Business Overview
First Community Corporation (FCCO) is a South Carolina-based community bank that has demonstrated its ability to adapt and thrive in the ever-changing financial services industry. With a focus on serving the needs of small and medium-sized businesses, as well as individuals, within its local markets, the company has built a solid foundation for long-term growth and profitability.First Community Corporation operates through its wholly-owned subsidiary, First Community Bank, which provides a comprehensive suite of banking products and services. The bank's primary business lines include commercial and retail banking, mortgage banking, and investment advisory and non-deposit services. This diversified approach has allowed the company to generate a balanced revenue stream and mitigate risk across its operations.
The commercial and retail banking segment is the company's core business, accounting for the majority of its revenue and earnings. This division offers a range of deposit products, commercial and consumer loans, and other banking services to its customers. The mortgage banking segment originates loans for sale in the secondary market, as well as retains certain adjustable-rate mortgages and construction loans on the bank's balance sheet. The investment advisory and non-deposit services segment provides wealth management solutions and non-deposit products to its clients.
Financials
In the fiscal year 2023, First Community Corporation reported annual net income of $11.8 million, annual revenue of $83.2 million, annual operating cash flow of $14.9 million, and annual free cash flow of $13.8 million. These figures demonstrate the company's ability to generate consistent profitability and strong cash flows, which are essential for supporting its growth initiatives and shareholder returns.During the first quarter of 2024, the company continued to deliver solid financial results. Net income for the quarter was $2.6 million, a slight decrease from the $3.5 million reported in the same period of the prior year. This decline was primarily attributable to a $280,000 decrease in net interest income, a $59,000 increase in provision for credit losses, and a $1.4 million increase in non-interest expense, partially offset by a $609,000 increase in non-interest income and a $233,000 reduction in income tax expense.
The decrease in net interest income was driven by a 39-basis-point reduction in the company's net interest margin, which was partially offset by a $164.2 million increase in average earning assets. The increase in non-interest expense was primarily due to higher salaries and benefits, marketing and public relations, FDIC insurance assessments, other real estate expenses, and other non-interest expenses.
Liquidity
First Community Corporation maintains a strong liquidity position, with access to various funding sources, including deposits, securities sold under agreements to repurchase, Federal Home Loan Bank advances, and trust preferred securities. As of March 31, 2024, the company had $143.6 million in cash and cash equivalents, and its loan-to-deposit ratio (including loans held-for-sale) was 73.4%.The company's capital position also remains robust, with the Bank exceeding all well-capitalized regulatory requirements as of March 31, 2024. The Bank's Tier 1 capital ratio was 12.65%, and its total risk-based capital ratio was 13.71%, providing ample cushion above the well-capitalized thresholds of 8.0% and 10.0%, respectively.
Geographical Footprint and Diversification
First Community Corporation operates primarily in the state of South Carolina, with a network of 23 banking offices located throughout the Midlands, Upstate, and Lowcountry regions. This geographic diversification allows the company to serve a broad customer base and mitigate the impact of localized economic fluctuations.The company's loan portfolio is also well-diversified, with commercial, real estate, and consumer loans accounting for 6.8%, 88.9%, and 4.3% of the total loan portfolio, respectively, as of March 31, 2024. This diversification helps to reduce the company's exposure to any single industry or market segment.
Revenue Breakdown and Trends
First Community Corporation generates revenue from its three primary business segments: commercial and retail banking, mortgage banking, and investment advisory and non-deposit services. In the first quarter of 2024, the commercial and retail banking segment contributed $11.5 million, or 95.1%, of the company's net interest income, while the mortgage banking and investment advisory and non-deposit services segments contributed $887,000 and $1.1 million, respectively, to non-interest income.The company's mortgage banking income increased by $270,000, or 174.2%, to $425,000 in the first quarter of 2024, compared to $155,000 in the same period of the prior year. This increase was primarily driven by higher secondary market, adjustable-rate mortgage (ARM), and construction residential real estate loan production. Investment advisory fees and non-deposit commissions also rose by $291,000, or 27.3%, to $1.4 million, reflecting growth in the company's assets under management and improved investment performance.
Risks and Challenges
While First Community Corporation has demonstrated resilience, the company faces several risks and challenges that could impact its future performance. These include:1. Interest Rate Risk: The company's net interest margin and profitability are susceptible to changes in market interest rates, which could compress the spread between its earning asset yields and funding costs.
2. Credit Risk: As a lender, the company is exposed to the risk of borrower defaults, which could lead to increased provision for credit losses and impact its financial results.
3. Regulatory Environment: The banking industry is subject to extensive regulation, and changes in laws and regulations could increase the company's compliance costs and operational complexity.
4. Competition: First Community Corporation operates in a highly competitive market, with both local and regional banks vying for the same customer base, which could pressure the company's pricing and market share.
Outlook
Despite the challenges, First Community Corporation remains optimistic about its future prospects. The company has implemented several strategic initiatives to enhance its competitive position and drive long-term growth. These include:1. Expanding its commercial and retail banking presence in its existing markets through targeted marketing and relationship-building efforts. 2. Continuing to grow its mortgage banking and investment advisory and non-deposit services segments to diversify its revenue streams. 3. Maintaining a strong focus on credit quality and risk management to mitigate the impact of potential economic downturns. 4. Exploring opportunities for strategic acquisitions or partnerships that could further strengthen the company's market position and capabilities.
While the company has not provided specific financial guidance for the remainder of 2024, management remains confident in the company's ability to navigate the evolving industry landscape and deliver consistent financial performance for its shareholders.