First munity (US:FCCO)2022-08-09 16:00PART I – FINANCIAL INFORMATION Financial Statements The unaudited consolidated financial statements reflect a decrease in net income and a significant reclassification of securities to held-to-maturity Consolidated Balance Sheets Total assets grew to $1.68 billion while shareholders' equity decreased to $117.6 million due to a significant accumulated other comprehensive loss Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $1,684,824 | $1,584,508 | | Net loans held-for-investment | $905,112 | $852,523 | | Investment securities available-for-sale | $337,254 | $564,839 | | Investment securities held-to-maturity | $233,730 | $— | | Total Liabilities | $1,567,232 | $1,443,510 | | Total deposits | $1,468,975 | $1,361,291 | | Total Shareholders' Equity | $117,592 | $140,998 | | Accumulated other comprehensive income (loss) | $(26,543) | $3,279 | Consolidated Statements of Income Net income for the six months ended June 30, 2022, decreased to $6.6 million, driven by lower non-interest income and higher expenses Six Months Ended June 30 (in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Interest Income | $21,784 | $21,659 | | Provision for (release of) loan losses | $(195) | $345 | | Total Non-interest Income | $6,383 | $6,714 | | Total Non-interest Expense | $20,142 | $19,418 | | Net Income | $6,619 | $6,798 | | Diluted EPS | $0.87 | $0.90 | Three Months Ended June 30 (in thousands, except per share data) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Interest Income | $11,051 | $11,092 | | Provision for (release of) loan losses | $(70) | $168 | | Total Non-interest Income | $3,009 | $3,418 | | Total Non-interest Expense | $10,188 | $9,878 | | Net Income | $3,130 | $3,543 | | Diluted EPS | $0.41 | $0.47 | Consolidated Statements of Comprehensive Income (Loss) A comprehensive loss of $23.2 million for the first six months of 2022 resulted from unrealized losses and securities reclassification Comprehensive Income (Loss) Summary (in thousands) | Period | Net Income | Other Comprehensive Loss | Comprehensive Income (Loss) | | :--- | :--- | :--- | :--- | | Six Months Ended June 30, 2022 | $6,619 | $(29,822) | $(23,203) | | Six Months Ended June 30, 2021 | $6,798 | $(3,841) | $2,957 | | Three Months Ended June 30, 2022 | $3,130 | $(11,534) | $(8,404) | | Three Months Ended June 30, 2021 | $3,543 | $2,320 | $5,863 | Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased to $117.6 million at June 30, 2022, primarily due to a $29.8 million other comprehensive loss Reconciliation of Shareholders' Equity - Six Months Ended June 30, 2022 (in thousands) | Description | Amount | | :--- | :--- | | Balance, December 31, 2021 | $140,998 | | Net income | $6,619 | | Other comprehensive loss net of tax | $(29,822) | | Dividends: Common ($0.26 per share) | $(1,956) | | Stock-based compensation & other | $1,653 | | Balance, June 30, 2022 | $117,592 | Consolidated Statements of Cash Flows Net cash increased by $35.4 million, driven by $125.1 million from financing activities, despite a significant decrease in operating cash flow Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $8,708 | $41,432 | | Net cash used in investing activities | $(98,392) | $(149,113) | | Net cash provided by financing activities | $125,065 | $118,676 | | Net increase in cash and cash equivalents | $35,381 | $10,995 | - A significant non-cash investing activity was the transfer of $245.6 million of investment securities from available-for-sale to held-to-maturity29 Notes to Consolidated Financial Statements Detailed notes cover financial statements, including risks from rising interest rates, investment securities, loan portfolio, credit quality, and the upcoming CECL accounting standard - The company is evaluating the impact of the new Current Expected Credit Loss (CECL) model, which will be effective in the first quarter of 2023 and may have a material effect on the financial statements97101 - On June 1, 2022, the company reclassified $224.5 million in investments from available-for-sale (AFS) to held-to-maturity (HTM) to mitigate the impact of rising interest rates on regulatory capital51 - The company's loan portfolio is heavily concentrated in real estate, with commercial mortgage loans comprising 72.3% of the total loan portfolio as of June 30, 202263239 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, macroeconomic impacts, net income decline, balance sheet growth, and securities reclassification to manage interest rate risk - The company's net interest margin declined to 2.89% for the first six months of 2022 from 3.18% in the prior year, primarily due to excess liquidity deployment in lower-yielding securities178 - Non-performing assets increased to 0.32% of total assets at June 30, 2022, from 0.09% at year-end 2021, mainly due to one $4.1 million commercial loan moving to non-accrual status163195 - To manage interest rate risk and protect capital, the company reclassified $224.5 million of securities from Available-for-Sale (AFS) to Held-to-Maturity (HTM) on June 1, 2022235254 - The Board of Directors approved a new share repurchase plan for up to 375,000 shares, effective through December 31, 2023, with no shares repurchased yet255 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current filing - The company has determined that this section is not applicable for this quarterly report290 Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period292 - No material changes in internal control over financial reporting occurred during the quarter294 PART II – OTHER INFORMATION Legal Proceedings The company reports no material pending legal proceedings that would adversely impact its financial condition or operations - There are no material pending legal proceedings against the company297 Risk Factors This section refers to risk factors previously disclosed in the Annual Report on Form 10-K, with no material changes reported - There have been no material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K298 Unregistered Sales of Equity Securities and Use of Proceeds The company issued 1,698 deferred stock units to directors and approved a new share repurchase plan, with no repurchases made in the quarter - In Q2 2022, 1,698 deferred stock units were issued to directors under the deferred compensation plan, exempt from registration under Section 4(a)(2) of the Securities Act299 - A new stock repurchase plan for up to 375,000 shares was approved on April 20, 2022, with no shares repurchased under this plan in Q2 2022299 Defaults Upon Senior Securities This section is not applicable - The company reports no defaults upon senior securities300 Mine Safety Disclosures This section is not applicable - The company has no mine safety disclosures to report301302 Other Information No other information is reported in this item - None304 Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and iXBRL financial statements - Exhibits filed include CEO and CFO certifications and the iXBRL Interactive Data File306