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Nature of Business and Basis of Presentation

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business and Basis of Presentation

Note 1—Nature of Business and Basis of Presentation

Basis of Presentation

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

In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature. All significant intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements and notes thereto are presented in accordance with the instructions for Quarterly Reports on Form 10-Q. The information included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 should be referred to in connection with these unaudited interim financial statements.

Risk and Uncertainties

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

The impact of the COVID-19 pandemic is fluid and continues to evolve, adversely affecting many of the Bank’s customers. The unprecedented and rapid spread of COVID-19 and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity, significant volatility and disruption in financial markets, and has had an adverse effect on the Company’s business, financial condition and results of operations. The ultimate extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including the effect of governmental and private sector initiatives, the effect of the recent rollout of vaccinations for the virus, whether such vaccinations will be effective against any resurgence of the virus, including any new strains, and the ability for customers and businesses to return to their pre-pandemic routines.

The Company’s business, financial condition and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates and in the United States as a whole.

In addition, due to the COVID-19 pandemic, market interest rates declined significantly, with the 10-year Treasury bond falling to a low of 0.52% in early August 2020, but increasing significantly since that time to 1.75% at March 31, 2021. In March 2020, the Federal Open Market Committee reduced the targeted federal funds interest rate range to 0% to 0.25% percent, and this low targeted rate was still in effect as of March 31, 2021. These reductions in interest rates and the other effects of the COVID-19 pandemic have had, and are expected to continue to have, possibly materially, an adverse effect on the Company’s business, financial condition and results of operations. For instance, the pandemic has had a negative effect on the Bank’s net interest margin, provision for loan losses, and deposit service charges, salaries and benefits, occupancy expense, and equipment expense. Other financial impacts could occur though such potential impact is unknown at this time.

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

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

Industry Segments	Outstanding		% of Loan			Avg. Loan		Avg. Loan to
(Dollars in millions)	Loan Balance		Portfolio			Size		Value
Hotels	$	33.2		3.8	%	$	2.4		69	%
Restaurants	$	22.2		2.6	%	$	0.7		72	%
Assisted Living	$	8.8		1.0	%	$	1.5		47	%
Retail	$	82.4		9.5	%	$	0.7		57	%