First Community Corporation (FCCO) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024, for First Community Corporation, a South Carolina-based bank holding company. The Company operates primarily through its subsidiary, First Community Bank, offering commercial and retail banking, mortgage banking, and investment advisory services. As of August 12, 2024, there were 7,635,145 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q2 2024 (3 Months) | Q2 2023 (3 Months) | YTD 2024 (6 Months) | YTD 2023 (6 Months) |
|---|---|---|---|---|
| Net Income | $3.265 million | $3.327 million | $5.862 million | $6.790 million |
| Diluted EPS | $0.42 | $0.43 | $0.76 | $0.89 |
| Net Interest Income | $12.694 million | $12.137 million | $24.771 million | $24.494 million |
| Net Interest Margin (NIM) | 2.92% | 3.00% | 2.85% | 3.08% |
| Provision for Credit Losses | $0.454 million | $0.186 million | $0.583 million | $0.256 million |
| Total Assets | $1.885 billion | $1.737 billion (Avg) | $1.885 billion | $1.716 billion (Avg) |
| Total Loans (Held-for-Investment) | $1.189 billion | $1.017 billion (Avg) | $1.189 billion | $1.002 billion (Avg) |
| Total Deposits | $1.605 billion | $1.511 billion (Dec 2023) | $1.605 billion | $1.511 billion (Dec 2023) |
| Shareholders' Equity | $136.179 million | $131.059 million (Dec 2023) | $136.179 million | $124.148 million (Jun 2023) |
| Cash & Cash Equivalents | $111.511 million | $94.695 million (Dec 2023) | $111.511 million | $56.983 million (Jun 2023) |
Material Changes vs. Prior Period
- Net Income Decline: Net income decreased $62,000 (1.9%) for Q2 and $928,000 (13.7%) for the six months ended June 30, 2024, compared to the prior year periods. This was driven by higher non-interest expenses and increased provisions for credit losses, partially offset by higher net interest income and non-interest income.
- Net Interest Income Growth: Net interest income increased $557,000 (4.6%) in Q2 and $277,000 (1.1%) YTD, primarily due to a $127.1 million increase in average earning assets (Q2) and a $145.6 million increase (YTD). However, NIM compressed by 8 basis points in Q2 and 23 basis points YTD due to rising deposit costs.
- Expense Increases: Non-interest expense rose $1.1 million in Q2 and $2.5 million YTD. Key drivers included a $795,000 increase in salaries and benefits (Q2) and higher FDIC assessments, software subscriptions, and legal fees.
- Asset Growth: Total assets increased $57.2 million (3.1%) from December 31, 2023, driven by a $55.2 million increase in loans held-for-investment and a $19.4 million increase in interest-bearing bank balances.
- Deposit Mix: Total deposits grew $93.5 million from year-end 2023. The Company increased reliance on brokered certificates of deposit ($42.9 million at June 30, 2024) to fund loan growth, while "pure deposits" (low-cost) grew at a slower rate.
Guidance, Outlook, and Risks
- Management Commentary: Management highlighted strong loan growth (16.2% YTD increase in average loans) and improved investment advisory assets under management ($865.6 million). The Company closed a downtown Augusta, Georgia branch in June 2024, expecting $327,000 in annual cost savings.
- Interest Rate Sensitivity: The Company is currently liability-sensitive. Modeling indicates that a 100-400 basis point increase in interest rates would decrease net interest income by 2.37% to 13.37% over the next 12 months. Conversely, a 100-300 basis point decrease would increase net interest income.
- Capital Position: The Bank remains "well capitalized" under Basel III rules. As of June 30, 2024, the Common Equity Tier 1 ratio was 12.55% and the Leverage Ratio was 8.44%. A new $7.1 million share repurchase plan was approved in May 2024, with no repurchases made to date.
- Risks and Contingencies:
- Credit Quality: Non-accrual loans increased to $173,000 (0.01% of total loans) from $27,000 at year-end 2023. The allowance for credit losses on loans was 1.09% of total loans.
- Real Estate Concentration: Approximately 91.7% of the loan portfolio is collateralized by real estate. Non-owner occupied commercial real estate loans represent 310% of total risk-based capital.
- Market Volatility: Unrealized losses on available-for-sale securities totaled $21.5 million, impacting accumulated other comprehensive loss (AOCI).
Investor Verification Checklist
- Deposit Cost Trends: Verify the sustainability of the 1.98% cost of deposits (Q2 2024) as the Company shifts toward higher-yielding brokered CDs to fund loan growth.
- Non-Interest Expense Run Rate: Confirm if the $1.1 million Q2 increase in non-interest expenses (driven by salaries and legal fees) is a one-time event or a structural increase.
- Commercial Real Estate (CRE) Exposure: Review the specific performance of the $797.6 million commercial mortgage portfolio, which constitutes 67.1% of total loans, given the 310% concentration relative to risk-based capital.
- Share Repurchase Execution: Monitor the execution of the new $7.1 million repurchase plan and its impact on earnings per share.
- Interest Rate Hedge Effectiveness: Assess the ongoing impact of the $150 million pay-fixed/receive-floating interest rate swap on net interest income in a volatile rate environment.