8-K: First Community Corporation Reports Strong Second Quarter Results, Boosts Dividend

First Community Corporation announced a 25.7% increase in net income on a linked quarter basis and an increased cash dividend of $0.15 per share for the second quarter of 2024.

Summary

• First Community Corporation reported a net income of $3.265 million for the second quarter of 2024, a 25.7% increase compared to the previous quarter.
• Diluted earnings per share were $0.42 for the second quarter, up 23.5% from the first quarter.
• The company's net interest margin expanded by 14 basis points to 2.93% during the second quarter.
• Total loans grew by $31.9 million, representing an annualized growth rate of 11.1%.
• Customer deposits increased by $44.1 million, an annualized growth rate of 11.7%.
• Assets under management reached a record $865.6 million, a 14.6% increase year-to-date.
• The mortgage line of business had its highest production since 2020, with $49.0 million in total production.
• The company's board approved a cash dividend of $0.15 per share, payable on August 13, 2024.
• A share repurchase plan of up to $7.1 million was approved, representing approximately 5.3% of total shareholders equity as of March 31, 2024.

Sentiment

Score: 8

Explanation: The document presents a very positive outlook with strong financial results, significant growth, and a commitment to shareholder returns. The company's performance is exceeding expectations, and the management commentary is optimistic. However, there are some minor negatives and risks that prevent a perfect score.

Positives

• The company experienced significant growth in net income, diluted EPS, and net interest margin compared to the previous quarter.
• Loan and deposit growth were strong, with double-digit annualized growth rates.
• Assets under management reached a record high, indicating strong performance in the investment advisory business.
• The mortgage line of business had its best quarter in four years.
• Key credit quality metrics remain excellent, with very low non-performing assets and past due loans.
• The company has maintained a consistent dividend payout for 90 consecutive quarters.
• The company has a strong capital position with regulatory capital ratios exceeding well capitalized minimum levels.
• Tangible book value per share increased to $15.85 at June 30, 2024, from $15.51 at March 31, 2024.
• The company has a strong deposit franchise with growth in total deposits, pure deposits, and non-interest bearing deposits.
• The company has significant credit availability in excess of $509 million.

Negatives

• Net income for the first half of 2024 was lower than the same period in 2023, with $5.862 million compared to $6.790 million.
• Diluted earnings per share for the first half of 2024 were $0.76, compared to $0.89 during the same time period in 2023.
• Regulatory capital ratios have decreased compared to June 30, 2023.
• The cost of deposits increased on a linked quarter basis to 1.98% in the second quarter of 2024 from 1.90% in the first quarter of 2024.
• Non-interest expense increased slightly due to higher variable compensation and professional fees.
• The company had a write down of an OREO property.

Risks

• Competitive pressures among financial institutions could impact pricing and revenues.
• Changes in the strength of the U.S. and local economies could affect the company's performance.
• Increases in delinquencies and charge-offs could lead to increased credit risk-related losses.
• Changes in legislation, regulation, or policies could negatively impact the company.
• Adverse conditions in the stock market and capital markets could have a negative impact.
• Changes in interest rates could affect deposit and funding costs, net income, and asset values.
• Technology and cybersecurity risks could lead to business disruptions and financial losses.
• Elevated inflation could pose challenges to customers and the business.
• Increases in FDIC assessments could increase the cost of doing business.
• Events beyond the company's control, such as epidemics, war, or cyberattacks, could destabilize financial markets and the economy.

Future Outlook

The company believes it had an inflection point in margin in February 2024 and expects continued margin expansion. The company also anticipates future gain-on-sale revenue from adjustable rate and construction loans when the interest rate environment changes.

Management Comments

• Our entire board is pleased that our performance enables the company to continue its cash dividend for the 90th consecutive quarter.
• This approved share repurchase provides us with some flexibility in managing capital going forward.
• A strength of our bank has been and continues to be the value of our deposit franchise.
• We are extremely excited about the success in the growth of loans and deposits during the second quarter.
• We believe we had an inflection point in margin on a non-taxable equivalent basis in February of 2024 with four consecutive months of margin expansion from 2.77% in February of 2024 to 2.96% in June of 2024.
• During the quarter, we saw an increase in demand for secondary market loans as we also continue to have success with our adjustable rate mortgage and construction loan products.

Industry Context

The results reflect a positive trend in the community banking sector, with strong loan and deposit growth. The company's focus on local businesses and individuals aligns with the community banking model. The increase in mortgage production is notable given the current interest rate environment.

Comparison to Industry Standards

• First Community Corporation's loan growth of 11.1% annualized is strong compared to the average for US banks in the same period, which is estimated to be around 5-7%.
• The net interest margin expansion of 14 basis points is also a positive sign, as many banks are facing margin compression due to increased funding costs.
• The company's asset quality metrics, with non-performing assets at 0.04%, are significantly better than the industry average, which is typically around 0.5-1.0%.
• The record AUM growth of 14.6% year-to-date is also impressive, indicating a strong performance in the investment advisory business, which is a key differentiator for the company.
• Compared to regional banks like South State Corporation (SSB) and United Community Banks (UCBI), First Community's growth rates in loans and deposits are competitive, and its asset quality metrics are superior.
• The company's TCE ratio of 6.47% is within the range of other community banks, but it is important to monitor this ratio as it is a key indicator of financial health.

Management Changes

Stakeholder Impact

• Shareholders will benefit from the increased cash dividend and potential share repurchases.
• Employees may benefit from higher variable compensation in the mortgage and financial planning lines of business.
• Customers will continue to have access to a range of deposit and loan products and services.
• The company's strong financial performance may enhance its reputation with suppliers and creditors.

Next Steps

• The company will pay a cash dividend of $0.15 per share on August 13, 2024.
• The company may repurchase shares under the approved share repurchase plan.
• The company will continue to focus on growing loans and deposits.
• The company will continue to monitor and manage its interest rate risk.
• The company will continue to focus on its mortgage and financial planning lines of business.

Key Dates

Keywords

community bank, financial results, net income, earnings per share, cash dividend, loan growth, deposit growth, net interest margin, asset management, mortgage production, capital ratios, share repurchase