FIRST COMMUNITY CORP /SC/ Fair Value Disclosure

Note 5—FAIR VALUE MEASUREMENT

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

Level l

Quoted prices in active markets for identical assets or liabilities.

 

Level 2

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s U.S. Treasury securities and government-sponsored enterprise securities are generally classified as Level 2 because their fair values are obtained from pricing services using observable market data and/or matrix pricing.

 

Level 3

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

 

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

  

Cash and short-term investments—The carrying amount of these financial instruments (cash and due from banks, interest-bearing bank balances, federal funds sold and securities purchased under agreements to resell) approximates fair value. All mature within 90 days and do not present unanticipated credit concerns and are classified as Level 1.

 

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

Derivative Financial Instruments —Derivative instruments (pay fixed swaps) used to hedge interest rate risk related to the mortgage portfolio are reported at fair value utilizing Level 2 inputs. The fair values of the hedged item and the interest rate swap are based on derivative market data as of the valuation date. 

Other investments, at cost—The carrying value of other investments, such as FHLB stock, approximates fair value based on redemption provisions.

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

Loans Held for Investment—The valuation of loans receivable is estimated using the exit price notion which incorporates factors, such as enhanced credit risk, illiquidity risk and market factors that sometimes exist in exit prices in dislocated markets. This credit risk assumption is intended to approximate the fair value that a market participant would realize in a hypothetical orderly transaction. The Company’s loan portfolio is initially fair valued using a segmented approach. The Company divides its loan portfolio into the following categories: variable rate loans, fixed rate loans and all other loans. The results are then adjusted to account for credit risk as described above.

 

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

 

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

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

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

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

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

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

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

 

The carrying amount and estimated fair value by classification Level of the Company’s financial instruments as of December 31, 2025 and December 31, 2024 are as follows: 

 

Schedule of Fair Value, by Balance Sheet Grouping

		December 31, 2025
		Carrying				Fair Value
(Dollars in thousands)		Amount				Total				Level 1				Level 2				Level 3
Financial Assets:
Cash and short term investments		$	161,060			$	161,060			$	161,060			$	—			$	—
Available-for-sale securities			294,109				294,109				—				294,109				—
Held-to-maturity securities			195,116				188,563				—				188,563				—
Other investments, at cost			2,942				2,942				—				—				2,942
Loans held for sale			10,737				10,737				—				10,737				—
Derivative financial instruments			17				17								17
Net loans receivable			1,297,213				1,271,551				—				—				1,271,551
Accrued interest			6,247				6,247				6,247				—				—
Financial liabilities:
Non-interest bearing demand		$	467,265			$	467,265			$	—			$	467,265			$	—
Interest bearing demand deposits and money market accounts			837,711				837,711				—				837,711				—
Savings			102,768				102,768				—				102,768				—
Time deposits			341,800				336,205				—				336,205				—
Total deposits			1,749,544				1,743,949				—				1,743,949				—
Short term borrowings			107,189				107,189				—				107,189				—
Derivative financial instruments			36				36				—				36				—
Junior subordinated debentures			14,964				13,445				—				13,445				—
Accrued interest payable			3,416				3,416				3,416				—				—

 

		December 31, 2024
		Carrying				Fair Value
(Dollars in thousands)		Amount				Total				Level 1				Level 2				Level 3
Financial Assets:
Cash and short term investments		$	149,828			$	149,828			$	149,828			$	—			$	—
Available-for-sale securities			279,582				279,582				—				279,582				—
Held-to-maturity securities			209,413				196,040				—				196,040				—
Other investments, at cost			2,679				2,679				—				—				2,679
Loans held for sale			9,662				9,662				—				9,662				—
Derivative financial instruments			896				896				—				896
Net loans receivable			1,207,407				1,160,013				—				—				1,160,013
Accrued interest			6,084				6,084				6,084				—				—
Financial liabilities:
Non-interest bearing demand		$	462,717			$	462,717			$	—			$	462,717			$	—
Interest bearing demand deposits and money market accounts			770,595				770,595				—				770,595				—
Savings			113,928				113,928				—				113,928				—
Time deposits			328,661				321,258				—				321,258				—
Total deposits			1,675,901				1,668,498				—				1,668,498				—
Short term borrowings			103,110				103,110				—				103,110				—
Junior subordinated debentures			14,964				13,042				—				13,042				—
Accrued interest payable			4,666				4,666				4,666				—				—

 

The following table summarizes quantitative disclosures about the fair value for each category of assets carried at fair value as of December 31, 2025 and December 31, 2024 that are measured on a recurring basis.

 

Schedule of Fair Value, Assets Measured on Recurring Basis

AVAILABLE-FOR-SALE:

(Dollars in thousands)

Description		December 31, 2025				(Level 1)				(Level 2)				(Level 3)
Available- for-sale securities
US Treasury Securities		$	24,093			$	—			$	24,093			$	—
Government Sponsored Enterprises			2,256				—				2,256				—
Mortgage-backed securities			252,185				—				252,185				—
Small Business Administration pools			8,668				—				8,668				—
Corporate and other securities			6,907				—				6,907				—
Total Available-for-sale securities			294,109				—				294,109				—
Derivative financial instruments			17				—				17				—
Total		$	294,126			$	—			$	294,126			$	—

 

(Dollars in thousands)

Description		December 31, 2024				(Level 1)				(Level 2)				(Level 3)
Available- for-sale securities
US Treasury Securities		$	13,240			$	—			$	13,240			$	—
Government Sponsored Enterprises			2,110				—				2,110				—
Mortgage-backed securities			244,204				—				244,204				—
Small Business Administration pools			12,079				—				12,079				—
Corporate and other securities			7,949				—				7,949				—
Total Available-for-sale securities			279,582				—				279,582				—
Derivative financial instruments			896				—				896				—
Total		$	280,478			$	—			$	280,478			$	—

The following table summarizes quantitative disclosures about the fair value for each category of liabilities carried at fair value as of December 31, 2025 that are required to be remeasured on a recurring basis. There were no liabilities carried at fair value as of December 31, 2024 that are measured on a recurring basis. 

(Dollars in thousands)

Description		December 31, 2025				(Level 1)				(Level 2)				(Level 3)
Derivative financial instruments		$	36			$	—			$	36			$	—
Total		$	36			$	—			$	36			$	—

 

The following tables summarize quantitative disclosures about the fair value for each category of assets carried at fair value as of December 31, 2025 and December 31, 2024 that are measured on a non-recurring basis. There were no liabilities carried at fair value and measured on a non-recurring basis at December 31, 2025 and 2024. 

 

Schedule of Fair Value, Assets Measured on Non-Recurring Basis 

(Dollars in thousands)
Description		December 31, 2025				(Level 1)				(Level 2)				(Level 3)
Other real estate owned:
Mortgage-commercial		$	168			$	—			$	—			$	168
Total other real estate owned			168				—				—				168
Total		$	168			$	—			$	—			$	168
(Dollars in thousands)
Description		December 31, 2024				(Level 1)				(Level 2)				(Level 3)
Other real estate owned:
Construction		$	144			$	—			$	—			$	144
Mortgage-commercial			399				—				—				399
Total other real estate owned			543				—				—				543
Total		$	543			$	—			$	—			$	543

 

The Company has a large percentage of loans with real estate serving as collateral. Loans which are deemed to be impaired are primarily valued on a nonrecurring basis at the fair value of the underlying real estate collateral. Such fair values are obtained using independent appraisals, which the Company considers to be Level 3 inputs. Third party appraisals are generally obtained when a loan is identified as being impaired or at the time it is transferred to OREO. This internal process would consist of evaluating the underlying collateral to independently obtained comparable properties. With respect to less complex or smaller credits, an internal evaluation may be performed. Generally, the independent and internal evaluations are updated annually. Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property.

 

For Level 3 assets and liabilities measured at fair value on a non-recurring basis as of December 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:

 

Schedule of Fair Value Measurement Inputs and Valuation Techniques

(Dollars in thousands)

Fair Value as of December 31, 2025

Valuation Technique

Significant Observable Inputs

Significant Unobservable Inputs

OREO

$

168

Appraisal Value/Comparison Sales/Other estimates

Appraisals and or sales of comparable properties

Appraisals discounted 6% to 16% for sales commissions and other holding cost

(Dollars in thousands)

Fair Value as of December 31, 2024

Valuation Technique

Significant Observable Inputs

Significant Unobservable Inputs

OREO

$

543

Appraisal Value/Comparison Sales/Other estimates

Appraisals and or sales of comparable properties

Appraisals discounted 6% to 16% for sales commissions and other holding cost