FORM 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
June 1, 2009
Date of Report (Date of earliest event reported)
FIRST COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
|
|
Nevada
|
|
000-19297
|
|
55-0694814 |
|
|
|
|
|
(State or other jurisdiction of
|
|
(Commission File Number)
|
|
(IRS Employer |
incorporation)
|
|
|
|
Identification No.) |
|
|
|
|
|
P.O. Box 989
|
|
|
Bluefield, Virginia
|
|
24605-0989 |
|
|
|
(Address of principal executive offices)
|
|
(Zip Code) |
(276) 326-9000
(Registrants telephone number, including area code)
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:
o |
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|
o |
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
|
o |
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
|
o |
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
TABLE OF CONTENTS
Item 7.01 Regulation FD Disclosure
On June 1, 2009, First Community Bancshares, Inc. (the Company) announced the commencement of an
underwritten public offering of approximately $50 million of its common stock (the Offering). The
underwriters have been granted a 30-day option to purchase up to an additional 15% of the shares
sold to cover over-allotments, if any. A copy of the Companys investor presentation relating to
the Offering is attached hereto as Exhibit 99.1 and incorporated herein by reference. Exhibit 99.1
is furnished and should not be considered filed with the Securities and Exchange Commission.
Item 8.01 Other Events
The Company issued a press release announcing the Offering, a copy of which is attached hereto as
Exhibit 99.2.
The Company has revised certain risk factors it previously disclosed in its Form 10-K for the year
ended December 31, 2008, and added certain new risk factors. The updated and additional risk
factors are set forth below.
References to First Community, the Company, we, our, ours, and us refer to First
Community Bancshares, Inc. and its subsidiaries on a consolidated basis, unless the context
otherwise requires. References to First Community Bank or the Bank refer to First Community
Bank, N.A., the Companys principal banking subsidiary.
This Form 8-K and other reports filed by us under the Securities Exchange Act of 1934 or
registration statements under the Securities Act of 1933 contain statements that are considered
forward-looking statements within the meaning of United States securities laws. These
forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations,
intentions, projections and statements of our beliefs concerning future events, business plans,
objectives, expected operating results and the assumptions upon which those statements are based.
Forward-looking statements include without limitation, any statement that may predict, forecast,
indicate or imply future results, performance or achievements, and are typically identified with
words such as may, could, should, will, would, believe, anticipate, estimate,
expect, intend, plan, or words or phases of similar meaning. We caution that the
forward-looking statements are based largely on our expectations and are subject to a number of
known and unknown risks and uncertainties that are subject to change based on factors which are, in
many instances, beyond our control. Actual results, performance or achievements could differ
materially from those contemplated, expressed, or implied by the forward-looking statements.
The following factors, among others, could cause our financial performance to differ
materially from that expressed in such forward-looking statements:
|
|
|
The strength of the United States economy in general and the strength of the local
economies in which we conduct operations; |
|
|
|
|
Geopolitical conditions, including acts or threats of terrorism, actions taken by
the United States or other governments in response to acts or threats of terrorism
and/or military conflicts, which could impact business and economic conditions in the
United States and abroad; |
|
|
|
|
The effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal Reserve
System, or the Federal Reserve Board; inflation, interest rate, market and monetary
fluctuations; |
|
|
|
|
The timely development of competitive new products and services and the acceptance
of these products and services by new and existing customers; |
|
|
|
|
The willingness of users to substitute competitors products and services for our
products and services; |
|
|
|
|
The impact of changes in financial services policies, laws and regulations,
including laws, regulations and policies concerning taxes, banking, securities and
insurance, and the application thereof by regulatory bodies; |
|
|
|
|
Technological changes; |
|
|
|
|
The effect of acquisitions we may make, including, without limitation, the failure
to achieve the expected revenue growth and/or expense savings from such acquisitions; |
|
|
|
|
The growth and profitability of non-interest or fee income being less than expected; |
|
|
|
|
Changes in the level of our non-performing assets and charge-offs; |
|
|
|
|
The effect of changes in accounting policies and practices, as may be adopted from
time-to-time by bank regulatory agencies, the Securities and Exchange Commission, or
the SEC, the Public Company Accounting Oversight Board, the Financial Accounting
Standards Board or other accounting standards setters; |
|
|
|
|
Possible other-than-temporary impairments of securities held by us; |
|
|
|
|
The impact of current governmental efforts to restructure the U.S. financial
regulatory system; |
|
|
|
|
Changes in consumer spending and savings habits; and |
|
|
|
|
Unanticipated regulatory or judicial proceedings. |
If one or more of the factors affecting our forward-looking information and statements proves
incorrect, then our actual results, performance or achievements could differ materially from those
expressed in, or implied by, forward-looking information and statements contained in this Form 8-K
and other reports filed by us with the Securities and Exchange Commission, or SEC. Therefore, we
caution you not to place undue reliance on our forward-looking information and statements. We will
not update the forward-looking statements to reflect actual results or changes in the factors
affecting the forward-looking statements.
Forward-looking statements should not be viewed as predictions, and should not be the primary
basis upon which investors evaluate First Community. Any investor in First Community should
consider all risks and uncertainties disclosed in our filings with the SEC, all of which are
accessible on the SECs website at http://www.sec.gov.
RISK
FACTORS
Risks
Related to Ownership of Our Common
Stock
The
price of our common stock may fluctuate significantly, and this
may make it difficult for you to resell shares of common stock
owned by you at times or at prices you find
attractive.
Stock price volatility may make it difficult for you to resell
your common stock when you want and at prices you find
attractive. Our stock price can fluctuate significantly in
response to a variety of factors including, among other things:
|
|
|
|
|
Actual or anticipated variations in quarterly results of
operations;
|
|
|
|
Recommendations by securities analysts;
|
|
|
|
Operating and stock price performance of other companies that
investors deem comparable to us;
|
|
|
|
News reports relating to trends, concerns and other issues in
the financial services industry, including the failures of other
financial institutions in the current economic downturn;
|
|
|
|
Perceptions in the marketplace regarding us
and/or our
competitors;
|
|
|
|
New technology used, or services offered, by competitors;
|
|
|
|
Significant acquisitions or business combinations, strategic
partnerships, joint ventures or capital commitments by or
involving us or our competitors;
|
|
|
|
Failure to integrate acquisitions or realize anticipated
benefits from acquisitions;
|
|
|
|
Changes in government regulations; and
|
|
|
|
Geopolitical conditions such as acts or threats of terrorism or
military conflicts.
|
General market fluctuations, industry factors and general
economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes or credit loss
trends, could also cause our stock price to decrease regardless
of operating results as evidenced by the current volatility and
disruption of capital and credit markets.
The
trading volume in our common stock is less than that of other
larger financial services companies which may adversely affect
the price of our common stock.
Although our common stock is traded on The NASDAQ Global Select
Market, the trading volume in our common stock is less than that
of other larger financial services companies. A public trading
market having the desired characteristics of depth, liquidity
and orderliness depends on the presence in the marketplace of
willing buyers and sellers of our common stock at any given
time. This presence depends on the individual decisions of
investors and general economic and market conditions over which
we have no control. Given the lower trading volume of our common
stock, significant sales of our common stock, or the expectation
of these sales, could cause the our stock price to fall.
An
investment in our common stock is not an insured
deposit.
Our common stock is not a bank deposit and, therefore, is not
insured against loss by the Federal Deposit Insurance
Corporation, or FDIC, any other deposit insurance fund or by any
other public or private entity. Investment in our common stock
is inherently risky for the reasons described in this Risk
Factors section and is subject to the same market forces that affect
the price of common stock in any company. As a result, if you
acquire our common stock, you may lose some or all of your
investment.
There
may be future sales or other dilutions of our equity which may
adversely affect the market price of our common
stock.
We generally are not
restricted from issuing additional shares of common stock,
including securities that are convertible into or exchangeable
for, or that represent the right to receive our common stock.
Because our decision to issue securities in any future offering
will depend on market conditions and other factors beyond our
control, we cannot predict or estimate the amount, timing or
nature of any future offerings. Thus, our stockholders bear the
risk of any future stock issuances reducing the market price of
our common stock and diluting their stock holdings in us. The
exercise of any options granted to directors, executive officers
and other employees under our stock compensation plans, the
issuance of shares of common stock in acquisitions and other
issuances of our common stock could have an adverse effect on
the market price of the shares of our common stock, and the
existence of options, or shares of our common stock reserved for
issuance as restricted shares of our common stock, may
materially adversely affect the terms upon which we may be able
to obtain additional capital in the future through the sale of
equity securities. In addition, future issuances of shares of
our common stock will be dilutive to existing stockholders.
In connection with its purchase of the Series A Preferred
Stock, the Treasury received a warrant to purchase
176,546 shares of our common stock at an initial per share
exercise price of $35.26, subject to adjustment, which expires
ten years from the issuance date. The issuance of any additional
shares of common stock as a result of exercise of the warrant
held by the Treasury or the issuance of any other common stock
or convertible securities could dilute the ownership interest of
our existing common stockholders. The market price of our common
stock could decline as a result of future sales of our common stock as well as
other sales of a large block of shares of our common stock in
the market, or the perception that such
sales could occur.
Future
offerings of debt, which would be senior to our common stock
upon liquidation, and/or preferred equity securities which may
be senior to our common stock for purposes of dividend
distributions or upon liquidation, may adversely affect the
market price of our common stock.
In the future, we may attempt to increase our capital resources
or, if the Banks capital ratios fall below the required
minimums, we could be forced to raise additional capital by
making additional offerings of debt or preferred equity
securities, including medium-term notes, trust preferred
securities, senior or subordinated notes or preferred stock.
Upon liquidation, holders of our debt securities and shares of
preferred stock and lenders with respect to other borrowings
will receive distributions of our available assets prior to the
holders of our common stock. Additional equity offerings may
dilute the holdings of our existing stockholders or reduce the
market price of our common stock, or both. Holders of our common
stock are not entitled to preemptive rights or other protections
against dilution.
The
Banks ability to pay dividends is subject to regulatory
limitations which, to the extent we require such dividends in
the future, may affect our ability to pay our obligations and
pay dividends.
We are a separate legal entity from the Bank and our other
subsidiaries, and we do not have significant operations of our
own. We have historically depended on the Banks cash and
liquidity as well as dividends to
pay our operating expenses and dividends to stockholders.
Recently, we announced a reduction of the quarterly dividend
paid on our common stock to $0.10 per share. The reduction in
the dividend rate was made primarily to enhance the
Companys capital position, and we expect such reduction to
be temporary.
The availability of dividends from the Bank is limited by
various statutes and regulations. Under the National Bank Act,
without prior approval from the Office of the Comptroller of the
Currency, or OCC, the Banks primary regulator, a national
bank such as the Bank may not declare and pay dividends in any
year in excess of an amount equal to the sum of the total of the
net income of the bank for that year and the retained net income
of the bank for the preceding two years. As a result of reduced
net income during 2008 due to impairment charges on certain of
our investment securities and increased provisions for loan
losses, as well as the payment of a special dividend by the Bank
to permit us to purchase certain trust preferred securities from
the Bank in order to reduce the Banks holdings of the
securities of certain issuers in order to comply with regulatory
limits on investment concentrations, we currently need to
receive permission of the OCC for the Bank to pay dividends to
us. We believe that our cash and liquid securities are
sufficient to pay our expenses and dividend obligations to our
stockholders for 2009 without the need for any dividend from the
Bank. However, there can be no assurance that the Banks
future earnings will be sufficient to permit it to pay dividends
to us without the approval of the OCC, or that we will have the
capacity to pay dividends on our common stock or Series A
Preferred Stock without dividends from the Bank. In addition, it
is possible, depending upon the financial condition of the Bank
and other factors, that the OCC could assert that payment of
dividends or other payments by the Bank are an unsafe or unsound
practice. In the event the Bank is unable to pay dividends
sufficient to satisfy our obligations or is otherwise unable to
pay dividends to us, we may not be able to service our
obligations as they become due, including payments required to
be made to the FCBI Capital Trust, our business trust
subsidiary, or to pay dividends on our Series A Preferred
Stock or our common stock. Consequently, the inability to
receive dividends from the Bank could adversely affect our
financial condition, results of operations, cash flows and
prospects.
We are
subject to restrictions on our ability to declare or pay
dividends and repurchase our shares as a result of our
participation in the Treasurys Troubled Asset Relief
Program Capital Purchase Program.
On November 21, 2008, we issued to the Treasury, for
aggregate consideration of $41.50 million
(i) 41,500 shares of our Series A Preferred
Stock, and (ii) a warrant to purchase 176,546 shares
of our common stock pursuant to the terms of the Securities
Purchase Agreement Standard Terms with the U.S.
Department of the Treasury, or the Treasury,
or the Purchase Agreement.
Under the terms of the Purchase Agreement, our ability to
declare or pay dividends on any of our shares is restricted.
Specifically, we may not declare dividend payments on common,
junior preferred or pari passu preferred shares if we are
in arrears on the dividends on the Series A Preferred
Stock. Further, we may not increase the dividends on our common
stock above the amount of the last quarterly cash dividend per
share declared prior to October 14, 2008, which was $0.28
per share, without the Treasurys approval until the third
anniversary of the investment unless all of the Series A
Preferred Stock has been redeemed or transferred.
Our ability to repurchase our shares is also restricted under
the terms of the Purchase Agreement. The Treasurys consent
generally is required for us to make any stock repurchases until
the third anniversary of the investment by the Treasury unless
all of the Series A Preferred Stock has been redeemed or
transferred. Further, common, junior preferred or pari passu
preferred shares may not be repurchased if we are in arrears
on the Series A Preferred Stock dividends.
Potential
acquisitions may disrupt our business and dilute stockholder
value.
In recent years we have been an active acquirer of other
entities, both in the banking and insurance sectors. We have
sought merger or acquisition partners that are culturally
similar and have experienced management and possess either
significant market presence or have potential for improved
profitability through financial management, economies of scale
or expanded services. Acquiring other banks, businesses, or
branches involves various risks commonly associated with
acquisitions, including, among other things:
|
|
|
|
|
Potential exposure to unknown or contingent liabilities of the
target company;
|
|
|
|
Exposure to potential asset quality issues of the target company;
|
|
|
|
Difficulty and expense of integrating the operations and
personnel of the target company;
|
|
|
|
Potential disruption to our business;
|
|
|
|
Potential diversion of our managements time and attention;
|
|
|
|
The possible loss of key employees and customers of the target
company;
|
|
|
|
Difficulty in estimating the value of the target
company; and
|
|
|
|
Potential changes in banking or tax laws or regulations that may
affect the target company.
|
We regularly evaluate merger and acquisition opportunities and
conduct due diligence activities related to possible
transactions with other financial institutions and financial
services companies. As a result, merger or acquisition
discussions and, in some cases, negotiations may take place and
future mergers or acquisitions involving cash, debt or equity
securities may occur at any time. Acquisitions typically involve
the payment of a premium over book and market values, and,
therefore, some dilution of our tangible book value and net
income per common share may occur in connection with any future
transaction. Furthermore, failure to realize the expected
revenue increases, cost savings, increases in geographic or
product presence,
and/or other
projected benefits from an acquisition could have a material
adverse effect on our financial condition and results of
operations.
On April 2, 2009, we signed a definitive agreement
providing for the acquisition of TriStone. TriStone will be
merged with and into First Community Bank. The definitive
agreement provides for the exchange of .5262 shares of our
common stock for each outstanding share of TriStone common
stock. The merger is subject to the receipt of applicable
regulatory approvals and approval by the stockholders of
TriStone, and is expected to close in the third quarter of 2009.
Risks
Related to Our Business
Changes
in the fair value of our securities may reduce our
stockholders equity and net income.
At March 31, 2009, $549.7 million of our securities
were classified as available-for-sale. At such date, the
aggregate unrealized losses on our available-for-sale securities
was $115.1 million. We increase or decrease
stockholders equity by the amount of the change in the
unrealized gain or loss (the difference between the estimated
fair value and the amortized cost) of our available-for-sale
securities portfolio, net of the related tax benefit, under the
category of accumulated other comprehensive income/loss.
Therefore, a decline in the estimated fair value of this
portfolio will result in a decline in reported
stockholders equity, as well as book value per common
share and tangible book value per common share. This decrease
will occur even though the securities are not sold. In the case
of debt securities, if these securities are never sold and there
are no further credit impairments, the decrease will be
recovered over the life of the securities. In the case of equity
securities which have no stated maturity, the declines in fair
value may or may not be recovered over time.
We conduct a periodic review and evaluation of the entire
securities portfolio to determine if the decline in the fair
value of any security below its cost basis is
other-than-temporary. Factors which we consider in our analysis
of debt securities include, but are not limited to, intent to
sell the security, evidence available to determine if it is
more-likely-than not that the Company will have to sell the
securities before recovery of the amortized cost, and probable
credit losses. Probable credit losses are evaluated based upon,
but are not limited
to: the present value of future cash flows, the severity and
duration of the decline in fair value of the security below its
amortized cost, the financial condition and near-term prospects
of the issuer, whether the decline appears to be related to
issuer conditions or general market or industry conditions, the
payment structure of the security, failure of the security to
make scheduled interest or principal payments, and changes to
the rating of the security by rating agencies. We generally view
changes in fair value for debt securities caused by changes in
interest rates as temporary, which is consistent with our
experience. If we deem such decline to be other-than-temporary,
the security is written down to a new cost basis and the
resulting loss is charged to earnings as a component of
non-interest income. For the year ended December 31, 2008,
we reported a non-cash other-than-temporary impaired, or OTTI,
charge of $29.9 million on our debt securities portfolio.
Upon adoption of a new accounting accounting principle, we
recaptured $10.2 of the December 31, 2008 impairment charge
as a non-credit related impairment.
Factors that we consider in our analysis of equity securities
include, but are not limited to: intent to sell the security
before recovery of the cost, the severity and duration of the
decline in fair value of the security below its cost, the
financial condition and near-term prospects of the issuer, and
whether the decline appears to be related to issuer conditions
or general market or industry conditions.
We continue to monitor the fair value of our entire securities
portfolio as part of our ongoing OTTI evaluation process. No
assurance can be given that we will not need to recognize OTTI
charges related to securities in the future.
If
dividends paid on our investment in the Federal Home Loan Bank
of Atlanta continue to be suspended, or if our investment is
classified as OTTI or as permanently impaired, our earnings
and/or stockholders equity could decrease.
We own common stock of the Federal Home Loan Bank of Atlanta, or
FHLB, to qualify for membership in the Federal Home Loan Bank
system and to be eligible to borrow funds under the FHLBs
advance program. There is no market for our FHLB common stock.
The FHLB has reported losses for the quarter ended
March 31, 2009 and the year ended December 31, 2008,
primarily due to an OTTI charge on its private-label mortgage
backed securities portfolio. As a result of the losses, the FHLB
also suspended the dividend paid on its common stock. The
continued suspension of the dividend will decrease our income.
In an extreme situation, it is possible that the capitalization
of the FHLB could be substantially diminished or reduced to
zero. Consequently, we believe that there is a risk that our
investment in FHLB common stock could be deemed OTTI at some
time in the future, and if this occurs, it would cause our
earnings and stockholders equity to decrease by the
after-tax amount of the impairment charge.
The
current economic environment poses significant challenges for us
and could adversely affect our financial condition and results
of operations.
We are operating in a challenging and uncertain economic
environment, including generally uncertain national and local
conditions. Financial institutions continue to be affected by
sharp declines in the real estate market and constrained
financial markets. Dramatic declines in the housing market over
the past year, with falling home prices and increasing
foreclosures and unemployment, have resulted in significant
write-downs of asset values by financial institutions. Continued
declines in real estate values, home sales volumes, and
financial stress on borrowers as a result of the uncertain
economic environment could have an adverse effect on our
borrowers or their customers, which could adversely affect our
financial condition and results of operations. A worsening of
these conditions would likely exacerbate the adverse effects on
us and others in the financial institutions industry. For
example, further deterioration in local economic conditions in
our markets could drive losses beyond that which is provided for
in our allowance for loan losses. We may also face the following
risks in connection with these events:
|
|
|
|
|
Economic conditions that negatively affect housing prices and
the job market have resulted, and may continue to result, in a
deterioration in credit quality of our loan portfolios, and such
deterioration in credit quality has had, and could continue to
have, a negative impact on our business;
|
|
|
|
|
|
Market developments may affect consumer confidence levels and
may cause adverse changes in payment patterns, causing increases
in delinquencies and default rates on loans and other credit
facilities;
|
|
|
|
The processes we use to estimate our allowance for loan losses
and reserves may no longer be reliable because they rely on
complex judgments, including forecasts of economic conditions,
which may no longer be capable of accurate estimation;
|
|
|
|
Our ability to assess the creditworthiness of our customers may
be impaired if the models and approaches we use to select,
manage, and underwrite our customers become less predictive of
future charge-offs; and
|
|
|
|
We expect to face increased regulation of our industry, and
compliance with such regulation may increase our costs, limit
our ability to pursue business opportunities, and increase
compliance challenges.
|
As these conditions or similar ones continue to exist or worsen,
we could experience continuing or increased adverse effects on
our financial condition.
Our
business is subject to interest rate risk and variations in
interest rates may negatively affect our financial
performance.
Our earnings and cash flows are largely dependent upon our net
interest income. Net interest income is the difference between
interest income earned on interest-earning assets, such as loans
and securities, and interest expense paid on interest-bearing
liabilities, such as deposits and borrowed funds. Interest rates
are highly sensitive to many factors that are beyond our
control, including general economic conditions and policies of
various governmental and regulatory agencies and, in particular,
the Federal Reserve Board. Changes in monetary policy, including
changes in interest rates, could influence not only the interest
we receive on loans and securities and the amount of interest we
pay on deposits and borrowings, but such changes could also
affect (i) our ability to originate loans and obtain
deposits, and (ii) the fair value of our financial assets
and liabilities. If the interest rates paid on deposits and
other borrowings increase at a faster rate than the interest
rates received on loans and other investments, our net interest
income, and therefore earnings, could be adversely affected.
Earnings could also be adversely affected if the interest rates
received on loans and other investments fall more quickly than
the interest rates paid on deposits and other borrowings. Based
on net interest income simulations conducted as of
March 31, 2009, the Company is in a relatively neutral
position with respect to interest rate shocks that
simulate decreases in interest rates of 1% and increases in
interest rates of 1% and 2%.
The
Banks allowance for loan losses may not be adequate to
cover actual losses.
Like all financial institutions, the Bank maintains an allowance
for loan losses to provide for probable losses. The Banks
allowance for loan losses may not be adequate to cover actual
loan losses, and future provisions for loan losses could
materially and adversely affect the Banks operating
results. The Banks allowance for loan losses is determined
by analyzing historical loan losses, current trends in
delinquencies and charge-offs, plans for problem loan
resolution, changes in the size and composition of the loan
portfolio, and industry information. Also included in
managements estimates for loan losses are considerations
with respect to the impact of economic events, the outcome of
which are uncertain. The amount of future losses is susceptible
to changes in economic, operating and other conditions,
including changes in interest rates that may be beyond the
Banks control, and these losses may exceed current
estimates. Federal regulatory agencies, as an integral part of
their examination process, review the Banks loans and
allowance for loan losses. Although we believe that the
Banks allowance for loan losses is adequate to provide for
probable losses, we cannot assure you that we will not need to
increase the Banks allowance for loan losses or that
regulators will not require us to increase this allowance.
Either of these occurrences could materially and adversely
affect our earnings and profitability.
Our
business is subject to various lending and other economic risks
that could adversely impact our results of operations and
financial condition.
There was significant disruption and volatility in the financial
and capital markets during 2008 and the first three months of
2009. The financial markets and the financial services industry
in particular suffered unprecedented disruption, causing a
number of institutions to fail or require government
intervention to avoid failure. These conditions were largely the
result of the erosion of the U.S. and global credit
markets, including a significant and rapid deterioration in the
mortgage lending and related real estate markets. As a
consequence of the difficult economic environment, we
experienced losses, resulting primarily from significant
provisions for loan losses and substantial impairment charges on
our investment securities. There can be no assurance that the
economic conditions that have adversely affected the financial
services industry, and the capital, credit and real estate
markets generally, will improve in the near term, in which case
we could continue to experience losses and write-downs of
assets, and could face capital and liquidity constraints or
other business challenges. A further deterioration in economic
conditions, particularly within our geographic region, could
result in the following consequences, any of which could have a
material adverse effect on our business:
|
|
|
|
|
Loan delinquencies may further increase causing additional
increases in our provision and allowance for loan losses;
|
|
|
|
Problem assets and foreclosures may continue to increase;
|
|
|
|
Demand for our products and services may further
decline; and
|
|
|
|
Collateral for loans made by the Bank, especially real estate,
may continue to decline in value, in turn reducing a
clients borrowing power, and reducing the value of assets
and collateral associated with our loans held for investment.
|
The
declining real estate market could impact our
business.
Our business activities are conducted in Virginia, West
Virginia, North Carolina, South Carolina, Tennessee and the
surrounding region. During 2008 and the first quarter of 2009,
the real estate market in these regions experienced declines
with falling home prices and increased foreclosures. As our net
charge-offs increased during this period and in recognition of
the continued deterioration in the real estate market and
corresponding expected further increases in non-performing
assets, we increased our provision for loan losses during 2008
and the first quarter of 2009. A continued downturn in this
regional real estate market could hurt our business because of
the geographic concentration within this regional area and
because the vast majority of our loans are secured by real
estate. If there is a further decline in real estate values, the
collateral for our loans will provide less security. As a
result, our ability to recover on defaulted loans by selling the
underlying real estate will be diminished, and we will be more
likely to suffer losses on defaulted loans.
Our
level of credit risk is increasing due to our focus on
commercial and construction lending, and the concentration on
small businesses and middle market customers with heightened
vulnerability to economic conditions.
As of March 31, 2009, our largest outstanding commercial
business loan and largest outstanding commercial real estate
loan amounted to $1.9 million ($2.5 million is
committed as of such date) and $13.0 million, respectively.
At such date, our commercial business loans amounted to
$81.9 million, or 6.4% of our total loan portfolio, and our
commercial real estate loans amounted to $405.5 million, or
31.8% of our total loan portfolio. Commercial business and
commercial real estate loans generally are considered riskier
than single-family residential loans because they have larger
balances to a single borrower or group of related borrowers.
Commercial business and commercial real estate loans involve
risks because the borrowers ability to repay the loans
typically depends primarily on the successful operation of the
businesses or the properties securing the loans. Most of the
Banks commercial business loans are made to small business
or middle market customers who may have a heightened
vulnerability to economic conditions. Moreover, a portion of
these loans have been made or acquired by us in recent years and
the borrowers may not have experienced a complete business or
economic cycle.
In addition to commercial real estate and commercial business
loans, we hold a portfolio of construction loans. At
March 31, 2009, our construction loans amounted to
$124.3 million, or 9.7% of our total loan portfolio.
Construction loans generally have a higher risk of loss than
single-family residential mortgage loans due primarily to the
critical nature of the initial estimates of a propertys
value upon completion of construction compared to the estimated
costs, including interest, of construction as well as other
assumptions. If the estimates upon which construction loans are
made prove to be inaccurate, we may be confronted with projects
that, upon completion, have values which are below the loan
amounts. The nature of the allowance for loan losses requires
that we must use assumptions regarding, among other factors,
individual loans and the economy. While we are not aware of any
specific, material impediments impacting any of our
builder/developer borrowers at this time, there continues to be
nationwide reports of significant problems which have adversely
affected many property developers and builders as well as the
institutions that have provided them loans. If any of the
builder/developers to which we have extended construction loans
experience the type of difficulties that are being reported, it
could have adverse consequences upon our future results of
operations.
The
Bank may suffer losses in its loan portfolio despite its
underwriting practices.
The Bank seeks to mitigate the risks inherent in the Banks
loan portfolio by adhering to specific underwriting practices.
These practices include analysis of a borrowers prior
credit history, financial statements, tax returns and cash flow
projections, valuation of collateral based on reports of
independent appraisers and verification of liquid assets.
Although the Bank believes that its underwriting criteria are
appropriate for the various kinds of loans it makes, the Bank
may incur losses on loans that meet its underwriting criteria,
and these losses may exceed the amounts set aside as reserves in
the Banks allowance for loan losses.
We have experienced increases in the levels of our
non-performing assets and loan charge-offs in recent periods.
Our total non-performing assets amounted to $13.7 million
at March 31, 2009, $14.1 million at December 31,
2008 and $3.5 million at December 31, 2007. We had
$1.5 million of net loan charge-offs for the quarter ended
March 31, 2009 compared to $5.4 million and
$2.4 million in net loan charge-offs for the years ended
December 31, 2008 and 2007, respectively. Our provision for
loan losses was $2.1 million for the quarter ended
March 31, 2009, $7.4 million for the year ended
December 31, 2008 and $717,000 for the year ended
December 31, 2007. At March 31, 2009, the ratios of
our allowance for loan losses to non-accrual loans and to total
loans outstanding was 155.8% and 1.3%, respectively. Additional
increases in our non-performing assets or loan charge-offs may
require us to increase our allowance for loan losses, which
would have an adverse effect upon our future results of
operations.
We and
our subsidiaries are subject to extensive regulation which could
adversely affect us.
Our and our subsidiaries operations are subject to
extensive regulation and supervision by federal and state
governmental authorities and are subject to various laws and
judicial and administrative decisions imposing requirements and
restrictions on part or all of our operations. Banking
regulations governing our operations are primarily intended to
protect depositors funds, federal deposit insurance funds
and the banking system as a whole, not security holders.
Congress and federal regulatory agencies continually review
banking laws, regulations and policies for possible changes.
Changes to statutes, regulations or regulatory policies,
including changes in interpretation or implementation of
statutes, regulations or policies, could affect us in
substantial and unpredictable ways. Such changes could subject
us to additional costs, limit the types of financial services
and products we may offer
and/or
increase the ability of non-banks to offer competing financial
services and products, among other things. Failure to comply
with laws, regulations or policies could result in sanctions by
regulatory agencies, civil money penalties
and/or
reputation damage, which could have a material adverse effect on
our business, financial condition and results of operations.
While we have policies and procedures designed to prevent any
such violations, there can be no assurance that such violations
will not occur. These laws, rules and regulations, or any other
laws, rules or regulations, that may be adopted in the
future, could make compliance more difficult or expensive,
restrict our ability to originate, broker or sell loans, further
limit or restrict the amount of commissions, interest or other
charges earned on loans originated or sold by the Bank and
otherwise adversely affect our business, financial condition or
prospects.
On October 3, 2008, the Emergency Economic Stabilization
Act of 2008, or the EESA, was signed into law. Pursuant to the
EESA, the Treasury was granted the authority to take a range of
actions for the purpose of stabilizing and providing liquidity
to the U.S. financial markets and has proposed several
programs, including the purchase by the Treasury of certain
troubled assets from financial institutions and the direct
purchase by the Treasury of equity of financial institutions.
There can be no assurance, however, as to the actual impact that
the foregoing or any other governmental program will have on the
financial markets. The failure of the financial markets to
stabilize and a continuation or worsening of current financial
market conditions could materially and adversely affect our
business, financial condition, results of operations, access to
credit or the trading price of our common stock. In addition,
current initiatives of President Obamas Administration and
the possible enactment of recently proposed bankruptcy
legislation may adversely affect our financial condition and
results of operations.
The financial services industry is likely to face increased
regulation and supervision as a result of the existing financial
crisis, and there may be additional requirements and conditions
imposed on us as a result of our participation in the Troubled
Asset Relief Program, or TARP, Capital Purchase Program. Such
additional regulation and supervision may increase our costs and
limit our ability to pursue business opportunities. The affects
of such recently enacted, and proposed, legislation and
regulatory programs on us cannot reliably be determined at this
time.
We
face strong competition from other financial institutions,
financial service companies and other organizations offering
services similar to those offered by us and our subsidiaries,
which could hurt our business.
Our business operations are conducted in Virginia, West
Virginia, North Carolina, South Carolina, Tennessee and the
surrounding region. Increased competition within this region may
result in reduced loan originations and deposits. Ultimately, we
may not be able to compete successfully against current and
future competitors. Many competitors offer the types of loans
and banking services that we offer. These competitors include
other savings associations, national banks, regional banks and
other community banks. We also face competition from many other
types of financial institutions, including finance companies,
brokerage firms, insurance companies, credit unions, mortgage
banks and other financial intermediaries. In particular, the
Banks competitors include other state and national banks
and major financial companies whose greater resources may afford
them a marketplace advantage by enabling them to maintain
numerous banking locations and mount extensive promotional and
advertising campaigns.
Additionally, banks and other financial institutions with larger
capitalization and financial intermediaries not subject to bank
regulatory restrictions have larger lending limits and are
thereby able to serve the credit needs of larger clients. These
institutions, particularly to the extent they are more
diversified than us, may be able to offer the same loan products
and services that we offer at more competitive rates and prices.
If we are unable to attract and retain banking clients, we may
be unable to continue the Banks loan and deposit growth
and our business, financial condition and prospects may be
negatively affected.
The
FDIC is imposing an emergency assessment on financial
institutions, which will decrease our earnings in
2009.
On May 22, 2009, the FDIC announced a five basis point
special assessment on each insured depository institutions
assets minus its Tier 1 capital as of June 30, 2009.
The amount of the special assessment for any institution will
not exceed ten basis points times the institutions
domestic deposit assessment base for the second quarter 2009
risk-based assessment. The FDIC will collect the special
assessment on September 30, 2009. Based on our assets and
Tier 1 capital at March 31, 2009, we estimate the
impact of the special assessment to be approximately $992,000.
An additional special assessment of up to five basis points
later in 2009 is probable, but the amount is uncertain.
We may
fail to complete the proposed merger with TriStone or to realize
the anticipated benefits of the proposed merger.
The proposed merger with TriStone is subject to a variety of
conditions, including the approval of the shareholders of
TriStone as well as the receipt of required regulatory
approvals. There can be no assurance that such approvals will be
obtained, or that the regulatory approvals will not contain a
material adverse condition precluding closing the merger.
In addition, if our merger with TriStone is completed, we will
face certain risks in integrating TriStones business with
ours. Among other things, we may be assuming greater risks in
the loans to be acquired from TriStone as their loan
underwriting standards are not the same as ours. The success of
the proposed merger with TriStone will depend on, among other
things, our ability to realize anticipated cost savings and to
combine the businesses of TriStone and First Community Bank in a
manner that permits growth opportunities and does not materially
disrupt the existing customer relationships of First Community
Bank nor result in decreased revenues resulting from any loss of
customers. If we are not able to successfully achieve these
objectives, the anticipated benefits of the merger may not be
realized fully or at all or may take longer to realize than
expected. Additionally, we will make fair value estimates of
certain assets and liabilities in recording the merger. Actual
values of these assets and liabilities could differ from our
estimates, which could result in our not achieving the
anticipated benefits of the merger.
Our
goodwill may be determined to be impaired.
As of March 31, 2009, the carrying amount of our goodwill
was $89.3 million. The Company tests goodwill for
impairment on an annual basis, or more frequently if necessary.
According to SFAS No. 142, Goodwill and Other
Intangible Assets, quoted market prices in active markets
are the best evidence of fair value and are to be used as the
basis for measuring impairment, when available. Other acceptable
valuation methods include present-value measurements based on
multiples of earnings or revenues, or similar performance
measures. If we were to determine that the carrying amount of
our goodwill exceeded its implied fair value, we would be
required to write down the value of the goodwill on our balance
sheet. This, in turn, would result in a charge against earnings
and, thus, a reduction in our stockholders equity and
certain related capital measures.
We may
lose members of our management team due to compensation
restrictions.
Our ability to retain key officers and employees may be
negatively impacted by recent legislation and regulation
affecting the financial services industry. On February 17,
2009, the American Recovery and Reinvestment Act of 2009, or the
ARRA, was signed into law. While the Treasury must promulgate
regulations to implement the restrictions and standards set
forth in the new law, the ARRA, among other things,
significantly expands the executive compensation restrictions
previously imposed by the EESA. Such restrictions apply to any
entity that has received or will receive financial assistance
under the TARP, and will generally continue to apply for as long
as any obligation arising from financial assistance provided
under the TARP, including preferred stock issued under the TARP
Capital Purchase Program, remains outstanding. As a result of
our participation in the TARP Capital Purchase Program, the
restrictions and standards set forth in the ARRA are applicable
to us. Such restrictions and standards may impact
managements ability to retain key officers and employees
as well as our ability to compete with financial institutions
that are not subject to the same limitations as we are under the
ARRA.
Item 9.01 Financial Statements and Exhibits
(d) |
|
The following exhibits are included with this report: |
|
|
|
Exhibit No. |
|
Exhibit Description |
|
|
|
99.1
|
|
Investor Presentation dated June 1, 2009 |
|
|
|
99.2
|
|
Press Release dated June 1, 2009 |
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.
|
|
|
|
|
|
FIRST COMMUNITY BANCSHARES, INC.
|
|
Date: June 1, 2009 |
By: |
/s/ Robert L. Schumacher
|
|
|
|
Robert L. Schumacher |
|
|
|
General Counsel |
|
|