SEC Filing Report: First Community Corp (FCCO) 10-K for FY2024

Executive Summary

This report analyzes First Community Corp’s (FCCO) 10-K filing for the fiscal year ended December 31, 2024. FCCO, a bank holding company operating primarily in South Carolina and Georgia, reported increased net income driven by asset growth and improved non-interest income. However, the net interest margin experienced compression. Key areas of focus include credit quality, interest rate risk management, and the impact of the evolving regulatory landscape. The overall assessment is a Hold, reflecting a stable but not exceptionally high growth outlook, coupled with manageable risks. Investors should monitor the company’s ability to maintain asset quality and manage interest rate sensitivity in the face of potential economic headwinds.

Company Overview

First Community Corporation (FCCO) is a bank holding company with First Community Bank as its primary subsidiary. The bank operates 21 full-service offices across South Carolina and Georgia, focusing on small-to-medium sized businesses and individuals. FCCO’s strategy involves organic growth and strategic acquisitions within attractive banking markets. The company’s stock is traded on The NASDAQ Capital Market under the symbol “FCCO.”

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

Management attributes the increase in net income to growth in average earning assets, a decrease in the provision for credit losses, and an increase in non-interest income. However, they acknowledge a compression of the net interest margin due to rising funding costs outpacing earning asset yield growth. The MD&A highlights the company’s focus on managing credit risk, monitoring commercial real estate concentrations, and adapting to technological changes.

Financial Statement Analysis

Key Ratios and Trends

• Net Interest Margin (Tax Equivalent): Decreased from 3.01% in 2023 to 2.92% in 2024, indicating margin compression.
• Return on Average Assets (ROA): Increased from 0.68% in 2023 to 0.74% in 2024, reflecting improved profitability.
• Return on Average Equity (ROE): Increased from 9.59% in 2023 to 10.17% in 2024, indicating better returns to shareholders.
• Efficiency Ratio: Increased slightly from 71.23% in 2023 to 71.56% in 2024, suggesting a minor increase in operating expenses relative to revenue.
• Non-Performing Assets to Total Assets: Decreased slightly from 0.05% in 2023 to 0.04% in 2024, indicating stable asset quality.
• Loan Growth: Loans increased by 8.1% year-over-year, demonstrating continued lending activity.
• Deposit Growth: Deposits increased by 10.9% year-over-year, outpacing loan growth and improving liquidity.

Balance Sheet Highlights

• Total assets increased from $1.83 billion to $1.96 billion.
• Loans (net of allowance) increased from $1.12 billion to $1.21 billion.
• Deposits increased from $1.51 billion to $1.68 billion.
• Shareholders’ equity increased from $131.1 million to $144.5 million.

Income Statement Highlights

• Net interest income increased from $48.9 million to $52.0 million.
• Non-interest income increased from $10.4 million to $14.0 million.
• Net income increased from $11.8 million to $14.0 million.

Red Flags and Uncommon Metrics

• Net Interest Margin Compression: Despite asset growth, the NIM decreased, indicating potential pressure on profitability due to rising funding costs.
• Commercial Real Estate Concentration: A significant portion of the loan portfolio is concentrated in commercial real estate, which could pose a risk if the market deteriorates.
• Brokered Deposits: While currently a small portion of total deposits, reliance on brokered deposits could become an unstable and costly funding source.

Risk and Opportunity Assessment

Risks

• Economic Conditions: FCCO’s performance is tied to the economic health of South Carolina and Georgia.
• Credit Risk: The company faces the risk of loan defaults, particularly in its commercial real estate portfolio.
• Interest Rate Risk: Changes in interest rates could negatively impact profitability.
• Competition: The banking industry is highly competitive, with larger institutions possessing advantages.
• Cybersecurity: FCCO faces ongoing threats from cyberattacks, which could disrupt operations and compromise sensitive data.
• Regulatory Changes: Evolving regulations, particularly concerning capital requirements and consumer protection, could increase compliance costs.

Opportunities

• Loan Growth: Continued expansion of the loan portfolio can drive revenue growth.
• Deposit Growth: Increasing deposits provides a stable and cost-effective funding source.
• Strategic Acquisitions: Future mergers and acquisitions could expand FCCO’s market presence and service offerings.
• Technological Innovation: Adopting new technologies can improve efficiency and customer service.

Conclusion and Actionable Insights

First Community Corp demonstrates a stable financial position with improving profitability. However, investors should be aware of the challenges posed by net interest margin compression, commercial real estate concentration, and the evolving regulatory landscape. The company’s ability to manage these risks and capitalize on growth opportunities will determine its future performance.

Recommendations:

• Monitor Asset Quality: Closely track non-performing assets and loan loss provisions to assess credit risk.
• Manage Interest Rate Sensitivity: Evaluate the effectiveness of FCCO’s asset-liability management strategies.
• Assess Regulatory Compliance: Stay informed about changes in banking regulations and their potential impact on FCCO.
• Evaluate Growth Strategy: Analyze the company’s plans for organic growth and strategic acquisitions.