Company Overview and History
First Community Corporation is a diversified financial services company that has been serving its local communities for over four decades. Headquartered in Lexington, South Carolina, the company operates through its wholly-owned subsidiary, First Community Bank, which provides a range of banking and financial services to individuals, businesses, and organizations throughout its footprint.
The company's history dates back to 1985 when it was founded as a traditional community bank with a single office location in Lexington, South Carolina. Over the next two decades, First Community grew organically by opening additional branch locations throughout central South Carolina. In 2005, the company completed its first acquisition by merging with another community bank, allowing it to expand its footprint. This acquisition added several new branches and increased the bank's total assets to over $500 million.
During the late 2000s, First Community faced challenges during the financial crisis, like many other community banks. However, the bank was able to maintain profitability and continued to grow through this period by focusing on its core community banking model and conservative lending practices. In the 2010s, First Community resumed a strategy of targeted acquisitions and organic expansion, making several small acquisitions to grow its presence in existing markets and expand into new areas of South Carolina. This allowed First Community to grow its total assets to over $1 billion by 2019. The bank also invested in modernizing its technology and branch network to better serve customers in the digital age.
Current Operations and Strategic Focus
Today, First Community operates 24 branch locations across South Carolina and has established itself as a leading community bank in its markets, providing a full suite of banking and wealth management services to commercial and retail customers. Through its conservative yet strategic approach, First Community has navigated various economic cycles and challenges to become one of the strongest independent community banks in the region.
In recent years, First Community has placed a strong emphasis on diversifying its revenue streams beyond traditional lending and deposit-taking activities. The company has made strategic investments in its wealth management and mortgage banking divisions, which now contribute a significant portion of its non-interest income. As of September 30, 2024, the company's assets under management had grown to $901.6 million, up from $755.4 million at the end of 2023.
Financials and Liquidity
Financially, First Community has maintained a solid balance sheet and strong liquidity position. As of September 30, 2024, the company reported total assets of $1.94 billion, up from $1.83 billion at the end of 2023. Its loan portfolio, excluding loans held-for-sale, grew by 5.5% to $1.20 billion during the same period, driven by strength in commercial and residential real estate lending.
The company's net interest margin, a key measure of profitability, has remained relatively stable at 2.89% for the nine months ended September 30, 2024, compared to 3.04% in the same period of the prior year. This modest decline was primarily attributable to the rising interest rate environment, which has impacted the company's cost of funds. To mitigate the impact of higher rates, First Community has strategically increased its exposure to variable-rate loans and implemented a pay-fixed, receive-floating interest rate swap to hedge a portion of its fixed-rate loan portfolio.
On the credit quality front, First Community has continued to maintain a relatively low level of non-performing assets, which stood at 0.04% of total assets as of September 30, 2024, compared to 0.05% at the end of 2023. The company's allowance for credit losses on loans was 1.08% of total loans held-for-investment at the end of the third quarter of 2024, unchanged from the prior year-end.
For the fiscal year 2023, First Community Corporation reported revenue of $54.52 million, net income of $11.84 million, operating cash flow of $12.23 million, and free cash flow of $11.15 million. The company's performance showed significant improvement in the most recent quarter (Q3 2024), with revenue reaching $15.775 million, net income of $3.861 million, operating cash flow of $10.271 million, and free cash flow of $10.092 million. These figures represent substantial year-over-year growth, with revenue increasing by 18.8%, net income by 119.3%, operating cash flow by 73.9%, and free cash flow by 75.2% compared to Q3 2023. The impressive growth was primarily attributed to higher net interest income, lower provision for credit losses, and increased noninterest income.
First Community Corporation maintains a strong liquidity position, with $171.50 million in cash and cash equivalents as of September 30, 2024. The company has access to various credit lines, including $77.50 million in federal funds purchased lines, $10 million through the Federal Reserve Discount Window, and $421.10 million in remaining FHLB credit availability. The company's debt-to-equity ratio stood at -2.80 as of September 30, 2024, while both its current ratio and quick ratio were 2.39, indicating a healthy short-term liquidity position.
Business Segments and Product Offerings
First Community Corporation operates through three main reportable business segments: Commercial and Retail Banking, Mortgage Banking, and Investment Advisory and Non-Deposit.
The Commercial and Retail Banking segment forms the core of the company's business, offering a wide range of deposit and lending products and services to commercial and retail customers. As of September 30, 2024, the loan portfolio composition was as follows: commercial loans (7.1%), real estate loans including construction, mortgage-residential, and mortgage-commercial (88.3%), and consumer loans including home equity and other (4.6%). The yield on the loan portfolio increased by 72 basis points year-over-year to 5.59% for the nine months ended September 30, 2024, driven by rising market interest rates and the implementation of an interest rate swap. Average loans increased by $152.6 million, or 14.9%, compared to the same period in 2023.
The Mortgage Banking segment provides mortgage origination services, including loans for sale to investors in the secondary market and loans held-for-investment such as adjustable-rate mortgages (ARMs) and new construction residential real estate loans. This segment has shown strong performance, with mortgage banking income increasing by $619,000, or 59.6%, to $1.66 million for the nine months ended September 30, 2024. This growth was driven by a 55.8% increase in secondary mortgage production and a slightly higher gain on sale margin of 2.97% compared to 2.92% in the prior year period.
The Investment Advisory and Non-Deposit segment offers investment advisory services and non-deposit products. This segment has experienced significant growth, with investment advisory fees and non-deposit commissions increasing by $1.13 million, or 33.9%, to $4.46 million for the nine months ended September 30, 2024. The growth in this segment was supported by an increase in assets under management, which grew to $901.6 million from $674.5 million a year earlier.
Future Outlook and Challenges
Looking ahead, First Community remains focused on expanding its presence in its core markets, while also exploring opportunities to further diversify its revenue streams. The company has made investments in technology and digital banking capabilities to enhance the customer experience and drive efficiency. Additionally, the bank's mortgage banking and wealth management divisions are expected to continue contributing to the company's non-interest income growth.
However, the company is not without its challenges. The ongoing economic uncertainty, rising interest rates, and potential regulatory changes could all impact the company's performance in the coming years. First Community's management team has demonstrated its ability to navigate these challenges, but investors should be mindful of the risks associated with the company's operations.
Conclusion
Overall, First Community Corporation has a long history of serving its local communities and a track record of solid financial performance. The company's diversification efforts, strong balance sheet, and focus on growth have positioned it well for the future. The company's performance across its three main business segments demonstrates its ability to leverage its strong presence in commercial banking, mortgage services, and wealth management to drive balanced growth. The rising interest rate environment has been a tailwind for the bank's net interest income, while its fee-based businesses have also contributed meaningfully to the company's revenue and earnings growth.
First Community Corporation's primary operations are concentrated in the southeastern United States, with a footprint in South Carolina and Georgia. This regional focus allows the company to maintain a strong understanding of local market dynamics and customer needs. As the company continues to navigate the evolving financial landscape, its commitment to community banking principles, coupled with strategic investments in technology and diversified services, positions it well for continued success in its markets.