First Community Corporation — Form 10-Q Summary
Business context and reporting period
First Community Corporation is a South Carolina-based bank holding company whose wholly owned subsidiary, First Community Bank, provides commercial and retail banking, mortgage banking, investment advisory, and non-deposit services. This unaudited filing covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023, and financial position at March 31, 2024 compared with December 31, 2023.
Key financial metrics
| Metric | Q1 2024 | Comparable period or prior date |
|---|---|---|
| Total assets | $1.887 billion | $1.828 billion at December 31, 2023 |
| Net interest income | $12.1 million | $12.4 million in Q1 2023 |
| Net interest margin | 2.78%; 2.79% taxable-equivalent | 3.17%; 3.19% taxable-equivalent in Q1 2023 |
| Net income | $2.6 million | $3.5 million in Q1 2023 |
| Diluted earnings per share | $0.34 | $0.45 in Q1 2023 |
| Non-interest income | $3.2 million | $2.6 million in Q1 2023 |
| Non-interest expense | $11.8 million | $10.4 million in Q1 2023 |
| Provision for credit losses | $129,000 | $70,000 in Q1 2023 |
| Net cash provided by operating activities | $4.7 million | $4.0 million in Q1 2023 |
| Cash and cash equivalents | $143.6 million | $94.7 million at December 31, 2023 |
| Loans held-for-investment | $1.157 billion | $1.134 billion at December 31, 2023 |
| Total deposits | $1.578 billion | $1.511 billion at December 31, 2023 |
| Shareholders’ equity | $133.5 million | $131.1 million at December 31, 2023 |
Material changes versus prior comparable periods
- Net income declined $866,000, or approximately 25%, primarily because net interest income decreased $280,000, credit-loss provision increased $59,000, and non-interest expense increased $1.4 million. These effects were partially offset by a $609,000 increase in non-interest income and a $233,000 reduction in income tax expense.
- Net interest margin compressed 39 basis points to 2.78%. Average earning assets increased $164.2 million, including a 16.5% increase in average loans, but higher funding costs more than offset asset-yield growth.
- Interest expense increased to $9.2 million from $3.5 million, driven principally by higher deposit costs, time-deposit growth, repurchase agreement costs, and FHLB borrowing costs.
- Non-interest income increased 23.7% to $3.2 million. Mortgage banking income rose to $425,000 from $155,000, while investment advisory fees and non-deposit commissions increased to $1.4 million from $1.1 million.
- Non-interest expense increased 13.1% to $11.8 million, including higher salaries and benefits, marketing, FDIC assessments, software and professional fees, and other operating expenses.
- Loans held-for-investment increased $23.3 million, or 2.1%, from year-end. Commercial mortgage loans remained the largest category at $792.3 million, or 68.5% of total loans; construction loans increased to $136.4 million from $118.2 million.
- Deposits increased $67.1 million, or 4.4%, from year-end. Certificates of deposit increased $54.0 million, including brokered certificates of deposit of $60.5 million at March 31, 2024, compared with $48.1 million at year-end.
Credit quality, debt, liquidity, and capital
- The allowance for credit losses on loans was $12.5 million, or 1.08% of total loans, compared with $12.3 million, or 1.08%, at December 31, 2023. The combined allowance for loans, unfunded commitments, and investments was approximately $13.0 million.
- Credit quality remained strong on reported measures. Non-performing assets were $835,000, or 0.04% of total assets. Non-accrual loans were $56,000, and loans past due 30 days or more represented 0.04% of the loan portfolio.
- Approximately 91.8% of loans were collateralized by real estate. Non-owner-occupied commercial real estate loans were approximately 316% of total risk-based capital, and construction and land-development loans were approximately 82%.
- Borrowings included $81.8 million of securities sold under agreements to repurchase, $60.0 million of FHLB advances, and $15.0 million of junior subordinated debt. FHLB advances had rates ranging from 4.81% to 5.26% and maturities from May 2024 through November 2026.
- Management reported remaining borrowing availability exceeding $481.9 million, including more than $396.9 million under the FHLB facility, subject to collateral requirements. Uninsured deposits excluding secured or collateralized public funds were $375.6 million.
- The Bank’s March 31, 2024 capital ratios were 8.35% leverage, 12.65% Common Equity Tier 1, 12.65% Tier 1, and 13.71% total capital. Management stated that the Bank met all capital adequacy requirements and expected it to remain well capitalized for at least the next 12 months.
- The company paid or declared a quarterly common dividend of $0.14 per share. No share repurchases were made during the quarter.
Guidance, outlook, management commentary, risks, and unusual items
- The filing does not provide formal earnings, revenue, margin, or balance-sheet guidance. Management states that first-quarter results are not necessarily indicative of full-year 2024 results.
- Management expects to maintain liquidity and capital sufficient to fund Bank operations for at least the next 12 months. Excess liquidity was temporarily held in interest-bearing deposits at the Federal Reserve and may be used to fund loan growth or reduce borrowings and brokered certificates of deposit.
- The company is liability-sensitive for net interest income. Its model estimates that a parallel 100-basis-point increase in short-term rates would reduce subsequent 12-month net interest income by 2.13%, while a 100-basis-point decline would increase it by 1.13%.
- A $150 million pay-fixed/receive-floating interest-rate swap, maturing May 5, 2026, contributed $649,000 to loan interest income in Q1 2024 and partially mitigated interest-rate exposure.
- Management identified risks from credit losses, real-estate concentration, commercial real-estate conditions, deposit competition and outflows, brokered-deposit reliance, higher FDIC assessments, interest-rate changes, liquidity access, regulatory actions, cybersecurity, economic weakness, and geopolitical or natural-disaster events.
- Leadership changes include J. Ted Nissen becoming Bank Chief Executive Officer on July 1, 2024, while Michael C. Crapps remains Company President and Chief Executive Officer. Chief Operations/Risk Officer Tanya A. Butts intends to retire effective December 31, 2024.
- The company reported no material pending legal proceedings, no material changes to previously disclosed risk factors, no material subsequent events requiring disclosure, and effective disclosure controls as of March 31, 2024.
Most important facts for investors to verify
- Whether deposit repricing and brokered-deposit usage continue to pressure net interest margin and earnings.
- The sustainability and risk profile of loan growth, particularly commercial real estate and construction exposure.
- Changes in non-performing assets, delinquencies, charge-offs, and the adequacy of the $12.5 million loan-loss allowance.
- FHLB and other borrowing maturities, available collateral, and the company’s ability to retain or replace uninsured and brokered deposits.
- Whether the Bank maintains its well-capitalized status as assets grow and as interest-rate, credit, and regulatory conditions change.
- The effect of the planned Bank CEO transition and Chief Operations/Risk Officer retirement on operations and risk oversight.