Unassociated Document
UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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WASHINGTON,
D.C. 20549
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FORM
8-K
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CURRENT
REPORT
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PURSUANT
TO SECTION 13 OR 15(d) OF THE
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SECURITIES
EXCHANGE ACT OF 1934
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July
24, 2009
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Date
of Report (Date of earliest event reported)
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FIRST
COMMUNITY BANCSHARES, INC.
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(Exact
name of registrant as specified in its charter)
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Nevada
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000-19297
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55-0694814
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(State
or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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P.O.
Box 989
Bluefield,
Virginia
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24605-0989
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(Address
of principal executive offices)
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(Zip
Code)
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(276)
326-9000
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(Registrant’s
telephone number, including area code)
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:
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o
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Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
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Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
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Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
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Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item
7.01 Regulation FD
Disclosure
On July
24, 2009, First Community Bancshares, Inc. (the “Company”) held a public
conference call to discuss its financial results for the quarter ended June 30,
2009. The conference call was previously announced in the earnings
release dated July 23, 2009. The following are the prepared
remarks.
John M.
Mendez, President and Chief Executive Officer –
Let me
begin with a quick overview of our operations and highlight some of the key
operating points from the first quarter. It has been an extremely busy time for
us and we feel that we have accomplished a great deal over the last quarter in
terms of balance sheet management, capitalization and management of asset
quality.
First I
would note that, on the heels of a great first quarter, FCBC’s second quarter
results show a solid trend of strong core earnings power and disciplined credit
management. I believe that First Community will be one of very few
companies that can successfully absorb both their increased credit provisioning,
FDIC special assessment and, on top of both of those items, non-cash impairments
in pooled Trust Preferred holdings.
Now on to
some of the key events of the last quarter. I begin with our Common
Equity Raise which was completed on June 10, 2009. We were successful
in raising $62 million in new common equity, net of underwriting expenses and
including the exercise of the 15% overallotment option. We were
generally pleased with interest in the offering which was
oversubscribed.
The
equity offering was part of our plan to enable us to promptly redeem the
Treasury Preferred Stock and it also better positions us to take advantage of
opportunities which we feel will be available throughout this deep credit
cycle.
We
accelerated the repayment of the Treasury Preferred as we saw growing concerns
over the potential for government involvement and based on the negative turn in
public perception of the program. It had always been our plan to
complete a qualified offering prior to year-end to enable us to reduce our
outstanding warrants. However, with recent volatility and the unsure
nature of the capital markets we felt that the pick-up in capital raising
activities in May opened door for an earlier offering and we chose to move
forward and complete the full redemption of the TARP funds. As to the
outstanding warrants, we have not offered to repurchase those
warrants.
We are
looking forward to the TriStone stockholders’ meeting which will be held on
Thursday July 30, 2009. We have received all required regulatory
approvals and we are fully expecting the approval of the TriStone
stockholders.
We are
anxious to begin the integration process with TriStone, which will result in a
more meaningful presence in Winston-Salem and the additions to our leadership
team, staff and branch network in that region. We believe that our
opportunities in and around Winston-Salem will be greatly enhanced under the
market leadership of Skip Brown as Regional President and with the capable
commercial leadership of Mark Evans as SVP-Commercial Lending. We
have already had a great experience working with Skip and Mark and the entire
team at TriStone. We also look forward to welcoming our new
stockholders from the TriStone transaction and we look forward to working
together to build our investment in that region and in First Community
Bancshares.
In
conjunction with the TriStone merger we will be announcing the addition of T.
Vernon Foster as a new member of the First Community Bank board. We
believe that Vernon will be a great addition to our board in representation of
the TriStone investors and the entire First Community Bank investor
base. Vernon is quite respected among his fellow board members and
within the Winston-Salem community and brings a wealth of experience to our
board.
The
TriStone merger is set for consummation immediately following the expected
approval by the TriStone stockholders.
On the
lending front, we have seen a slowing of demand, although we continue to have
some commercial opportunities both in our legacy West Virginia markets and in
the greater Richmond market. Some of our larger commercial
opportunities have come in the multi-family housing area and have been supported
by tax credit financing.
But
generally, we are fairly defensive in our lending activities today and we are
paying a great deal of attention to our current customer base to ensure that we
are serving their needs and to remain alert to any signs of stress at the
earliest point possible.
We
continue to enjoy good credit quality within our loan portfolio. Our
overall non-performing assets remain near year-end 2008 levels with slight
improvement in non-performing loans versus year-end 2008. We are
seeing good migration through the non-performing asset categories with success
in transitioning non-performing loans to OREO and good experience to-date in
liquidating OREO. Gary Mills with have some detail for you in this
area later in the call.
Our
credit provisions were elevated for the second quarter, up 22% versus the first
quarter of 2009. The increase in provision for the first two quarters
of 2009 generally reflect the recognition of elevated net charge-offs over the
last four quarters. Our reserve methodology applies risk factors to
our five-year rolling loss experience which has been trending
upward. This has resulted in FAS 5 reserve pools which are
essentially replacing reserves as charge-offs as they occur, thus maintaining or
slightly increasing our total reserve position. This trend will
continue until we see a sustained three or four quarter turnaround in net
charge-off experience and until we are comfortable that economic conditions
within our markets have improved significantly enough to warrant a reduction in
identified risk factors.
We
recently announced our second quarter dividend in the amount of $0.10 per
share. This represents a continuation of our reduced dividend level
and sustains our dividend yield at about 3.2% on current market
prices.
Capital
ratios remain strong at both the holding company and bank level. We
continue to monitor capital positions relative to our risk profile and believe
our capital levels to be quite appropriate. We did significantly
enhance our TCE ratio to 7.2% following the equity raise in June and we continue
to build that ratio through current earnings. The TriStone merger
should also be slightly accretive to TCE when we close in the coming
weeks.
David D.
Brown, Chief Financial Officer –
As you
all saw from yesterday’s release, we made $3.5 million in the second
quarter. After preferred dividends, we made $2.9 million or 23 cents
per share.
Margin
declined modestly to 3.62% for the second quarter. We continue to
carry a significant position with over $57 million sold overnight on average
through the quarter. When adjusted back to a normalized level of
liquidity and rolling off higher cost deposits, we margin for the quarter would
have been closer to 3.80%.
We made a
$2.6 million provision for loan losses during the second quarter, bringing
allowance to 1.31% of loans. For the quarter we covered 105% of net
charge-offs and year-to-date we have covered 118% of net
charge-offs. Like most in the industry, we see some weaknesses out
there, but we feel we continue to compare very favorably to peer
performance.
Wealth
revenues increased modestly for the quarter on a linked and comparative
basis. On a linked-quarter basis, deposit account service charges
picked back up and we saw an increase of $334 thousand. The consumer
spending level is still depressed, but appears to be coming
back. Insurance revenues declined from the first quarter; however,
they are right on track for our estimate of $7.0 million in annual
commissions. Insurance revenues in the first quarter were
significantly affected by the contingency revenues. Second quarter
EBT at GIG was $176 thousand.
As of the
end of the second quarter we determined two of our pooled trust preferred
holdings were other-than-temporarily impaired. One bond with a $10.0
million par showed approximately 12% credit loss and the second has a $20.0
million par with about 2% credit loss. The remainder of our pools did
not show any credit-related impairment. We did ratchet up our default
and deferral assumptions this quarter, and that accounted for some of the
credit-related impairment on the two bonds. We also charged down a
few more of our equity positions, which resulted in about $406 thousand in
impairment.
On a
positive note, we saw about a 21% increase in the market values of the single
issuer trust preferred holdings. These issues were definitely
undervalued by the market and we are seeing meaningful price
appreciation.
We did a
fair amount of selling and repositioning in the investments portfolio through
the quarter. We monetized gains of approximately $1.6 million that we
didn’t see sticking around for long when the rate environment
dropped. We also completed our planned reduction in California muni
exposure. We began trimming that exposure in September of last year
and now see very little California risk left in the portfolio. The
only remaining exposure is approximately $3.1, most of which is unlimited tax
general obligation.
In the
area of non-interest expense, second quarter efficiency ratio was
58.6%. Efficiency is still a little higher than I like to see it, but
it should corrected as top line revenues rebound. Salaries and
benefits decreased $461 thousand on a linked-quarter basis. The
largest drivers in the decrease were in the benefits
categories. Total FTE at quarter-end was 640, even with last
quarter.
The FDIC
premiums and special assessment have become a significant number. We
accrued roughly $988 thousand for the special assessment and you can see the
premiums really ramping up. On a linked-quarter basis, other
operating expense increased $540 thousand. The largest increases in
that line were $217 thousand in OREO losses, $134 thousand in consulting
expenses, $58 thousand in accounting expenses, $85 thousand in fraud losses, and
about $100 thousand in merger expenses.
We are
also ahead of schedule on integration of the Mooresville deal. We had
estimated realizing $1.21 in pre-tax cost-saves for 2009. We are
ahead of schedule and are projecting cost-saves of approximately $1.54 million
for 2009. We have remodeled and retooled the branch network and
continue to see bright prospects for the region.
Between
period ends deposits shrunk $36.1 million, but actually grew $3.5 million on an
average basis. We saw some declines in the certificate of deposit
portfolio as we allowed higher rates to roll off. We continue to keep
our CD pricing at the low end of the competitive spectrum in our
markets. End-of-period and average loans decreased from last quarter
as we continue to see sluggish low loan demand. New loan production
for the quarter was approximately $124 million.
Total
risk-based capital at the holding company is expected to be approximately 14.4%
and at the bank, 10.7%. The common offering added approximately $61
million to common equity and about 5.3 million shares.
We repaid
the government capital on July 8, 2009. We will recognize about $40
thousand in preferred dividends in the third quarter, as well as a $972 thousand
“deemed dividend.” The deemed dividend was not a cash payment, rather
a way to remove the remaining discount of the preferred issuance from
equity. After redeeming TARP, pro forma total RBC at the holding
company will drop to approximately 12.3%. TARP redemption will not
have any impact on the bank’s capital ratios.
The
TriStone shareholder meeting is next Thursday, and we anticipate closing soon
after their approval of the transaction. We’ll have some more clarity
next quarter, but we are anticipating recognizing approximately $1.0 million in
net gain after considering merger-related expenses upon closing.
Gary R.
Mills, Chief Credit Officer –
The total
FCB loan portfolio measured $1.27 billion at June 30, 2009, representing a
decline of approximately $7.3 million during the
quarter. Year-to-date, the FCB loan portfolio has declined
approximately $28.7 million. The segments within the FCB loan
portfolio changed during the quarter as follows: Commercial and
Agricultural segment increased approximately $2.1 million; Commercial Real
Estate increased $4.7 million; Residential Real Estate decreased $2.7 million;
Construction/Land Development/Vacant Land decreased $11.9 million and
Consumer/Other increased $566 thousand. Commercial construction loans
totaling approximately $20.6 million were converted to permanent financing
during the quarter resulting in their migration from the Construction segment to
Commercial Real Estate.
Total
delinquencies as of June 30, 2009 measured 1.35% which represents continued
improvement as compared to 1.59% and 1.97% as of March 31, 2009 and December 31,
2008. The primary contributor to the improved performance was the
loans 30-89 days delinquent segment, which was 0.44% as compared to 0.76% and
0.99% as of March 31, 2009 and December 31, 2008,
respectively. Non-accrual loans measured 0.92% as of June 30, 2009 as
compared to 0.83% and 0.98% as of March 31, 2009 and December 31, 2008,
respectively. Non-accrual loans increased approximately $1 million
during the quarter. The more significant additions to non-accrual
loans during the quarter were a $600K owner occupied commercial real estate loan
and a $700 thousand residential real estate loan relationship. The
$1.6 million non-accrual A&D loan that we have discussed in previous calls
was liquidated during the quarter and placed in OREO. We are
presently engaged in negotiations to sell the property for a price that would
result in no further loss to the bank. OREO measured $3.6 million at
quarter end, as compared to $3.1 million and $1.3 million as of March 31, 2009
and December 31, 2008, respectively. The bank successfully liquidated
approximately $665K in OREO during the quarter. Net charge-offs were
approximately $2.4 million, or 0.77% during the quarter, and while this
represents an increase as compared to the first quarter net charge-offs of $1.5
million, or 0.47%, it compares well to first quarter UBPR peer net charge-off
performance of 0.83%. The most significant charge-off during the
quarter was $400K which was related to the previously mentioned A&D
loan.
The ALLL measured $16.7 million as of
June 30, 2009 which equates to 1.31% of total loans and provides a
non-performing loan (NPL) coverage ratio of 143%. The reserve continued to
increase in both dollars and as a percentage of loans as compared to the first
quarter and year-end postings of $16.6 million, or 1.29%, and $16.0 million,
or1.23%, respectively. The NPL coverage ratio declined from the first
quarter ratio of 156%, but still represents improvement over the fourth quarter
2008 ratio of 125%. Provision for the quarter was $2.6 million, or
105% of net charge-offs.
Peer
Analysis
Utilizing
the most recent UBPR and FDIC peer data confirms that FCB credit quality metrics
continue to compare very well to other industry participants.
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FCB
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UBPR
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FDIC
Quarterly
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30-89
Days
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0.44%
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1.60%
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1.68%
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Non-accrual
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0.92%
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3.02%
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3.66%
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NCO
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0.65%
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0.83%
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1.41%
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NPA
% Loans
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1.19%
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3.67%
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N/A
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NPA
% Assets
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0.69%
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N/A
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2.43%
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ALLL/%
Loans
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1.31%
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1.68%
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1.77%
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ALLL
Coverage Ratio
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142%
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102%
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59.71%
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This
Current Report on Form 8-K contains forward-looking statements. These
forward-looking statements are based on current expectations that involve risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize or should underlying assumptions prove incorrect,
actual results may differ materially. These risks
include: changes in business or other market conditions; the timely
development, production and acceptance of new products and services; the
challenge of managing asset/liability levels; the management of credit risk and
interest rate risk; the difficulty of keeping expense growth at modest levels
while increasing revenues; and other risks detailed from time to time in the
Company’s Securities and Exchange Commission reports, including but not limited
to the Annual Report on Form 10-K for the most recent year
ended. Pursuant to the Private Securities Litigation Reform Act of
1995, the Company does not undertake to update forward-looking statements
contained within this news release.
In
accordance with General Instruction B.2 of Form 8-K, the information in this
Current Report on Form 8-K shall not be deemed to be “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that Section, and shall not be incorporated by
reference into any registration statement or other document filed under the
Securities Act of 1933, as amended, except as shall be expressly set forth by
specific reference in such filing or document.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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FIRST
COMMUNITY BANCSHARES, INC.
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Date:
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July
24, 2009
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By:
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/s/
David D. Brown
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David
D. Brown
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Chief
Financial Officer
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