First munity Bancshares(US:FCBC)2023-08-03 16:00Financial Performance - Net income for Q2 2023 was $9.81 million, a decrease of 12.48% or $1.40 million compared to $11.21 million in Q2 2022, primarily due to $2.01 million in merger-related costs and $1.61 million in additional credit loss provision [147]. - Adjusted net income for Q2 2023, excluding merger-related costs and provisions, was $12.95 million, reflecting a 16.20% increase from the same quarter last year [147]. - Noninterest income decreased by $69 thousand, or 0.78%, in Q2 2023, primarily driven by a $201 thousand decrease in service charges on deposits [167]. - Total noninterest expense increased by $3.42 million, or 16.07%, in Q2 2023, including merger expenses of $2.01 million related to the Surrey Bancorp acquisition [169]. - The effective tax rate increased to 23.75% in Q2 2023 from 23.39% in Q2 2022, despite a decrease in income tax expense [172]. Asset and Loan Growth - The Company completed the acquisition of Surrey Bancorp on April 21, 2023, acquiring total assets of $466.25 million and increasing consolidated assets to $3.39 billion [147]. - The loan portfolio increased by $220.88 million, or 9.20% from December 31, 2022, while deposits increased by $173.86 million, or 6.49% [147]. - As of June 30, 2023, total loans held for investment increased by $220.88 million, or 9.20%, compared to December 31, 2022, primarily due to the Surrey acquisition [183]. - Total deposits increased by $173.86 million, or 6.49%, to $2.85 billion as of June 30, 2023, primarily due to the acquisition of Surrey Bancorp, which added $403.64 million in deposits [199]. - The company’s total loans held for investment, net of unearned income and allowance, was $2.58 billion as of June 30, 2023 [183]. Credit Quality - Non-performing loans to total loans rose to 0.71% from 0.65% as of March 31, 2023, with net charge-offs of $728 thousand for Q2 2023 [147]. - The allowance for credit losses to total loans was 1.38% at June 30, 2023, compared to 1.29% for Q1 2023 [147]. - Provision for credit losses for loans increased to $4.11 million in Q2 2023 from $510 thousand in Q2 2022, reflecting changes in economic forecasts and growth in the loan portfolio [165]. - Total nonperforming loans amounted to $18.63 million as of June 30, 2023, compared to $16.70 million as of December 31, 2022 [186]. - The allowance for credit losses (ACL) to nonperforming loans ratio was 194.21% as of June 30, 2023, indicating strong coverage for potential losses [186]. Capital and Equity - Total stockholders' equity rose by $76.74 million, or 18.18%, to $498.72 million as of June 30, 2023, largely driven by the acquisition of Surrey Bancorp and net income of $21.60 million [205]. - The common equity Tier 1 ratio as of June 30, 2023, was 14.38%, up from 13.37% at December 31, 2022, indicating improved capital adequacy [206]. - The company issued 2.99 million common shares in the purchase of Surrey Bancorp, resulting in an increase in capital of $71.37 million [176]. Interest Income and Margin - Net interest income increased by $5.32 million compared to Q2 2022, with a net interest margin of 4.48%, up 70 basis points year-over-year [147]. - Net interest income for the first six months of 2023 totaled $62.27 million, an increase of $9.57 million compared to the same period in 2022 [150]. - Average loans increased by $296.63 million, with a yield increase of 45 basis points, resulting in a tax-effected increase in interest on loans of $6.28 million compared to 2022 [159]. - The yield on earning assets increased by 91 basis points, or 23.70%, primarily due to rate increases compared to the same period of 2022 [160]. - The sensitivity of net interest income to a 200 basis point increase in interest rates would result in an increase of $796 thousand, or 0.6%, as of June 30, 2023 [211]. Other Financial Metrics - Book value per share increased to $26.29 at June 30, 2023, up $0.28 from year-end 2022 [147]. - Total interest-bearing liabilities decreased by $63.90 million, or 3.31%, primarily due to a decrease in deposits [161]. - Average earning assets rose by $19.46 million, or 0.66%, primarily due to increases in average loans and securities available for sale [160]. - The average loan to deposit ratio increased to 91.92% from 81.20% reported in the same quarter of 2022 [160]. - The company recorded a recovery for credit losses on unfunded commitments of $232 thousand in the first half of 2023, compared to a provision of $278 thousand in the same period of 2022 [198].