10. First Community Corp.
Shares of First Community Corp. ( FCCO) of Lexington, S.C., closed at $8.50 Monday, returning 39% year-to-date, following a 10% return during 2011. The shares trade for 0.8 times their reported Sept. 30 tangible book value of $10.10, and for 11 times the consensus 2013 earnings estimate of 80 cents, among analysts polled by Thomson Reuters. Based on a quarterly payout of four cents, the shares have a dividend yield of 1.88%. The company had $606 million in total assets as of Sept. 30. Third-quarter net income available to common shareholders was $881,000, or 19 cents a share, compared to 760,000, or 23 cents a share, in the second quarter, and $790,000, or 24 cents a share, during the third quarter of 2011. Earnings-per-share declined because the company issued 1,875,000 common shares in July, at a price of $8.00 a share, shares of common stock at $8.00. The common offering preceded First Community's repurchase in late August of 3,780 preferred shares held by the government, for bailout assistance received through Troubled Assets Relief Program, or TARP, in November 2008. The company exited the TARP program, as the remaining TARP shares were sold at auction by the U.S. Treasury to outside investors. The TARP shares were originally priced at $1,000, while First Community and the outside investors paid a discounted price of $982.83 per share, which the company said was "the highest price paid to date for a company's shares in the Treasury's auctions." The company noted in its third-quarter earnings release that it "was able to price the offering at-the-market as compared to a discount which is typically seen in this type of offering, and that "this transaction represents the only successfully executed publicly underwritten common stock offering in more than five years for a bank in the Carolinas with $1 billion or less in total assets." First Community said that its earnings in the third quarter were reduced by $277,945, or four cents a share, because of one-time expenses associated with its exit from TARP. A third-quarter bright spot for the company was an increase in mortgage origination fees to $1,393,000, from $877,000 the previous quarter, and $698,000 a year earlier. CEO Mike Crapps said that "the acquisition of Palmetto South Mortgage Corporation in July of 2011 continues to be beneficial and, in combination with the legacy mortgage unit, is a real story of success." The increase in mortgage fee income helped offset a decline in net interest income and in the net interest margin (NIM), which is the difference between the average yield on loans and investments and the average cost for deposits and borrowings. First Community's third-quarter net interest income declined to $4.3 million, from $4.5 million in the second quarter, and $4.6 million in the third quarter of 2011. The net interest margin narrowed to a tax-adjusted 3.12% in the third quarter, from 3.30% the previous quarter, and 3.37% a year earlier, "driven primarily by declining yields in the investment portfolio and the loan portfolio which are only partially offset by declining funding costs. First Community did note, however, "that during the quarter, the company had excess liquidity from the equity offering and its use to repurchase the preferred shares. The company estimates the impact of this excess liquidity to have been approximately 6 basis points on its net-interest margin." The declining net interest margin is in line with the industry trend, since the Federal Reserve has kept its short-term target federal funds rate in a range of zero to 0.25% since the end of 2008, while the central bank September increased its monthly purchases of mortgage backed securities in an attempt to hold long-term rates at historically low levels. The company's third-quarter operating return on average assets (ROE) was 0.81%, according to Thomson Reuters Bank Insight, while its return on average tangible common equity was 9.57%. Brian Martin rates First Community "Outperform," with a $10 price target, saying on Oct. 19 after the earnings release that following the common equity raise and TARP exit that the company was "well positioned to capitalize on growth opportunities." "Given the current economic landscape this will almost certainly entail a combination of organic and external growth," Martin said, adding that many of the company's "South Carolina peers are unable to participate in M&A at the moment given ongoing credit problems and regulatory constraints. We estimate FCCO could add approximately $150 million in new assets and still maintain a 7% TCE ratio." Martin estimates that First Community will earn 84 cents a share in 2013. FCCO data by YCharts
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