First munity Bancshares(FCBC) - 2020 Q1 - Quarterly Report

Financial Performance - For the three months ended March 31, 2020, net income decreased by $1.76 million to $7.87 million, an 18.26% decline compared to the same period in 2019[160] - The diluted earnings per share for the current quarter was $0.44, down 26.67% from $0.60 in the first quarter of 2019[160] - Return on average assets decreased to 1.16%, down 33.71% from 1.75% in the first quarter of 2019[160] - Noninterest income decreased by $531 thousand, or 6.57%, primarily due to a lack of litigation settlements compared to the previous year[171] - The effective tax rate increased to 21.80% in Q1 2020 from 21.45% in Q1 2019, while income tax expense decreased by $435 thousand, or 16.54%[175] - Total stockholders' equity decreased by $17.21 million, or 4.01%, to $411.61 million as of March 31, 2020, due to stock repurchases and dividends declared[210] Loan Loss Provisions and Asset Quality - The provision for loan losses increased by $2.28 million to $3.50 million, reflecting the impact of the coronavirus slowdown[158] - The provision for loan losses increased by $2.28 million, or 186.89%, to $3.50 million in the first quarter of 2020, reflecting the impact of the coronavirus slowdown[168] - Non-covered nonperforming assets increased by $2.77 million, or 13.23%, from December 31, 2019, primarily due to an increase in non-covered nonaccrual loans[191] - Non-covered nonaccrual loans rose by $4.15 million, or 25.76%, as of March 31, 2020, with 40.54% attributed to single-family owner-occupied loans[191] - Non-covered delinquent loans totaled $45.23 million as of March 31, 2020, an increase of $9.61 million, or 26.97%, compared to December 31, 2019[193] - The allowance for loan losses increased by $2.71 million, or 14.71%, from December 31, 2019, due to increased potential for loan defaults related to the COVID-19 pandemic[198] - Nonperforming loans to total loans ratio was 1.02% as of March 31, 2020, compared to 0.81% as of December 31, 2019[190] - Nonperforming assets to total assets ratio was 0.87% as of March 31, 2020, up from 0.75% as of December 31, 2019[190] Interest Income and Margin - The net interest margin increased by 11 basis points to 4.71% compared to the same quarter of 2019, attributed to the acquisition of Highlands Bankshares, Inc.[158] - Net interest income increased by $5.50 million, or 24.77%, compared to the same quarter of 2019, with a net interest margin on a FTE basis rising by 11 basis points[165] - Net interest income on a GAAP basis was $27.68 million for Q1 2020, up from $22.19 million in Q1 2019, reflecting a growth of 24.73%[177] - The net interest margin on a GAAP basis improved to 4.68% in Q1 2020 from 4.55% in Q1 2019[177] - The yield on earning assets increased by 13 basis points, or 2.66%, due to a 32 basis point increase in yield on loans[166] - The net interest rate spread on a FTE basis increased by 10 basis points, while the net interest margin increased by 11 basis points[165] Regulatory Compliance and Capitalization - As of March 31, 2020, the Company continues to exceed regulatory "well capitalized" targets[158] - The company continues to meet all capital adequacy requirements and is classified as well-capitalized under regulatory standards as of March 31, 2020[213] - Common equity Tier 1 ratio was 13.54% as of March 31, 2020, down from 14.31% as of December 31, 2019[213] Acquisitions and Expenses - The Company incurred $1.89 million in residual merger expenses related to the Highlands acquisition that occurred on December 31, 2019[158] - The total purchase price for the Highlands Bankshares acquisition was $86.65 million[153] - The company incurred $1.89 million in merger expenses related to the Highlands acquisition during Q1 2020[172] Deposits and Borrowings - Total deposits decreased by $41.50 million, or 1.78%, compared to December 31, 2019, primarily due to an $42.38 million decrease in time deposits[203] - Total borrowings increased by $747 thousand as of March 31, 2020, driven by a $1.00 million draw on a correspondent line of credit[204] - Total interest-bearing deposits increased by $280.59 million, or 20.23%, following the Highlands acquisition[167] Cash Flow and Liquidity - Net cash provided by operating activities was $11.37 million for the three months ended March 31, 2020, compared to $14.09 million for the same period in 2019[209] - Cash reserves totaled $8.33 million, with an additional $15.00 million available on an unsecured line of credit as of March 31, 2020[206] - Cash and cash equivalents increased by $24.60 million for the three months ended March 31, 2020, compared to an increase of $71.67 million for the same period in the prior year[209] - The liquidity model incorporates various funding crisis scenarios to manage liquidity risk effectively[205] LIBOR Transition - The company is transitioning from LIBOR to an equivalent rate index for new loans, ensuring interest rates remain consistent[221] - The company is quantifying the dollar amount and number of current variable loans tied to LIBOR that extend beyond 2021[221] - The company is transitioning from the LIBOR swap curve to treasury rates for certain loans[221] - The first phase of the LIBOR transition includes adding language to new loans to replace LIBOR with an equivalent rate index[221] Economic Outlook - Management believes that inflation will not materially impact financial performance, as interest rates have a greater effect[220] - The U.S. inflation rate remains relatively stable, with no significant changes expected to affect operations[220]