been made under the 2025 Repurchase Plan. The 2025 Repurchase Plan expires at the market close on May 8, 2026.
During the first two quarters of 2024, we paid a dividend of $0.14 per share of our common stock. During the second two quarters of 2024 and the first two quarters of 2025, we paid a dividend of $0.15 per share of our common stock. During the second two quarters of 2025, we paid a dividend of $0.16 per share of our common stock. On January 28, 2026, we announced a $0.16 per share dividend payable on February 24, 2026 to shareholders of record of our common stock on February 10, 2026.
In addition, we have a dividend reinvestment plan that allows existing shareholders the option of reinvesting cash dividends as well as making optional purchases of up to $5,000 in the purchase of common stock per quarter.
The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), and equity to assets ratio for the three years ended December 31.
Return on average assets
Return on average common equity
Equity to assets ratio
Dividend Payout Ratio
While the Company is currently a small bank holding company and so generally is not subject to Basel III capital requirements, our Bank remains subject to such capital requirements. See “Supervision and Regulation—Basel Capital Standards” for additional information on Basel III and the Dodd-Frank Act.
The Bank exceeded the regulatory capital ratios at December 31, 2025 and 2024, as set forth in the following table:
(In thousands)
Required
Amount
Actual
Amount
Excess
Amount
The Bank (1)(2) :
December 31, 2025
Risk Based Capital
Tier 1
Total Capital
CET1
Tier 1 Leverage
December 31, 2024
Risk Based Capital
Tier 1
Total Capital
CET1
Tier 1 Leverage
As a small bank holding company, the Company is generally not subject to Basel III capital requirements unless otherwise advised by the Federal Reserve.
Required Amounts and Required Ratios do not include the capital conservation buffer of 2.5%.
Dividend Policy
Since we are 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 banks 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.
Because the Company is a legal entity separate and distinct from the Bank and does not conduct stand-alone operations, the Company’s ability to pay dividends depends on the ability of the Bank to pay dividends to the Company, 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 S.C. Board, 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 S.C. Board. In addition, the Bank must maintain a capital conservation buffer, above its regulatory minimum capital requirements, consisting entirely of Common Equity Tier 1 capital, in order to avoid restrictions with respect to its payment of dividends to First Community Corporation. 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.
Liquidity Management
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 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, to borrow on a secured basis through the Federal Reserve Discount Window, and to borrow on a secured basis through securities sold under agreements to repurchase. Furthermore, the Bank is a member of the FHLB and has the ability to obtain advances for various periods of time. These are secured by eligible securities pledged by the Bank or assignment of eligible loans within the Bank’s portfolio.
To secure a cost-effective stable funding source, during the third quarter of 2023, we issued $48.2 million in brokered certificates of deposit ranging in terms from six months to three years, with the three-year term callable after six months. Brokered certificates of deposit totaled zero and $10.4 million in brokered deposits as of December 31, 2025 and December 31, 2024, respectively. The $10.4 million in brokered deposits had a maturity date of July 31, 2025 with an interest rate of 4.70%. We believe that we have ample liquidity to meet the needs of our customers through our low cost deposits, our ability to issue brokered deposits, our ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks, our ability to borrow on a secured basis through the Federal Reserve Discount Window, and our ability to obtain advances secured by certain securities and loans from the FHLB.
We generally maintain adequate 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.
On June 1, 2022, we reclassified $224.5 million in investments to held-to-maturity (HTM) from available-for-sale (AFS). These securities were transferred at fair value at the time of the transfer, which became the new cost basis for the securities held to maturity. The pretax unrealized net holding loss on the available-for-sale securities on the date of transfer totaled approximately $16.7 million, and continued to be reported as a component of accumulated other comprehensive loss. This net unrealized loss is being amortized to interest income over the remaining life of the securities as a yield adjustment. There were no gains or losses recognized as a result of this transfer. The remaining pretax unrealized net holding loss on these investments was $10.6 million ($8.4 million net of tax) at December 31, 2025. The remaining pretax unrealized net holding loss on these investments was $12.3 million ($9.7 million net of tax) at December 31, 2024. Our HTM investments totaled $195.1 million and represented approximately 39.6% of our total investments at December 31, 2025. Our AFS investments totaled $294.1 million or approximately 59.8% of our total investments at December 31, 2025. Our investments at cost totaled $2.9 million or approximately 0.6% of our total investments at December 31, 2025. The unrealized on our investment securities are related to an increase in market interest rates, which has a temporary impact on the fair value of our investment securities portfolio and on accumulated other comprehensive income (), which is included in shareholders’ equity.
The Bank maintains federal funds purchased lines in the total amount of $102.5 million with four financial institutions and $10.0 million through the Federal Reserve Discount Window. We utilized none of our federal funds purchased lines at December 31, 2025 or 2024. The FHLB of Atlanta has approved a line of credit of up to 25.00% of the Bank’s total assets, which, when utilized, is collateralized by a pledge against specific investment securities and/or eligible loans. We had zero in FHLB advances at December 31, 2025 and 2024, respectively. At December 31, 2025, we have remaining credit availability under this facility in excess of $619.6 million, subject to collateral requirements. Combined, we have total remaining credit availability, subject to collateral requirements, in excess of $732.1 million as compared to uninsured deposits excluding deposits of states or political subdivisions in the U.S., which are secured or collateralized, of $488.9 million as previously noted.
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 December 31, 2025, we had issued commitments to extend unused credit of $211.2 million, including $69.0 million in unused home equity lines of credit, through various types of lending arrangements. At December 31, 2024, we had issued commitments to extend unused credit of $180.2 million, including $63.6 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.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements, or are recorded in amounts that differ from the notional amounts. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are used by the company for general corporate purposes or for customer needs. Corporate purpose transactions are used to help manage credit, interest rate, and liquidity risk or to optimize capital. Customer transactions are used to manage customers’ requests for funding. Please refer to Note 15 of our financial statements for a discussion of our off-balance sheet arrangements.
Impact of Inflation
Unlike most industrial companies, the assets and liabilities of financial institutions such as the Company and the Bank are primarily monetary in nature. Therefore, interest rates have a more significant effect on our performance than do the effects of changes in the general rate of inflation and changes in prices. In addition, interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, we are not immune from changes occurring in inflation, which risks include a decrease in demand for new mortgage loan and commercial real estate loan originations and refinancings, an increase in competition for deposits, and an increase in non-interest expenses, which may have an adverse impact on our financial performance. As discussed previously, we continually seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.
