First munity (US:FCCO)2024-08-12 20:52markdown PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Financial statements show total assets at **$1.88 billion**, with H1 2024 net income of **$5.9 million**, down from **$6.8 million** due to increased expenses [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to **$1.88 billion** by June 30, 2024, driven by increased net loans and deposits Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$1,884,844** | **$1,827,688** | | Net loans held-for-investment | $1,176,257 | $1,121,752 | | Total investment securities | $483,597 | $499,396 | | **Total Liabilities** | **$1,748,665** | **$1,696,629** | | Total deposits | $1,604,528 | $1,511,001 | | Federal Home Loan Bank advances | $50,000 | $90,000 | | **Total Shareholders' Equity** | **$136,179** | **$131,059** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income for H1 2024 decreased to **$5.9 million** from **$6.8 million** year-over-year, driven by increased expenses and credit loss provisions Quarterly Income Statement (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net Interest Income | $12,694 | $12,137 | | Provision for credit losses | $454 | $186 | | Non-interest Income | $3,642 | $3,051 | | Non-interest Expense | $11,843 | $10,755 | | **Net Income** | **$3,265** | **$3,327** | | Diluted EPS | $0.42 | $0.43 | Six-Month Income Statement (in thousands, except per share data) | Metric | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Net Interest Income | $24,771 | $24,494 | | Provision for credit losses | $583 | $256 | | Non-interest Income | $6,826 | $5,626 | | Non-interest Expense | $23,648 | $21,191 | | **Net Income** | **$5,862** | **$6,790** | | Diluted EPS | $0.76 | $0.89 | [Consolidated Statements of Comprehensive Income](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income for Q2 2024 increased to **$3.4 million** due to smaller unrealized losses, with H1 2024 comprehensive income at **$6.8 million** Comprehensive Income Summary (in thousands) | Period | Net Income | Other Comprehensive Income (Loss) | Comprehensive Income | | :--- | :--- | :--- | :--- | | **Q2 2024** | $3,265 | $154 | $3,419 | | **Q2 2023** | $3,327 | $(2,015) | $1,312 | | **H1 2024** | $5,862 | $903 | $6,765 | | **H1 2023** | $6,790 | $898 | $7,688 | [Consolidated Statements of Changes in Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders%27%20Equity) Shareholders' equity increased to **$136.2 million** by June 30, 2024, driven by net income and improved comprehensive loss, offset by dividends - Total shareholders' equity grew by **$5.1 million** in the first six months of 2024[13](index=13&type=chunk) - The company paid common dividends of **$0.28 per share**, totaling **$2.1 million**, during the first six months of 2024[13](index=13&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by financing activities was **$48.3 million**, primarily from deposits, leading to a **$16.8 million** net increase in cash and cash equivalents Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,410 | $695 | | Net cash used in investing activities | $(35,899) | $(41,280) | | Net cash provided by financing activities | $48,305 | $60,167 | | **Net increase in cash and cash equivalents** | **$16,816** | **$19,582** | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, investment securities, loan portfolio, fair value measurements, deposit composition, and segment financial performance - The company is evaluating the impact of new accounting standards **ASU 2023-07** (Segment Reporting) and **ASU 2023-09** (Income Tax Disclosures), which will be effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[22](index=22&type=chunk)[23](index=23&type=chunk) - As of June 30, 2024, the loan portfolio totaled **$1.19 billion**, with commercial real estate mortgages (**$797.6 million**) and construction loans (**$141.7 million**) being the largest components[41](index=41&type=chunk)[42](index=42&type=chunk) - The company has four reportable segments: **Commercial and Retail Banking**, **Mortgage Banking**, **Investment advisory** and non-deposit, and **Corporate**. The **Commercial and Retail Banking** segment is the largest contributor to net income[89](index=89&type=chunk)[91](index=91&type=chunk) - The company entered into a **$150.0 million** pay-fixed/receive-floating interest rate swap in May 2023 to hedge the fair value of its fixed-rate loan portfolio. At June 30, 2024, this derivative had a fair value of **$2.6 million**[96](index=96&type=chunk)[97](index=97&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes H1 2024 net income decrease to margin compression and higher expenses, offset by loan growth and non-interest income, with assets growing to **$1.9 billion** and strong asset quality and capital [Overview and Recent Events](index=34&type=section&id=Overview%20and%20Recent%20Events) The company's income is primarily from net interest, with recent CEO and CRO changes, a branch closure for **$327,000** annual savings, and awareness of monetary policy impacts - **J. Ted Nissen** became CEO of the Bank on July 1, 2024, while **Michael C. Crapps** continues as CEO of the holding company[114](index=114&type=chunk) - Executive Vice President and Chief Operations/Risk Officer, **Tanya A. Butts**, intends to retire effective December 31, 2024[114](index=114&type=chunk) - The banking office in downtown Augusta, Georgia was closed on June 27, 2024, with estimated annual savings of **$327,000**[115](index=115&type=chunk) [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Net income decreased for Q2 2024 to **$3.3 million** and for H1 2024 to **$5.9 million**, primarily due to increased non-interest expense and credit loss provisions, partially offset by higher non-interest income Comparison of Net Income (in thousands) | Period | 2024 | 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Three Months Ended June 30** | $3,265 | $3,327 | $(62) | (1.9)% | | **Six Months Ended June 30** | $5,862 | $6,790 | $(928) | (13.7)% | - The increase in non-interest income was driven by a **$558,000** rise in mortgage banking income and a **$718,000** increase in investment advisory fees for the six-month period[156](index=156&type=chunk) - The increase in non-interest expense for the six-month period was primarily due to a **$1.6 million** rise in salaries and employee benefits[157](index=157&type=chunk)[183](index=183&type=chunk) [Provision and Allowance for Credit Losses](index=49&type=section&id=Provision%20and%20Allowance%20for%20Credit%20Losses) The provision for credit losses increased to **$583,000** in H1 2024 due to loan growth, while ACL remained stable at **1.09%** and asset quality remained strong with non-performing assets at **0.04%** Key Credit Quality Ratios | Ratio | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | ACL as % of total loans | 1.09% | 1.08% | | Non-performing assets as % of total assets | 0.04% | 0.05% | | Non-accrual loans (in thousands) | $173 | $27 | - The company experienced net charge-offs of **$28,000** in the first six months of 2024, compared to net recoveries of **$1,000** in the same period of 2023[196](index=196&type=chunk) [Financial Position](index=53&type=section&id=Financial%20Position) Total assets grew to **$1.9 billion** in H1 2024, driven by increased loans and deposits, while investment securities decreased and shareholders' equity rose to **$136.2 million** - Loans (excluding held-for-sale) increased by **$55.2 million**, or **9.8% annualized**, during the first six months of 2024[202](index=202&type=chunk) - Deposits increased by **$93.5 million**, or **12.4% annualized**, with pure deposits (non-CDs) accounting for **$33.4 million** of the growth[217](index=217&type=chunk) - Total uninsured deposits, excluding collateralized public funds, were **$366.4 million**, representing **22.8%** of total deposits at June 30, 2024[218](index=218&type=chunk) - In May 2024, the Board approved a new share repurchase plan for up to **$7.1 million** of common stock, expiring in May 2025[227](index=227&type=chunk) [Market Risk Management](index=58&type=section&id=Market%20Risk%20Management) The company manages interest rate risk, showing liability sensitivity where net interest income is projected to decrease by **2.37%** with a **100bp** rate increase and increase by **1.71%** with a **100bp** rate decrease Net Interest Income Sensitivity (12-Month Horizon) | Change in Interest Rates | Estimated % Change in NII (June 30, 2024) | | :--- | :--- | | +200bp | -5.92% | | +100bp | -2.37% | | -100bp | +1.71% | | -200bp | +2.98% | Present Value of Equity (PVE) Sensitivity | Change in Interest Rates | Estimated % Change in PVE (June 30, 2024) | | :--- | :--- | | +200bp | -0.92% | | +100bp | +0.23% | | -100bp | -2.21% | | -200bp | -6.35% | [Liquidity and Capital Resources](index=60&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with over **$509.6 million** in credit lines, exceeding uninsured deposits, and robust capital ratios, with the Bank's Total Capital Ratio at **13.62%**, well above regulatory requirements - The company has total remaining credit availability of over **$509.6 million**, including **$421.5 million** from the **FHLB** and **$77.5 million** in federal funds lines[239](index=239&type=chunk) Bank Capital Ratios (June 30, 2024) | Ratio | Actual | Well Capitalized Requirement | | :--- | :--- | :--- | | Leverage Ratio | 8.44% | 5.00% | | Common Equity Tier 1 Capital Ratio | 12.55% | 6.50% | | Tier 1 Capital Ratio | 12.55% | 8.00% | | Total Capital Ratio | 13.62% | 10.00% | - A cash dividend of **$0.15 per share** was approved for the second quarter of 2024[253](index=253&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section is not applicable as relevant disclosures are included within Item 2, Management's Discussion and Analysis - Not applicable. Disclosures are provided in the MD&A section[256](index=256&type=chunk) [Controls and Procedures](index=64&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the end of the period[256](index=256&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2024[257](index=257&type=chunk) PART II – OTHER INFORMATION [Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) The company is not aware of any material pending legal proceedings that would adversely impact its financial condition or results of operations - There are no material pending legal proceedings against the company[259](index=259&type=chunk) [Risk Factors](index=65&type=page&id=Item%201A.%20Risk%20Factors) No material changes to risk factors from the 2023 Annual Report on **Form 10-K** - No material changes to risk factors from the 2023 **Form 10-K**[260](index=260&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=65&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company credited **1,753** deferred stock units to directors and approved a new share repurchase plan for up to **$7.1 million** of common stock - A new share repurchase plan was approved on May 14, 2024, allowing for the repurchase of up to **$7.1 million** of the company's common stock[261](index=261&type=chunk) [Defaults Upon Senior Securities](index=65&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Not applicable - Not Applicable[261](index=261&type=chunk) [Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Not applicable - Not Applicable[261](index=261&type=chunk) [Other Information](index=65&type=section&id=Item%205.%20Other%20Information) None - None[261](index=261&type=chunk) [Exhibits](index=66&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the **Form 10-Q**, including CEO and CFO certifications and **iXBRL** data files - The report includes certifications from the **Principal Executive Officer** and **Principal Financial Officer**, as well as **iXBRL** formatted financial statements[262](index=262&type=chunk)