e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarter ended September 30, 2009
Commission file number 000-19297
FIRST COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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Nevada
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55-0694814 |
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(State or other jurisdiction of incorporation)
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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) |
(276) 326-9000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer smaller reporting company in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Class Common Stock, $1.00 Par Value; 17,671,828 shares outstanding as of October 30, 2009
FIRST COMMUNITY BANCSHARES, INC.
FORM 10-Q
For the quarter ended September 30, 2009
INDEX
- 2 -
ITEM 1. Financial Statements |
PART I. ITEM 1. Financial Statements
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
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September 30, |
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December 31, |
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2009 |
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2008* |
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(Dollars in Thousands, Except Per Share Data) |
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(Unaudited) |
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Assets |
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Cash and due from banks |
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$ |
32,017 |
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$ |
39,310 |
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Federal funds sold |
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19,888 |
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Interest-bearing balances with banks |
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3,352 |
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7,129 |
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Total cash and cash equivalents |
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55,257 |
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46,439 |
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Securities available-for-sale |
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575,800 |
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520,723 |
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Securities held-to-maturity |
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7,452 |
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8,670 |
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Loans held for sale |
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4,376 |
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1,024 |
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Loans held for investment, net of unearned income |
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1,396,617 |
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1,298,159 |
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Less allowance for loan losses |
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17,444 |
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15,978 |
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Net loans held for investment |
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1,379,173 |
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1,282,181 |
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Premises and equipment |
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57,695 |
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55,024 |
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Other real estate owned |
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3,955 |
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1,326 |
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Interest receivable |
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9,046 |
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10,084 |
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Goodwill and other intangible assets |
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90,134 |
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89,612 |
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Other assets |
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115,453 |
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118,231 |
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Total Assets |
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$ |
2,298,341 |
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$ |
2,133,314 |
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Liabilities |
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Deposits: |
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Noninterest-bearing |
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$ |
198,107 |
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$ |
199,712 |
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Interest-bearing |
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1,464,350 |
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1,304,046 |
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Total Deposits |
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1,662,457 |
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1,503,758 |
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Interest, taxes and other liabilities |
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24,374 |
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27,423 |
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Securities sold under agreements to repurchase |
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147,042 |
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165,914 |
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FHLB borrowings and other indebtedness |
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198,932 |
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215,877 |
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Total Liabilities |
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2,032,805 |
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1,912,972 |
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Stockholders Equity |
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Preferred stock, par value undesignated; 1,000,000 shares authorized; 0 shares
issued at September 30, 2009, and 41,500 issued December 31, 2008 |
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40,419 |
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Common stock, $1 par value; 25,000,000 shares authorized; 18,082,874 shares
issued at September 30, 2009, and 12,051,234 issued December 31, 2008, including
402,494 and 483,785 shares in treasury, respectively |
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18,083 |
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12,051 |
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Additional paid-in capital |
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192,799 |
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128,526 |
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Retained earnings |
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102,920 |
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107,231 |
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Treasury stock, at cost |
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(12,768 |
) |
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(15,368 |
) |
Accumulated other comprehensive loss |
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(35,498 |
) |
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(52,517 |
) |
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Total Stockholders Equity |
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265,536 |
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220,342 |
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Total Liabilities and Stockholders
Equity |
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$ |
2,298,341 |
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$ |
2,133,314 |
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* |
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Derived from audited financial statements. |
See Notes to Consolidated Financial Statements.
- 3 -
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME/(LOSS) (Unaudited)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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(Dollars In Thousands, Except Per Share Data) |
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2009 |
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2008 |
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2009 |
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2008 |
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Interest Income |
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Interest and fees on loans held for investment |
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$ |
21,064 |
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$ |
19,266 |
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$ |
60,619 |
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$ |
60,394 |
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Interest on securities-taxable |
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4,562 |
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5,567 |
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14,903 |
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17,101 |
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Interest on securities-nontaxable |
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1,449 |
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1,708 |
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4,527 |
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5,775 |
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Interest on federal funds sold and deposits |
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55 |
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9 |
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133 |
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260 |
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Total interest income |
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27,130 |
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26,550 |
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80,182 |
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83,530 |
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Interest Expense |
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Interest on deposits |
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6,998 |
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6,684 |
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21,641 |
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22,543 |
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Interest on borrowings |
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2,596 |
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3,543 |
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8,251 |
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11,679 |
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Total interest expense |
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9,594 |
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10,227 |
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29,892 |
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34,222 |
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Net interest income |
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17,536 |
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16,323 |
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50,290 |
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49,308 |
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Provision for loan losses |
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3,418 |
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3,461 |
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8,057 |
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4,721 |
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Net interest income
after provision for
loan losses |
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14,118 |
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12,862 |
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42,233 |
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44,587 |
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Noninterest Income |
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Wealth management income |
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971 |
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957 |
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3,088 |
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2,954 |
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Service charges on deposit accounts |
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3,659 |
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3,808 |
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10,307 |
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10,370 |
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Other service charges and fees |
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1,156 |
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1,040 |
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3,467 |
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3,225 |
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Insurance commissions |
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1,567 |
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1,240 |
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5,523 |
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3,730 |
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Total impairment losses on securities |
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(26,405 |
) |
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(51 |
) |
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(63,180 |
) |
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(51 |
) |
Portion of loss recognized in other comprehensive income |
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(4,406 |
) |
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28,384 |
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Net impairment losses recognized in earnings |
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(30,811 |
) |
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(51 |
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(34,796 |
) |
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(51 |
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Security gains |
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866 |
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163 |
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2,930 |
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2,133 |
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Acquisition gain |
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4,493 |
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4,493 |
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Other operating income |
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815 |
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675 |
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1,750 |
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2,336 |
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Total non-interest (loss) income |
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(17,284 |
) |
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7,832 |
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(3,238 |
) |
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24,697 |
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Noninterest Expense |
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Salaries and employee benefits |
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7,860 |
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7,371 |
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23,131 |
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22,741 |
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Occupancy expense of bank premises |
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1,266 |
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1,297 |
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4,202 |
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3,717 |
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Furniture and equipment expense |
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928 |
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|
924 |
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2,758 |
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2,798 |
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Amortization of intangible assets |
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262 |
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166 |
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|
751 |
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|
484 |
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FHLB debt prepayment fees |
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88 |
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1,647 |
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FDIC premiums and assessments |
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1,109 |
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62 |
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2,584 |
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|
141 |
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Merger-related expenses |
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1,505 |
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1,580 |
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Other operating expense |
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4,838 |
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4,570 |
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14,011 |
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13,904 |
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Total noninterest expense |
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17,768 |
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|
14,390 |
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49,105 |
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45,432 |
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(Loss) income before income taxes |
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(20,934 |
) |
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|
6,304 |
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(10,110 |
) |
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|
23,852 |
|
Income tax (benefit) expense |
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|
(9,633 |
) |
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|
1,753 |
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(6,444 |
) |
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|
6,751 |
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Net (loss) income |
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(11,301 |
) |
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|
4,551 |
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(3,666 |
) |
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|
17,101 |
|
Dividends on preferred stock |
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|
1,011 |
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|
2,160 |
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Net (loss) income available to common shareholders |
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$ |
(12,312 |
) |
|
$ |
4,551 |
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|
$ |
(5,826 |
) |
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$ |
17,101 |
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Basic earnings (loss) per common share |
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$ |
(0.71 |
) |
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$ |
0.42 |
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$ |
(0.42 |
) |
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$ |
1.56 |
|
Diluted earnings (loss) per common share |
|
$ |
(0.71 |
) |
|
$ |
0.41 |
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|
$ |
(0.42 |
) |
|
$ |
1.54 |
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Dividends declared per common share |
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$ |
0.10 |
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$ |
0.28 |
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$ |
0.30 |
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$ |
0.84 |
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Weighted average basic shares outstanding |
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17,427,434 |
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10,956,867 |
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|
13,918,599 |
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|
10,992,901 |
|
Weighted average diluted shares outstanding |
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17,427,434 |
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|
11,034,059 |
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|
13,918,599 |
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|
11,071,925 |
|
See Notes to Consolidated Financial Statements
- 4 -
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
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Nine Months Ended |
|
|
|
September 30, |
|
(In Thousands) |
|
2009 |
|
|
2008 |
|
Operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(3,666 |
) |
|
$ |
17,101 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
8,057 |
|
|
|
4,721 |
|
Depreciation and amortization of premises and equipment |
|
|
2,986 |
|
|
|
2,785 |
|
Intangible amortization |
|
|
751 |
|
|
|
484 |
|
Net investment amortization and accretion |
|
|
1,024 |
|
|
|
(292 |
) |
Net gain on the sale of assets |
|
|
(3,008 |
) |
|
|
(2,070 |
) |
Net gain on acquisitions |
|
|
(4,493 |
) |
|
|
|
|
Mortgage loans originated for sale |
|
|
(26,147 |
) |
|
|
(28,299 |
) |
Proceeds from sales of mortgage loans |
|
|
25,538 |
|
|
|
29,137 |
|
Gain on sales of loans |
|
|
(59 |
) |
|
|
(167 |
) |
Deferred income tax benefit |
|
|
(17,752 |
) |
|
|
(330 |
) |
Decrease in interest receivable |
|
|
1,635 |
|
|
|
3,309 |
|
Net impairment losses recognized in earnings |
|
|
34,796 |
|
|
|
51 |
|
Other operating activities, net |
|
|
3,656 |
|
|
|
2,471 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
23,318 |
|
|
|
28,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of securities available-for-sale |
|
|
126,632 |
|
|
|
97,232 |
|
Proceeds from maturities and calls of securities available-for-sale |
|
|
50,334 |
|
|
|
80,997 |
|
Proceeds from maturities and calls of securities held-to-maturity |
|
|
1,238 |
|
|
|
3,042 |
|
Purchase of securities available-for-sale |
|
|
(218,388 |
) |
|
|
(108,124 |
) |
Net decrease in loans held for investment |
|
|
19,559 |
|
|
|
54,828 |
|
Proceeds from the redemption of FHLB stock |
|
|
351 |
|
|
|
|
|
Cash provided by divestures and acquisitions, net |
|
|
21,299 |
|
|
|
|
|
Proceeds from sales of equipment |
|
|
218 |
|
|
|
23 |
|
Purchase of premises and equipment |
|
|
(3,909 |
) |
|
|
(6,002 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(2,666 |
) |
|
|
121,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Net increase in demand and savings deposits |
|
|
15,645 |
|
|
|
8,088 |
|
Net increase (decrease) in time deposits |
|
|
357 |
|
|
|
(51,987 |
) |
Net decrease in federal funds purchased |
|
|
|
|
|
|
11,000 |
|
Net decrease in securities sold under agreement to repurchase |
|
|
(18,872 |
) |
|
|
(27,039 |
) |
Net decrease in FHLB and other borrowings |
|
|
(25,122 |
) |
|
|
(75,196 |
) |
FHLB debt prepayment fees |
|
|
(88 |
) |
|
|
(1,647 |
) |
Net proceeds from the issuance of common stock |
|
|
61,668 |
|
|
|
|
|
Redemption of preferred stock |
|
|
(41,500 |
) |
|
|
|
|
Proceeds from the exercise of stock options |
|
|
20 |
|
|
|
440 |
|
Excess tax benefit from stock-based compensation |
|
|
2 |
|
|
|
49 |
|
Acquisition of treasury stock |
|
|
(13 |
) |
|
|
(4,222 |
) |
Preferred dividends paid |
|
|
(1,079 |
) |
|
|
|
|
Common dividends paid |
|
|
(2,852 |
) |
|
|
(9,227 |
) |
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(11,834 |
) |
|
|
(149,741 |
) |
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
8,818 |
|
|
|
1,156 |
|
Cash and cash equivalents at beginning of period |
|
|
46,439 |
|
|
|
52,746 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
55,257 |
|
|
$ |
53,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental information Noncash items |
|
|
|
|
|
|
|
|
Transfer of loans to other real estate |
|
$ |
5,404 |
|
|
$ |
1,413 |
|
Cumulative effect adjustment, net of tax* |
|
$ |
6,131 |
|
|
$ |
|
|
Dividends declared on common stock |
|
$ |
1,764 |
|
|
$ |
|
|
|
|
|
* |
|
In accordance with FASB Accounting Standards Codification Investments-Debt and Equity Securities Topic 320 |
See Notes to Consolidated Financial Statements.
- 5 -
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
Preferred |
|
|
Common |
|
|
Paid-in |
|
|
Retained |
|
|
Treasury |
|
|
Comprehensive |
|
|
|
|
(Dollars in Thousands) |
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Stock |
|
|
Income (Loss) |
|
|
Total |
|
Balance January 1, 2008 |
|
$ |
|
|
|
$ |
11,499 |
|
|
$ |
108,825 |
|
|
$ |
117,670 |
|
|
$ |
(13,613 |
) |
|
$ |
(7,283 |
) |
|
$ |
217,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,101 |
|
|
|
|
|
|
|
|
|
|
|
17,101 |
|
Other
comprehensive loss - See note 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(50,116 |
) |
|
|
(50,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,101 |
|
|
|
|
|
|
|
(50,116 |
) |
|
|
(33,015 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in
accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(813 |
) |
|
|
|
|
|
|
|
|
|
|
(813 |
) |
Common dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,227 |
) |
|
|
|
|
|
|
|
|
|
|
(9,227 |
) |
Acquisition of 132,100 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,222 |
) |
|
|
|
|
|
|
(4,222 |
) |
Acquisition of GreenPoint Insurance Group -
7,728 shares issued |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
245 |
|
|
|
|
|
|
|
267 |
|
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
161 |
|
Tax benefit from exercise of stock options |
|
|
|
|
|
|
|
|
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122 |
|
Option exercises - 22,323 shares |
|
|
|
|
|
|
|
|
|
|
(268 |
) |
|
|
|
|
|
|
708 |
|
|
|
|
|
|
|
440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2008 |
|
$ |
|
|
|
$ |
11,499 |
|
|
$ |
108,862 |
|
|
$ |
124,731 |
|
|
$ |
(16,882 |
) |
|
$ |
(57,399 |
) |
|
$ |
170,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2009 |
|
$ |
40,419 |
|
|
$ |
12,051 |
|
|
$ |
128,526 |
|
|
$ |
107,231 |
|
|
$ |
(15,368 |
) |
|
$ |
(52,517 |
) |
|
$ |
220,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in
accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,131 |
|
|
|
|
|
|
|
(6,131 |
) |
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,666 |
) |
|
|
|
|
|
|
|
|
|
|
(3,666 |
) |
Other
comprehensive income - See note 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,150 |
|
|
|
23,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,666 |
) |
|
|
|
|
|
|
23,150 |
|
|
|
19,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend, net |
|
|
1,081 |
|
|
|
|
|
|
|
(37 |
) |
|
|
(2,160 |
) |
|
|
|
|
|
|
|
|
|
|
(1,116 |
) |
Common dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,616 |
) |
|
|
|
|
|
|
|
|
|
|
(4,616 |
) |
Redemption of preferred stock |
|
|
(41,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,500 |
) |
Acquisition of 1,000 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
(13 |
) |
Acquisition of TriStone Community
Bank
741,588 shares issued |
|
|
|
|
|
|
742 |
|
|
|
9,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,128 |
|
Issuance of vested shares - 700 shares |
|
|
|
|
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
Common stock issuance -
5,290,000 shares issued |
|
|
|
|
|
|
5,290 |
|
|
|
56,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,668 |
|
Retirement plan contribution -
79,591 shares issued |
|
|
|
|
|
|
|
|
|
|
(1,495 |
) |
|
|
|
|
|
|
2,527 |
|
|
|
|
|
|
|
1,032 |
|
Option exercises - 2,000 shares |
|
|
|
|
|
|
|
|
|
|
(42 |
) |
|
|
|
|
|
|
64 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2009 |
|
$ |
|
|
|
$ |
18,083 |
|
|
$ |
192,799 |
|
|
$ |
102,920 |
|
|
$ |
(12,768 |
) |
|
$ |
(35,498 |
) |
|
$ |
265,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
- 6 -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General
Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements of First Community Bancshares, Inc.
and subsidiaries (First Community or the Company) have been prepared in accordance with United
States generally accepted accounting principles (GAAP) for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all
adjustments, including normal recurring accruals, necessary for a fair presentation have been made.
These results are not necessarily indicative of the results of consolidated operations that might
be expected for the full calendar year.
The consolidated balance sheet as of December 31, 2008, has been derived from the audited
consolidated financial statements included in the Companys 2008 Annual Report on Form 10-K.
Certain information and footnote disclosures normally included in annual consolidated financial
statements prepared in accordance with GAAP have been omitted in accordance with standards for the
preparation of interim consolidated financial statements. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and notes thereto included
in the Companys 2008 Annual Report on Form 10-K.
A more complete and detailed description of First Communitys significant accounting policies is
included within Footnote 1 of Item 8, Financial Statements and Supplementary Data in the
Companys Annual Report on Form 10-K for December 31, 2008. Further discussion of the Companys
application of critical accounting policies is included within the Application of Critical
Accounting Policies section of Part I, Item 2, Managements Discussion and Analysis of Financial
Condition and Results of Operations, included herein.
The Company operates within two business segments, banking and insurance services. Insurance
services are comprised of agencies which sell property and casualty and life and health insurance
policies and arrangements. All other operations, including commercial and consumer banking,
lending activities, and wealth management are included within the banking segment.
Earnings Per Share
Basic earnings per share is determined by dividing net income available to common shareholders by
the weighted average number of shares outstanding. Diluted earnings per share is determined by
dividing net income available to common shareholders by the weighted average shares outstanding,
which includes the dilutive effect of stock options, warrants and contingently issuable shares.
The dilutive effects of stock options, warrants, and contingently issuable shares are not
considered in the three- and nine-month periods ended September 30, 2009, because of the reported
net loss available to common shareholders. Basic and diluted net income per common share
calculations follow:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the nine months |
|
|
|
ended September 30, |
|
|
ended September 30, |
|
(Amounts in Thousands, Except Share and Per Share Data) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income available to common shareholders |
|
$ |
(12,312 |
) |
|
$ |
4,551 |
|
|
$ |
(5,826 |
) |
|
$ |
17,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
17,427,434 |
|
|
|
10,956,867 |
|
|
|
13,918,599 |
|
|
|
10,992,901 |
|
Dilutive shares for stock options |
|
|
|
|
|
|
54,712 |
|
|
|
|
|
|
|
56,544 |
|
Contingently issuable shares |
|
|
|
|
|
|
22,480 |
|
|
|
|
|
|
|
22,480 |
|
Common stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive shares outstanding |
|
|
17,427,434 |
|
|
|
11,034,059 |
|
|
|
13,918,599 |
|
|
|
11,071,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
$ |
(0.71 |
) |
|
$ |
0.42 |
|
|
$ |
(0.42 |
) |
|
$ |
1.56 |
|
Diluted (loss) earnings per share |
|
$ |
(0.71 |
) |
|
$ |
0.41 |
|
|
$ |
(0.42 |
) |
|
$ |
1.54 |
|
For the three- and nine-month periods ended September 30, 2009, options and warrants to
purchase 562,337 and 541,292 shares, respectively, of common stock were outstanding but were not
included in the computation of diluted earnings per common share because the exercise price was
greater than the market price of our common stock and the Company incurred
- 7 -
losses, accordingly,
they would have an anti-dilutive effect. Likewise, options to purchase 10,000 shares of common
stock were excluded from the 2008 computations of diluted earnings per common share because their
effect would be anti-dilutive.
Recent Accounting Pronouncements
In September 2009, the Financial Accounting Standards Board (FASB) issued Accounting Statement
Update (ASU) No. 2009-08, Earnings per Share Amendments to Section 260-10-S99. This update
represents technical corrections to Topic 260-10-S99, Earnings per Share, based on EITF Topic D-53,
Computation of Earnings Per Share for a Period that Includes a Redemption or an Induced Conversion
of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of
Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. The adoption of ASU
2009-08 did not have a material impact on the Companys consolidated financial statements.
In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value. ASU 2009-05 provides clarification about measuring
liabilities at fair value in circumstances where a quoted price in an active market for an
identical liability is not available and the valuation techniques that should be used. The updated
also clarifies that when estimating the fair value of a liability, a reporting entity is not
required to include a separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of the liability. The update is effective for the Company
for the reporting period ending September 30, 2009 and did not have a material impact on the
Companys consolidated financial statements.
In August 2009, the FASB issued ASU No. 2009-03, SEC Update Amendments to Various Topics
Containing SEC Staff Bulletins. ASU 2009-03 represents technical corrections to various topics
containing SEC Staff Accounting Bulletins to update cross-references to Codification text. The
update did not have a material effect on the Companys consolidated financial statements.
In June 2009, the FASB issued ASU No. 2009-01 (formerly Statement No. 168), Topic 105 Generally
Accepted Accounting Principles amendments based on Statement of Financial Accounting Standards No.
168 The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles. The Codification became the source of authoritative US GAAP recognized by
the FASB to be applied by nongovernmental entities and supersedes all non-SEC accounting and
reporting standards. This statement is effective for financial statements issued for interim and
annual financial statements ending after September 15, 2009, and did not have an impact on the
Companys consolidated financial statements.
In June 2009, the FASB issued new guidance impacting FASB Accounting Standards Codification (ASC)
Topic 810-10 (formerly Statement No. 167), Amendments to FASB Interpretation No. 46(R). The new
guidance contains criteria for determining the primary beneficiary, eliminates the exception to
consolidating qualifying special purpose entities (QSPEs), requires continual reconsideration of
conclusions reached in determining the primary beneficiary, and requires additional disclosures.
The guidance is effective as of the beginning of fiscal years beginning after November 15, 2009 and
is applied using a cumulative effect adjustment to retained earnings for any carrying amount
adjustments (e.g., for newly-consolidated VIEs). The Company does not expect the standard to have
a material effect on its financial condition, results of operations, or liquidity.
In June 2009, the FASB issued new guidance impacting FASB ASC Topic 860 (formerly Statement No.
166), Accounting for Transfers of Financial Assets. The guidance eliminates the concept of a
QSPE, changes the requirements for derecognizing financial assets, and requires additional
disclosures, including information about continuing exposure to risks related to transferred
financial assets. The guidance is effective for financial asset transfers occurring after the
beginning of fiscal years beginning after November 15, 2009. The disclosure requirements must be
applied to transfers that occurred before and after the effective date, and are not expected to
have an impact on the Companys consolidated financial statements.
In December 2007, the FASB issued new guidance impacting FASB ASC Topic 805 (formerly Statement No.
141R), Business Combinations. The new guidance establishes principles and requirements for how an
acquirer recognizes the assets acquired, the liabilities assumed, and any non-controlling interest
in the acquiree at the acquisition date, measured at their fair values as of that date. The
guidance recognizes and measures the goodwill acquired in the business combination or a gain from a
bargain purchase. The guidance also defines the acquirer as the entity that obtains control of one
or more businesses in the business combination and establishes the acquisition date as the date
that the acquiree achieves control. Additionally this statement determines what information to
disclose to enable users of the financial statements to evaluate the nature and financial effects
of the business combination. In connection with its January 1, 2009 adoption the Company has
expensed costs associated with recently announced transactions. This standard impacted the
accounting of the transaction
- 8 -
related to the acquisition of TriStone Community Bank that closed on
July 31, 2009, including the recording of an acquisition gain of $4.49 million.
Note 2. Mergers, Acquisitions, and Branching Activity
On July 31, 2009, the Company completed the acquisition of TriStone Community Bank (TriStone),
based in Winston-Salem, North Carolina. TriStone had two full service locations in Winston-Salem,
North Carolina. At acquisition, TriStone had total assets of approximately $166.82 million, loans
of approximately $132.23 million, and deposits of approximately $142.27 million. The overall
acquisition cost was approximately $10.78 million based on the issuance of 741,588 shares of the
Companys common stock at a stock price of $13.60 at the date of the merger and cash consideration
of approximately $649 thousand for dissenting shareholders representing 90,680 shares of TriStone
common stock. Shares of TriStone were exchanged for .5262 shares of the Companys common stock.
The Company acquired TriStone to augment its market presence and human resources in the
Winston-Salem, North Carolina region.
The TriStone merger is being accounted for under the acquisition method of accounting in accordance
with FASB ASC Topic 805 on Business Combinations. The statement of net assets acquired as of July
31, 2009 is presented in the following table. The purchased assets and assumed fair value of
liabilities were recorded at their respective acquisition date fair values, and identifiable
intangible assets were recorded at fair value. Fair values are preliminary and subject to
refinement for up to one year after the closing date of the merger as information relative to
closing date fair value becomes available. The fair value of the portfolio of loans with no credit
deterioration of $124.50 million is provisional, pending final
valuations for those assets. After the initial valuation was completed, the Company reassessed the
recognition and measurement of identifiable assets acquired and liabilities assumed and concluded
that all assets acquired and assumed liabilities were recognized and that the valuation procedures
and resulting measures were appropriate. As a result, the Company recognized a preliminary gain on
the acquisition of $4.49 million. Goodwill and bargain purchase gains created in business
combinations are generally not taxable. For the three- and nine-month periods ended September 30,
2009, the Company incurred expenses related to the merger of $1.51 million and $1.58 million,
respectively.
Revenue of $1.45 million and net income of $642 thousand for
the period of August 1, 2009, to September 30, 2009 included in the consolidated financial
statements is related to the newly acquired TriStone. TriStones results of operations prior to the acquisition are not included in the
Companys statements of income.
Acquisition of TriStone Community Bank
|
|
|
|
|
(In thousands) |
|
|
|
|
Consideration: |
|
|
|
|
Common Stock - 741,588 shares |
|
$ |
10,082 |
|
Cash paid for dissenting shares |
|
|
649 |
|
Cash in lieu of fractional shares |
|
|
4 |
|
Option consideration |
|
|
42 |
|
|
|
|
|
Fair value of total consideration paid |
|
$ |
10,777 |
|
|
|
|
|
|
|
|
|
|
Recognized amounts of assets acquired and liabilities assumed: |
|
|
|
|
Cash and cash equivalents |
|
$ |
21,948 |
|
Investments |
|
|
8,656 |
|
Loans, net |
|
|
130,808 |
|
Premises and equipment, net |
|
|
2,112 |
|
Other assets |
|
|
1,624 |
|
|
|
|
|
Identifiable assets |
|
|
165,148 |
|
Deposits |
|
|
141,833 |
|
Other liabilities, primarily FHLB advances |
|
|
8,045 |
|
|
|
|
|
Identifiable liabilities |
|
|
149,878 |
|
Identifiable net assets |
|
|
15,270 |
|
|
|
|
|
Gain on purchase |
|
$ |
(4,493 |
) |
|
|
|
|
- 9 -
The proforma consolidated condensed statements of income for the Company and TriStone for the nine
months ended September 30, 2009 and 2008 are presented below as if the combination had occurred on
January 1. The unaudited proforma information presented does not necessarily reflect the results
of operations that would have resulted had the acquisition been completed at the beginning of the
applicable periods presented, nor does it indicate the results of operations in future periods.
The proforma purchase accounting adjustments related to investments, loans and leases, deposits,
and other borrowed funds are being accreted or amortized into income using methods that approximate
a level yield over their respective estimated lives. Purchase accounting adjustments related to
identifiable intangibles, which totaled $1.31 million, are being amortized and recorded as noninterest expense over their
respective estimated lives using accelerated methods. The proforma consolidated condensed
statements of income do not reflect any adjustments to TriStones historical provision for credit
losses. The proforma results are not necessarily indicative of what actually would have occurred if
the acquisition had been completed as of the beginning of each fiscal period presented, nor are
they necessarily indicative of future consolidated results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months ended September 30, 2009 |
|
|
|
|
|
|
|
|
|
|
|
ProForma |
|
|
ProForma |
|
(Dollars In Thousands) |
|
First Community |
|
|
TriStone |
|
|
Adjustments |
|
|
Combined |
|
Interest Income |
|
$ |
78,847 |
|
|
$ |
5,453 |
|
|
$ |
199 |
|
|
$ |
84,499 |
|
Interest Expense |
|
|
29,463 |
|
|
|
2,466 |
|
|
|
(427 |
) |
|
|
31,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
49,384 |
|
|
|
2,987 |
|
|
|
626 |
|
|
|
52,997 |
|
Provision for loan losses |
|
|
8,057 |
|
|
|
175 |
|
|
|
|
|
|
|
8,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
41,327 |
|
|
|
2,812 |
|
|
|
626 |
|
|
|
44,765 |
|
Noninterest Income |
|
|
(3,860 |
) |
|
|
929 |
|
|
|
4,493 |
|
|
|
1,562 |
|
Noninterest Expense |
|
|
51,161 |
|
|
|
3,564 |
|
|
|
1,580 |
|
|
|
56,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(13,694 |
) |
|
|
177 |
|
|
|
3,539 |
|
|
|
(9,978 |
) |
Income tax expense (benefit) |
|
|
(7,529 |
) |
|
|
|
|
|
|
1,085 |
|
|
|
(6,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
(6,165 |
) |
|
|
177 |
|
|
|
2,454 |
|
|
|
(3,534 |
) |
Dividends on preferred stock |
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
|
2,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
(8,325 |
) |
|
$ |
177 |
|
|
$ |
2,454 |
|
|
$ |
(5,694 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
ProForma |
|
|
ProForma |
|
(Dollars In Thousands) |
|
First Community |
|
|
TriStone |
|
|
Adjustments |
|
|
Combined |
|
Interest Income |
|
$ |
83,530 |
|
|
$ |
5,644 |
|
|
$ |
199 |
|
|
$ |
89,373 |
|
Interest Expense |
|
|
34,222 |
|
|
|
2,890 |
|
|
|
(427 |
) |
|
|
36,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
49,308 |
|
|
|
2,754 |
|
|
|
626 |
|
|
|
52,688 |
|
Provision for loan losses |
|
|
4,721 |
|
|
|
537 |
|
|
|
|
|
|
|
5,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
44,587 |
|
|
|
2,217 |
|
|
|
626 |
|
|
|
47,430 |
|
Noninterest Income |
|
|
24,748 |
|
|
|
481 |
|
|
|
4,493 |
|
|
|
29,722 |
|
Noninterest Expense |
|
|
45,483 |
|
|
|
2,974 |
|
|
|
1,580 |
|
|
|
50,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
23,852 |
|
|
|
(276 |
) |
|
|
3,539 |
|
|
|
27,115 |
|
Income tax expense (benefit) |
|
|
6,751 |
|
|
|
|
|
|
|
1,085 |
|
|
|
7,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
17,101 |
|
|
|
(276 |
) |
|
|
2,454 |
|
|
|
19,279 |
|
Dividends on preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders |
|
$ |
17,101 |
|
|
$ |
(276 |
) |
|
$ |
2,454 |
|
|
$ |
19,279 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased loans acquired in a business combination are recorded at estimated fair value on their
purchase date and prohibit the carryover of the related allowance for loan losses, which include
loans purchased in the TriStone acquisition. Purchased
impaired loans are accounted for under the Loans and Debt Securities Acquired with Deteriorated
Credit Quality Topic 310-30 of FASB ASC when the loans have evidence of credit deterioration since
origination and it is probable at the date of acquisition that the Company will not collect all
contractually required principal and interest payments. Evidence of credit quality deterioration as
of the purchase date may include measures such as credit scores, decline in collateral value, past
due and nonaccrual status. Generally, acquired loans that meet the Companys definition for
nonaccrual status fall within the scope of FASB ASC Topic 310-30. The difference between
contractually required payments at acquisition and the cash
- 10 -
flows expected to be collected at acquisition is referred to as the nonaccretable difference which
is included in the carrying amount of the loans. Subsequent decreases to the expected cash flows
will generally result in a provision for loan losses. Subsequent increases in cash flows result in
a reversal of the provision for loan losses to the extent of prior charges, or a reversal of the
nonaccretable difference with a positive impact on interest income
prospectively. Further, any excess of cash
flows expected at acquisition over the estimated fair value is referred to as the accretable yield
and is recognized in interest income over the remaining life of the loan when there is a reasonable
expectation about the amount and timing of such cash flows. Purchased performing loans are recorded
at fair value, including a credit component. The fair value adjustment is accreted as an adjustment
to yield over the estimated lives of the loans. There is no allowance for loan losses established
at the acquisition date for acquired performing loans. A provision for loan losses is recorded for
any credit deterioration in these loans subsequent to the acquisition.
The carrying amount of acquired loans at July 31, 2009 consisted of loans with credit
deterioration, or impaired loans, and loans with no credit deterioration, or performing loans. The
following table presents the acquired performing loans receivable at the acquisition date of July
31, 2009. The amounts include principal only and do not reflect accrued interest as of the date of
the acquisition or beyond:
|
|
|
|
|
(In thousands) |
|
July 31, 2009 |
|
Contractually required principal payments to balance sheet received |
|
$ |
124,973 |
|
Fair value of adjustment for credit, interest rate, and liquidity |
|
|
(472 |
) |
|
|
|
|
Fair value of loans receivable, with no credit deterioration |
|
$ |
124,501 |
|
|
|
|
|
The following table presents the acquired impaired loans receivable at the acquisition date of July
31, 2009, and September 30, 2009. The Company has estimated the cash flows to be collected on the
loans and discounted those cash flows at a market rate of interest. The excess of cash flows
expected at acquisition over the estimated fair value is referred to as the accretable yield and is
recognized into interest income over the remaining life of the loan. The difference between
contractually required payments at acquisition and the cash flows expected to be collected at
acquisition, considering the impact of prepayments, is referred to as the nonaccretable difference.
The nonaccretable difference includes estimated future credit losses expected to be incurred over
the life of the loan. The Company has not noted any further deterioration in the acquired impaired
loans.
|
|
|
|
|
|
|
|
|
(In thousands) |
|
July 31, 2009 |
|
|
September 30, 2009 |
|
Contractually required principal payments to balance sheet receivable |
|
$ |
6,862 |
|
|
$ |
5,712 |
|
Nonaccretable difference |
|
|
(1,670 |
) |
|
|
(1,340 |
) |
|
|
|
|
|
|
|
Present value of cash flows expected to be collected |
|
|
5,192 |
|
|
|
4,372 |
|
Accretable difference |
|
|
(149 |
) |
|
|
(135 |
) |
|
|
|
|
|
|
|
Fair value of acquired impaired loans |
|
$ |
5,043 |
|
|
$ |
4,237 |
|
|
|
|
|
|
|
|
On November 14, 2008, the Company completed the acquisition of Coddle Creek Financial Corp.
(Coddle Creek), based in Mooresville, North Carolina. Coddle Creek had three full service
locations in Mooresville, Cornelius, and Huntersville, North Carolina. At acquisition, Coddle
Creek had total assets of approximately $158.66 million, loans of approximately $136.99 million,
and deposits of approximately $137.06 million. Under the terms of the merger agreement, shares of
Coddle Creek were exchanged for .9046 shares of the Companys common stock and $19.60 in cash, for
a total purchase price of approximately $32.29 million. As a result of the acquisition and
purchase price allocation, approximately $14.41 million in goodwill was recorded, which represents
the excess purchase price over the fair market value of the net assets acquired and identified
intangibles.
Since January 1, 2008, GreenPoint Insurance Group, Inc., the Companys wholly-owned insurance
agency subsidiary, has acquired a total of five agencies, issuing cash consideration of
approximately $2.04 million. Acquisition terms in all instances call for additional cash
consideration if certain operating performance targets are met. If those targets are met, the
value of the consideration ultimately paid will be added to the cost of the acquisitions. Goodwill
and other intangibles associated with those acquisitions total approximately $2.04 million.
The Company opened a new branch location in Richmond, Virginia, in July 2009.
- 11 -
Note 3. Investment Securities
As of September 30, 2009 and December 31, 2008, the amortized cost and estimated fair value of
available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
OTTI in |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
AOCI |
|
U.S. Government agency securities |
|
$ |
66,191 |
|
|
$ |
697 |
|
|
$ |
|
|
|
$ |
66,888 |
|
|
$ |
|
|
States and political subdivisions |
|
|
134,885 |
|
|
|
4,092 |
|
|
|
(481 |
) |
|
|
138,496 |
|
|
|
|
|
Trust preferred securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single issue |
|
|
55,586 |
|
|
|
|
|
|
|
(18,132 |
) |
|
|
37,454 |
|
|
|
|
|
Pooled |
|
|
60,116 |
|
|
|
|
|
|
|
(37,014 |
) |
|
|
23,102 |
|
|
|
(31,862 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trust preferred securities |
|
|
115,702 |
|
|
|
|
|
|
|
(55,146 |
) |
|
|
60,556 |
|
|
|
(31,862 |
) |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
284,092 |
|
|
|
6,875 |
|
|
|
(361 |
) |
|
|
290,606 |
|
|
|
|
|
Non-Agency prime residential |
|
|
6,166 |
|
|
|
|
|
|
|
(627 |
) |
|
|
5,539 |
|
|
|
|
|
Non-Agency Alt-A residential |
|
|
20,968 |
|
|
|
|
|
|
|
(9,437 |
) |
|
|
11,531 |
|
|
|
(9,437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
311,226 |
|
|
|
6,875 |
|
|
|
(10,425 |
) |
|
|
307,676 |
|
|
|
(9,437 |
) |
Equities |
|
|
2,312 |
|
|
|
208 |
|
|
|
(336 |
) |
|
|
2,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
630,316 |
|
|
$ |
11,872 |
|
|
$ |
(66,388 |
) |
|
$ |
575,800 |
|
|
$ |
(41,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
OTTI in |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
AOCI |
|
U.S. Government agency securities |
|
$ |
53,425 |
|
|
$ |
1,393 |
|
|
$ |
|
|
|
$ |
54,818 |
|
|
$ |
|
|
States and political subdivisions |
|
|
163,042 |
|
|
|
864 |
|
|
|
(4,487 |
) |
|
|
159,419 |
|
|
|
|
|
Trust preferred securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Issue |
|
|
55,491 |
|
|
|
|
|
|
|
(21,950 |
) |
|
|
33,541 |
|
|
|
|
|
Pooled |
|
|
93,269 |
|
|
|
|
|
|
|
(60,757 |
) |
|
|
32,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trust preferred securities |
|
|
148,760 |
|
|
|
|
|
|
|
(82,707 |
) |
|
|
66,053 |
|
|
|
|
|
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
212,315 |
|
|
|
4,649 |
|
|
|
(2 |
) |
|
|
216,962 |
|
|
|
|
|
Non-Agency prime residential |
|
|
7,423 |
|
|
|
|
|
|
|
(1,657 |
) |
|
|
5,766 |
|
|
|
|
|
Non-Agency Alt-A residential |
|
|
10,750 |
|
|
|
|
|
|
|
|
|
|
|
10,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
230,488 |
|
|
|
4,649 |
|
|
|
(1,659 |
) |
|
|
233,478 |
|
|
|
|
|
Equities |
|
|
7,979 |
|
|
|
357 |
|
|
|
(1,381 |
) |
|
|
6,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
603,694 |
|
|
$ |
7,263 |
|
|
$ |
(90,234 |
) |
|
$ |
520,723 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 12 -
As of September 30, 2009, and December 31, 2008, the amortized cost and estimated fair value of
held-to-maturity securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
States and political subdivisions |
|
$ |
7,452 |
|
|
$ |
143 |
|
|
$ |
|
|
|
$ |
7,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,452 |
|
|
$ |
143 |
|
|
$ |
|
|
|
$ |
7,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
States and political subdivisions |
|
$ |
8,670 |
|
|
$ |
133 |
|
|
$ |
(1 |
) |
|
$ |
8,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,670 |
|
|
$ |
133 |
|
|
$ |
(1 |
) |
|
$ |
8,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of available-for-sale securities by contractual
maturity at September 30, 2009, are shown below. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with or without call or
prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
Due within one year |
|
$ |
1,081 |
|
|
$ |
1,089 |
|
Due after one year but within
five years |
|
|
7,125 |
|
|
|
7,326 |
|
Due after five years but within
ten years |
|
|
89,295 |
|
|
|
92,201 |
|
Due after ten years |
|
|
219,277 |
|
|
|
165,324 |
|
|
|
|
|
|
|
|
|
|
|
316,778 |
|
|
|
265,940 |
|
Mortgage-backed securities |
|
|
311,226 |
|
|
|
307,676 |
|
Equity securities |
|
|
2,312 |
|
|
|
2,184 |
|
|
|
|
|
|
|
|
Total |
|
$ |
630,316 |
|
|
$ |
575,800 |
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity,
at September 30, 2009, are shown below. Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
|
|
(In thousands) |
|
Cost |
|
|
Fair Value |
|
Due within one year |
|
$ |
1,091 |
|
|
$ |
1,103 |
|
Due after one year but within
five years |
|
|
4,225 |
|
|
|
4,312 |
|
Due after five years but
within ten years |
|
|
2,136 |
|
|
|
2,180 |
|
Due after ten years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,452 |
|
|
$ |
7,595 |
|
|
|
|
|
|
|
|
The carrying value of securities pledged to secure public deposits and for other purposes required
by law was $375.95 million and $377.56 million at September 30, 2009 and December 31, 2008,
respectively.
During the three months ended September 30, 2009, net gains on the sale of securities were $866
thousand. Gross gains were $1.01 million while gross losses were $144 thousand. During the nine
months ended September 30, 2009, net gains on the sale of securities were $2.93 million. Gross
gains were $3.85 million while gross losses were $924 thousand.
- 13 -
The following table reflects those investments in an unrealized loss position at September 30,
2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Less than 12 Months |
|
|
12 Months or longer |
|
|
Total |
|
Description of Securities |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
(In thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
States and political subdivisions |
|
$ |
3,706 |
|
|
$ |
(129 |
) |
|
$ |
16,297 |
|
|
$ |
(352 |
) |
|
$ |
20,003 |
|
|
$ |
(481 |
) |
Trust preferred securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Issue |
|
|
|
|
|
|
|
|
|
|
37,454 |
|
|
|
(18,132 |
) |
|
|
37,454 |
|
|
|
(18,132 |
) |
Pooled |
|
|
|
|
|
|
|
|
|
|
23,102 |
|
|
|
(37,014 |
) |
|
|
23,102 |
|
|
|
(37,014 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trust preferred securities |
|
|
|
|
|
|
|
|
|
|
60,556 |
|
|
|
(55,146 |
) |
|
|
60,556 |
|
|
|
(55,146 |
) |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
70,403 |
|
|
|
(360 |
) |
|
|
41 |
|
|
|
(1 |
) |
|
|
70,444 |
|
|
|
(361 |
) |
Prime residential |
|
|
|
|
|
|
|
|
|
|
5,539 |
|
|
|
(627 |
) |
|
|
5,539 |
|
|
|
(627 |
) |
Alt-A residential |
|
|
11,531 |
|
|
|
(9,437 |
) |
|
|
|
|
|
|
|
|
|
|
11,531 |
|
|
|
(9,437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
81,934 |
|
|
|
(9,797 |
) |
|
|
5,580 |
|
|
|
(628 |
) |
|
|
87,514 |
|
|
|
(10,425 |
) |
Equity securities |
|
|
452 |
|
|
|
(70 |
) |
|
|
961 |
|
|
|
(266 |
) |
|
|
1,413 |
|
|
|
(336 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
86,092 |
|
|
$ |
(9,996 |
) |
|
$ |
83,394 |
|
|
$ |
(56,392 |
) |
|
$ |
169,486 |
|
|
$ |
(66,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less than 12 Months |
|
|
12 Months or longer |
|
|
Total |
|
Description of Securities |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
(In thousands) |
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
States and political subdivisions |
|
$ |
85,374 |
|
|
$ |
(2,948 |
) |
|
$ |
16,413 |
|
|
$ |
(1,539 |
) |
|
$ |
101,787 |
|
|
$ |
(4,487 |
) |
Trust preferred securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single Issue |
|
|
|
|
|
|
|
|
|
|
30,693 |
|
|
|
(21,950 |
) |
|
|
30,693 |
|
|
|
(21,950 |
) |
Pooled |
|
|
|
|
|
|
|
|
|
|
29,567 |
|
|
|
(60,757 |
) |
|
|
29,567 |
|
|
|
(60,757 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trust preferred securities |
|
|
|
|
|
|
|
|
|
|
60,260 |
|
|
|
(82,707 |
) |
|
|
60,260 |
|
|
|
(82,707 |
) |
Mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency |
|
|
42,674 |
|
|
|
(1 |
) |
|
|
43 |
|
|
|
(1 |
) |
|
|
42,717 |
|
|
|
(2 |
) |
Prime residential |
|
|
5,766 |
|
|
|
(1,657 |
) |
|
|
|
|
|
|
|
|
|
|
5,766 |
|
|
|
(1,657 |
) |
Alt-A residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage-backed securities |
|
|
48,440 |
|
|
|
(1,658 |
) |
|
|
43 |
|
|
|
(1 |
) |
|
|
48,483 |
|
|
|
(1,659 |
) |
Equity securities |
|
|
2,167 |
|
|
|
(1,161 |
) |
|
|
2,201 |
|
|
|
(220 |
) |
|
|
4,368 |
|
|
|
(1,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
135,981 |
|
|
$ |
(5,767 |
) |
|
$ |
78,917 |
|
|
$ |
(84,467 |
) |
|
$ |
214,898 |
|
|
$ |
(90,234 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2009, the combined depreciation in value of the 85 individual securities in an
unrealized loss position was approximately 29.43% of the combined reported value of the aggregate
securities portfolio. At December 31, 2008, the combined depreciation in value of the 310
individual securities in an unrealized loss position was approximately 17.04% of the combined
reported value of the aggregate securities portfolio.
The Company reviews its investment portfolio on a quarterly basis for indications of
other-than-temporary impairment (OTTI). The analysis differs depending upon the type of
investment security being analyzed. First, for debt securities we have determined that we do not
intend to sell securities that are impaired and have asserted that it is not more likely than not
that we will have to sell impaired securities before recovery of the impairment occurs. Our
assertion is based upon our investment strategy for the particular type of security, the Companys
cash flow needs, liquidity position, capital adequacy and interest rate risk position.
For analysis of non-beneficial interest debt securities, we analyze several qualitative factors
such as the severity and duration of the impairment, adverse conditions within the issuing
industry, prospects for the issuer, performance of the security, changes in rating by rating
agencies and other qualitative factors to determine if the impairment will be recovered. If it is
determined that there is evidence that the impairment will not be recovered, we perform a present
value calculation to
- 14 -
determine the amount of credit related impairment and record any credit related OTTI through
earnings and the non-credit related OTTI through other comprehensive income (OCI). During the
three and nine-month periods ended September 30, 2009 and 2008, respectively, we incurred no OTTI
charges related to non-beneficial interest debt securities. The impairment on these securities is
primarily related to changes in interest rates, certain disruptions in the credit markets, and
other current economic factors that did not lead to OTTI.
For analysis of beneficial interest debt securities, we review cash flow analyses on each
applicable security to determine if an adverse change in cash flows expected to be collected has
occurred. An adverse change in cash flows expected to be collected has occurred if the present
value of cash flows previously projected is greater than the present value of cash flows projected
at the current reporting date and less than the current book value. If an adverse change in cash
flows is deemed to have occurred, then OTTI has occurred. We then compare the present value of
cash flows using the current yield for the current reporting period and compare it to the reference
amount, or current net book value, to determine the credit-related OTTI. The credit-related OTTI
is then recorded through earnings and the non-credit related OTTI is accounted for in OCI.
During the three- and nine- month periods ended September 30, 2009, we incurred credit-related OTTI
charges related to beneficial interest debt securities of $30.53 million and $33.90 million,
respectively. For the beneficial interest debt securities not deemed to have incurred OTTI, we
have concluded that the primary difference in the fair value of the securities and credit
impairment evident in our cash flow model is the significantly higher rate of return currently
demanded by market participants in this illiquid and inactive market as compared to the rate of
return that we received when we purchased the securities in a normally functioning market.
The cash flow projections for the beneficial interest pooled trust preferred securities utilize a
discounted cash flow test that uses variables such as the estimate of future cash flows,
creditworthiness of the underlying banks and determination of probability of default of the
underlying collateral. Cash flows are constructed in an INTEX cash flow model. INTEX is a
proprietary cash flow model recognized as the industry standard for analyzing all types of
collateralized debt obligations. It includes each individual deals structural features updated
with trustee information, including asset-by-asset detail, as it becomes available. The modeled
cash flows are then used to determine if all the scheduled principal and interest payments of the
investments will be returned.
The expected future default assumptions for the beneficial interest pooled trust preferred
securities are based upon specific credit analysis of the financial institutions that issued
obligations to each deal. A watch list identifying at-risk institutions is maintained for each
deal. Each institution on the watch list is assigned a probability of default ranging from 20% to
100% based on proprietary modeling methodology that utilizes a modified Texas ratio and current
safety rating from a financial institution safety and soundness rating company for each
institution. The total of the probability-weighted collateral projected to default is modeled to
default evenly over the next two years. This resulted in higher levels of projected default than
those projected defaults prior to September 30, 2009 which were based upon the approximate level of
depository institution failures experienced during the savings and loan crisis in the late 1980s
and early 1990s. Banks currently in default are assigned a 100% probability of default. In all
cases, a 15% projected recovery rate is applied to current deferrals and projected defaults.
The risk of future OTTI may be influenced by additional bank failures, prolonged recession in the
U.S. economy, changes in real estate values, interest deferrals, and whether the federal government
provides assistance to certain financial institutions.
For the non-Agency Alt-A residential MBS, we model cash flows using the following assumptions:
constant prepayment speed of 5, a customized constant default rate scenario starting at 15 for the
first six quarters ramping down over the course of the next three-and-a-half years to 3 beginning
with the fourth year, and a loss severity of 45. For the non-Agency prime residential MBS, we
model cash flows using the following assumptions: constant prepayment speed of 5, a constant
default rate of 5, and a loss severity of 10. The scenarios presented do not indicate OTTI for
either security.
- 15 -
The following table presents in more detail the Companys single-issue and pooled trust preferred
security holdings as of September 30, 2009. These details are listed separately due to the
inherent level of risk for OTTI within these portfolios.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
|
Cumulative |
|
|
|
Current |
|
Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferrals/Defaults |
|
|
Unrealized |
|
|
Credit- |
|
|
Credit- |
|
|
|
Credit |
|
Rating at |
|
Issuing |
|
|
Book |
|
|
Fair |
|
|
Actual |
|
|
Percent |
|
|
Loss |
|
|
Related |
|
|
Related |
|
Deal Name |
|
Rating |
|
Purchase |
|
Banks |
|
|
Value |
|
|
Value |
|
|
Amount |
|
|
of Deal |
|
|
in OCI |
|
|
OTTI |
|
|
OTTI |
|
(Dollars In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-issuer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BankAmerica Cap |
|
B |
|
A+ |
|
|
1 |
|
|
$ |
3,087 |
|
|
$ |
2,546 |
|
|
None |
|
|
n/a |
|
|
$ |
(541 |
) |
|
$ |
|
|
|
$ |
|
|
BankBoston Cap |
|
B |
|
A+ |
|
|
1 |
|
|
|
4,909 |
|
|
|
3,667 |
|
|
None |
|
|
n/a |
|
|
|
(1,242 |
) |
|
|
|
|
|
|
|
|
Chase Capital II |
|
BBB+ |
|
A |
|
|
1 |
|
|
|
3,620 |
|
|
|
2,578 |
|
|
None |
|
|
n/a |
|
|
|
(1,042 |
) |
|
|
|
|
|
|
|
|
CoreStates Capital I |
|
A- |
|
A+ |
|
|
1 |
|
|
|
2,934 |
|
|
|
1,817 |
|
|
None |
|
|
n/a |
|
|
|
(1,117 |
) |
|
|
|
|
|
|
|
|
First Chicago NDB CA |
|
BBB+ |
|
A |
|
|
1 |
|
|
|
1,435 |
|
|
|
1,013 |
|
|
None |
|
|
n/a |
|
|
|
(422 |
) |
|
|
|
|
|
|
|
|
JPMorgan Chase Cap X |
|
BBB+ |
|
A |
|
|
1 |
|
|
|
5,012 |
|
|
|
3,292 |
|
|
None |
|
|
n/a |
|
|
|
(1,720 |
) |
|
|
|
|
|
|
|
|
NB-Global |
|
B |
|
A+ |
|
|
1 |
|
|
|
20,766 |
|
|
|
14,600 |
|
|
None |
|
|
n/a |
|
|
|
(6,166 |
) |
|
|
|
|
|
|
|
|
NTC Capital I Float |
|
A- |
|
A2 |
|
|
1 |
|
|
|
4,007 |
|
|
|
2,257 |
|
|
None |
|
|
n/a |
|
|
|
(1,750 |
) |
|
|
|
|
|
|
|
|
SunTrust Banks |
|
BB+ |
|
A |
|
|
1 |
|
|
|
4,940 |
|
|
|
2,589 |
|
|
None |
|
|
n/a |
|
|
|
(2,351 |
) |
|
|
|
|
|
|
|
|
Wachovia Cap II |
|
A- |
|
A+ |
|
|
1 |
|
|
|
4,876 |
|
|
|
3,095 |
|
|
None |
|
|
n/a |
|
|
|
(1,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,586 |
|
|
$ |
37,454 |
|
|
|
|
|
|
|
|
|
|
$ |
(18,132 |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pooled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PreTSL X B1 |
|
Ca |
|
A |
|
|
58 |
|
|
$ |
5,697 |
|
|
$ |
2,967 |
|
|
$ |
146,625 |
|
|
|
28.9 |
% |
|
$ |
(2,730 |
) |
|
$ |
3,110 |
|
|
$ |
4,331 |
|
PreTSL XII B1 |
|
Ca |
|
A |
|
|
79 |
|
|
|
12,685 |
|
|
|
8,016 |
|
|
|
184,600 |
|
|
|
24.1 |
% |
|
|
(4,669 |
) |
|
|
6,980 |
|
|
|
7,429 |
|
PreTSL XIV B1 |
|
Ca |
|
A |
|
|
64 |
|
|
|
8,890 |
|
|
|
4,650 |
|
|
|
72,000 |
|
|
|
15.1 |
% |
|
|
(4,240 |
) |
|
|
110 |
|
|
|
110 |
|
PreTSL XVI C |
|
Ca |
|
A |
|
|
50 |
|
|
|
1,639 |
|
|
|
838 |
|
|
|
157,150 |
|
|
|
25.9 |
% |
|
|
(801 |
) |
|
|
2,402 |
|
|
|
2,402 |
|
PreTSL XXII C1 |
|
Ca |
|
A |
|
|
82 |
|
|
|
10,050 |
|
|
|
2,575 |
|
|
|
317,500 |
|
|
|
22.9 |
% |
|
|
(7,475 |
) |
|
|
2,628 |
|
|
|
2,628 |
|
PreTSL XXIII C1 |
|
Caa3 |
|
A |
|
|
70 |
|
|
|
7,963 |
|
|
|
2,811 |
|
|
|
237,500 |
|
|
|
17.1 |
% |
|
|
(5,152 |
) |
|
|
|
|
|
|
|
|
PreTSL XXVI C1 |
|
Ca |
|
A |
|
|
64 |
|
|
|
6,102 |
|
|
|
1,194 |
|
|
|
193,000 |
|
|
|
20.0 |
% |
|
|
(4,908 |
) |
|
|
909 |
|
|
|
909 |
|
SOLOSO 2007 1A A3L |
|
Ca |
|
A |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
113,000 |
|
|
|
27.4 |
% |
|
|
|
|
|
|
1,244 |
|
|
|
18,400 |
|
TRAPEZA SER 13A D |
|
C |
|
A |
|
|
63 |
|
|
|
7,090 |
|
|
|
51 |
|
|
|
113,000 |
|
|
|
17.8 |
% |
|
|
(7,039 |
) |
|
|
13,144 |
|
|
|
13,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
60,116 |
|
|
$ |
23,102 |
|
|
|
|
|
|
|
|
|
|
$ |
(37,014 |
) |
|
$ |
30,527 |
|
|
$ |
49,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The collateral underlying the pooled trust preferred securities is comprised of 86% of bank
trust preferred securities and subordinated debt issuances of over 580 banks nationwide. The
remaining collateral is from insurance companies and real estate investment trusts.
The table below provides a cumulative roll forward of credit losses recognized in earnings for debt
securities held and not intended to be sold:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
(In thousands) |
|
September 30, 2009 |
|
|
September 30, 2009 |
|
Estimated credit losses, beginning balance* |
|
$ |
23,077 |
|
|
$ |
19,707 |
|
Additions for credit losses not previously recognized |
|
|
19,193 |
|
|
|
30,953 |
|
Additions for credit losses previously recognized |
|
|
11,334 |
|
|
|
2,944 |
|
Reduction for increases in cash flows |
|
|
|
|
|
|
|
|
Reduction for realized losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated credit losses as of September 30, 2009 |
|
$ |
53,604 |
|
|
$ |
53,604 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
The beginning balance includes credit related losses included in OTTI charges recognized on
debt securities in prior periods. |
During the first quarter of 2009, the FASB ASC Topic 320, Investments-Debt and Equity Securities,
amended the assessment criteria for recognizing and measuring OTTI related to debt securities. It
also amends the presentation requirements for OTTI and significantly impacted disclosures of all
investment securities. In 2008, $14.47 million in pre-tax other-than-temporary impairment charges
related to a non-Agency Alt-A mortgage-backed security were recognized, of which $4.25 million was
credit related. As a result of the adoption in the first quarter of 2009, the Company made a
cumulative effect adjustment to
- 16 -
increase retained earnings and decrease OCI by approximately $6.13 million, net of tax. The
cumulative effect adjustment represented the non-credit related portion of OTTI losses recognized
in prior year earnings, net of tax. In 2008, the Company also recognized impairment charges of
$15.46 million on the SOLOSO 20071A pooled trust preferred
security. Based on known weaknesses in the structure of the security
and the uncertainty they created, the Company determined that
it was appropriate not to make a cumulative effect adjustment for that security.
For equity securities, the Company reviews for OTTI based upon the prospects of the underlying
companies, analyst expectations, and certain other qualitative factors to determine if impairment
is recoverable over a foreseeable period of time. During the three- and nine-month periods ended
September 30, 2009, the Company recognized OTTI charges on certain of its equity positions of $284
thousand and $899 thousand, respectively.
As a condition to membership in the FHLB system, the Company is required to subscribe to a minimum
level of stock in the FHLB of Atlanta (FHLBA). The Company feels this ownership position
provides access to relatively inexpensive wholesale and overnight funding. The Company accounts
for FHLBA and Federal Reserve Bank stock as a long-term investment in other assets. At September
30, 2009, and December 31, 2008, the Company owned approximately $13.70 million and $13.17 million
in FHLBA stock, respectively, which is classified as other assets. The Companys policy is to
review for impairment at each reporting period. During the nine months ended September 30, 2009,
FHLBA repurchased excess activity-based stock from the Company and has recently reinstituted
quarterly dividends. At September 30, 2009 FHLBA was in compliance with all of its regulatory
capital requirements. Based on our review, we believe that, as of September 30, 2009, and December
31, 2008, our FHLBA stock was not impaired.
Note 4. Loans
Loans, net of unearned income, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
(Dollars in Thousands) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural |
|
$ |
86,068 |
|
|
|
6.16 |
% |
|
$ |
85,034 |
|
|
|
6.55 |
% |
Real estate commercial |
|
|
452,670 |
|
|
|
32.41 |
% |
|
|
407,638 |
|
|
|
31.40 |
% |
Real estate construction |
|
|
137,750 |
|
|
|
9.86 |
% |
|
|
130,610 |
|
|
|
10.06 |
% |
Real estate residential |
|
|
652,155 |
|
|
|
46.70 |
% |
|
|
602,573 |
|
|
|
46.42 |
% |
Consumer |
|
|
62,995 |
|
|
|
4.51 |
% |
|
|
66,258 |
|
|
|
5.10 |
% |
Other |
|
|
4,979 |
|
|
|
0.36 |
% |
|
|
6,046 |
|
|
|
0.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,396,617 |
|
|
|
100.00 |
% |
|
$ |
1,298,159 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
4,376 |
|
|
|
|
|
|
$ |
1,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is a party to financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments
include commitments to extend credit, standby letters of credit and financial guarantees. These
instruments involve, to varying degrees, elements of credit and interest rate risk beyond the
amount recognized on the balance sheet. The contractual amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial instruments. The
Companys exposure to credit loss in the event of non-performance by the other party to the
financial instrument for commitments to extend credit and standby letters of credit and financial
guarantees written is represented by the contractual amount of those instruments. The Company uses
the same credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is not a
violation of any condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each customers
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Company upon extension of credit, is based on managements credit evaluation of the
counterparties. Collateral held varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties.
Standby letters of credit and written financial guarantees are conditional commitments issued by
the Company to guarantee the performance of a customer to a third party. The credit risk involved
in issuing letters of credit is essentially the same as that involved in extending loan facilities
to customers. To the extent deemed necessary, collateral of varying types and amounts is held to
secure customer performance under certain of those letters of credit outstanding.
- 17 -
Financial instruments whose contract amounts represent credit risk are commitments to extend
credit (including availability of lines of credit) of $210.21 million and standby letters of credit
and financial guarantees written of $2.17 million at September 30, 2009. Additionally, the Company
had gross notional amounts of outstanding commitments to lend related to secondary market mortgage
loans of $9.53 million at September 30, 2009.
Note 5. Allowance for Loan Losses
The allowance for loan losses is maintained at a level sufficient to absorb probable loan losses
inherent in the loan portfolio. The allowance is increased by charges to earnings in the form of
provision for loan losses and recoveries of prior loan charge-offs, and decreased by loans charged
off. The provision is calculated to bring the allowance to a level which, according to a
systematic process of measurement, reflects the amount management estimates is needed to absorb
probable losses within the portfolio.
Management performs periodic assessments to determine the appropriate level of allowance.
Differences between actual loan loss experience and estimates are reflected through adjustments
that are made by either increasing or decreasing the loss provision based upon current measurement
criteria. Commercial, consumer and mortgage loan portfolios are evaluated separately for purposes
of determining the allowance. The specific components of the allowance include allocations to
individual commercial credits and allocations to the remaining non-homogeneous and homogeneous
pools of loans. Managements allocations are based on judgment of qualitative and quantitative
factors about both macro and micro economic conditions reflected within the portfolio of loans and
the economy as a whole. Factors considered in this evaluation include, but are not necessarily
limited to, probable losses from loan and other credit arrangements, general economic conditions,
changes in credit concentrations or pledged collateral, historical loan loss experience, and trends
in portfolio volume, maturities, composition, delinquencies, and non-accruals. While management
has allocated the allowance for loan losses to various portfolio segments, the entire allowance is
available for use against any type of loan loss deemed appropriate by management.
The following table details the Companys allowance for loan loss activity for the three- and
nine-month periods ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Beginning balance |
|
$ |
16,678 |
|
|
$ |
13,433 |
|
|
$ |
15,978 |
|
|
$ |
12,833 |
|
Provision for loan losses |
|
|
3,418 |
|
|
|
3,461 |
|
|
|
8,057 |
|
|
|
4,721 |
|
Charge-offs |
|
|
(2,993 |
) |
|
|
(2,601 |
) |
|
|
(7,404 |
) |
|
|
(4,765 |
) |
Recoveries |
|
|
341 |
|
|
|
217 |
|
|
|
813 |
|
|
|
1,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
17,444 |
|
|
$ |
14,510 |
|
|
$ |
17,444 |
|
|
$ |
14,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the Companys investment in loans considered to be impaired and
related information on those impaired loans for the periods ended September 30, 2009 and December
31, 2008.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Recorded investment in loans considered to be impaired: |
|
|
|
|
|
|
|
|
Impaired loans with reserves |
|
$ |
4,231 |
|
|
$ |
4,796 |
|
Impaired loans without reserves |
|
|
10,559 |
|
|
|
8,504 |
|
|
|
|
|
|
|
|
Total impaired loans |
|
|
14,790 |
|
|
|
13,300 |
|
Allowance for loan losses related to loans considered to be impaired |
|
|
1,221 |
|
|
|
678 |
|
Interest income recognized on impaired loans, year to date |
|
|
397 |
|
|
|
793 |
|
Impaired loans without reserves at September 30, 2009, include $4.24 million of acquired loans with
credit deterioration. Interest income realized on impaired loans is recognized upon receipt if the
impaired loan is on a non-accrual basis.
- 18 -
Note 6. Deposits
The following is a summary of interest-bearing deposits by type as of September 30, 2009, and
December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
Interest-bearing demand deposits |
|
$ |
216,184 |
|
|
$ |
185,117 |
|
Savings and money market deposits |
|
|
351,450 |
|
|
|
309,577 |
|
Certificates of deposit |
|
|
896,716 |
|
|
|
809,352 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,464,350 |
|
|
$ |
1,304,046 |
|
|
|
|
|
|
|
|
Note 7. Borrowings
The following schedule details the Companys Federal Home Loan Bank (FHLB) borrowings and other
indebtedness at September 30, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
FHLB borrowings |
|
$ |
183,177 |
|
|
$ |
200,000 |
|
Subordinated debt |
|
|
15,464 |
|
|
|
15,464 |
|
Other long-term debt |
|
|
291 |
|
|
|
413 |
|
|
|
|
|
|
|
|
Total |
|
$ |
198,932 |
|
|
$ |
215,877 |
|
|
|
|
|
|
|
|
FHLB borrowings included $175.00 million in convertible and callable advances at September 30,
2009. The weighted average interest rate of all the advances was 2.46% and 3.70% at September 30,
2009, and December 31, 2008, respectively.
The Company has entered into a derivative interest rate swap instrument where it receives
LIBOR-based variable interest payments and pays fixed interest payments. The notional amount of
the derivative swap is $50.00 million and effectively fixes a portion of the FHLB borrowings at
approximately 4.34%. After considering the effect of the interest rate swap, the effective
weighted average interest rate of all FHLB borrowings was 3.61% at September 30, 2009. The fair
value of the interest rate swap was a liability of $2.56 million at September 30, 2009.
At September 30, 2009, the FHLB advances have approximate contractual maturities between one and
twelve years. The scheduled maturities of the advances are as follows:
|
|
|
|
|
(In thousands) |
|
Amount |
|
2009 |
|
$ |
|
|
2010 |
|
|
8,177 |
|
2011 |
|
|
|
|
2012 |
|
|
|
|
2013 |
|
|
|
|
2014 and thereafter |
|
|
175,000 |
|
|
|
|
|
Total |
|
$ |
183,177 |
|
|
|
|
|
The callable advances may be redeemed at quarterly intervals after various lockout periods.
These call options may substantially shorten the lives of these instruments. If these advances are
called, the debt may be paid in full, converted to another FHLB credit product, or converted to a
fixed or adjustable rate advance. Prepayment of the advances may result in substantial penalties
based upon the differential between contractual note rates and current advance rates for similar
maturities. Advances from the FHLB are secured by stock in the FHLB of Atlanta, qualifying loans,
mortgage-backed securities, and certain other securities.
Also included in other indebtedness is $15.46 million of junior subordinated debentures (the
Debentures) issued by the Company in October 2003 to an unconsolidated trust subsidiary, FCBI
Capital Trust (the Trust), with an interest rate of
- 19 -
three-month LIBOR plus 2.95%. The Trust was able to purchase the Debentures through the
issuance of trust preferred securities which had substantially identical terms as the Debentures.
The Debentures mature on October 8, 2033, and are currently callable.
The Company has committed to irrevocably and unconditionally guarantee the following payments or
distributions with respect to the preferred securities to the holders thereof to the extent that
the Trust has not made such payments or distributions: (i) accrued and unpaid distributions, (ii)
the redemption price, and (iii) upon a dissolution or termination of the trust, the lesser of the
liquidation amount and all accrued and unpaid distributions and the amount of assets of the trust
remaining available for distribution, in each case to the extent the Trust has funds available.
Note 8. Net Periodic Benefit Cost-Defined Benefit Plans
The following sets forth the components of the net periodic benefit cost of the Companys domestic
non-contributory defined benefit plan for the three- and nine- month periods ended September 30,
2009.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
(In thousands) |
|
September 30, 2009 |
|
|
September 30, 2009 |
|
Service cost |
|
$ |
53 |
|
|
$ |
159 |
|
Interest cost |
|
|
47 |
|
|
|
141 |
|
|
|
|
|
|
|
|
Net periodic cost |
|
$ |
100 |
|
|
$ |
300 |
|
|
|
|
|
|
|
|
Note 9. Comprehensive Income (Loss)
Comprehensive income (loss) is the total of net income and other comprehensive income and loss. The
following table summarizes the components of comprehensive income and loss.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net (loss) income |
|
$ |
(11,301 |
) |
|
$ |
4,551 |
|
|
$ |
(3,666 |
) |
|
$ |
17,101 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities available-for-sale
with other-than-temporary impairment |
|
|
(1,652 |
) |
|
|
|
|
|
|
(5,683 |
) |
|
|
|
|
Unrealized gain on securities available-for-sale
without other-than-temporary impairment |
|
|
13,050 |
|
|
|
|
|
|
|
9,974 |
|
|
|
|
|
Unrealized loss on securities available-for-sale
prior to adoption of ASC Topic 320 |
|
|
|
|
|
|
(31,744 |
) |
|
|
|
|
|
|
(81,802 |
) |
Reclassification adjustment for losses (gains)
realized in net income |
|
|
(865 |
) |
|
|
(278 |
) |
|
|
(2,930 |
) |
|
|
(1,628 |
) |
Reclassification
adjustment for credit related other-than-temporary impairments
recognized in earnings |
|
|
30,811 |
|
|
|
|
|
|
|
34,796 |
|
|
|
|
|
Unrealized (loss) gain on derivative securities |
|
|
187 |
|
|
|
(75 |
) |
|
|
769 |
|
|
|
(97 |
) |
Income tax effect |
|
|
(15,468 |
) |
|
|
12,839 |
|
|
|
(13,776 |
) |
|
|
33,411 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss) |
|
|
26,053 |
|
|
|
(19,258 |
) |
|
|
23,150 |
|
|
|
(50,116 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
14,752 |
|
|
$ |
(14,707 |
) |
|
$ |
19,484 |
|
|
$ |
(33,015 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10. Commitments and Contingencies
In the normal course of business, the Company is a defendant in various legal actions and asserted
claims. While the Company and its legal counsel are unable to assess the ultimate outcome of each
of these matters with certainty, the resolution of these actions, singly or in the aggregate,
should not have a material adverse effect on the financial condition, results of operations or cash
flows of the Company.
- 20 -
Note 11. Segment Information
The Company operates in two segments: Community Banking and Insurance Services. The Community
Banking segment includes both commercial and consumer lending and deposit services. This segment
provides customers with such products as commercial loans, real estate loans, business financing
and consumer loans. This segment also provides customers with several choices of deposit products
including demand deposit accounts, savings accounts and certificates of deposit. In addition, the
Community Banking segment provides wealth management services to a broad range of customers. The
Insurance Services segment is a full-service insurance agency providing commercial and personal
lines of insurance.
The following table sets forth information about the reportable operating segments and
reconciliation of this information to the consolidated financial statements at and for the three-
and nine-month periods ended September 30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended September 30, 2009 |
|
|
|
Community |
|
|
Insurance |
|
|
Parent/ |
|
|
|
|
(In thousands) |
|
Banking |
|
|
Services |
|
|
Elimination |
|
|
Total |
|
Net interest income |
|
$ |
17,538 |
|
|
$ |
(12 |
) |
|
$ |
10 |
|
|
$ |
17,536 |
|
Provision for loan losses |
|
|
3,418 |
|
|
|
|
|
|
|
|
|
|
|
3,418 |
|
Noninterest income |
|
|
(17,352 |
) |
|
|
1,596 |
|
|
|
(1,528 |
) |
|
|
(17,284 |
) |
Noninterest expense |
|
|
18,129 |
|
|
|
1,528 |
|
|
|
(1,889 |
) |
|
|
17,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(21,361 |
) |
|
|
56 |
|
|
|
371 |
|
|
|
(20,934 |
) |
Provision for income taxes (benefit) |
|
|
(10,837 |
) |
|
|
165 |
|
|
|
1,039 |
|
|
|
(9,633 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(10,524 |
) |
|
$ |
(109 |
) |
|
$ |
(668 |
) |
|
$ |
(11,301 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period goodwill and other intangibles |
|
$ |
79,127 |
|
|
$ |
11,007 |
|
|
$ |
|
|
|
|
90,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period assets |
|
$ |
2,273,335 |
|
|
$ |
11,188 |
|
|
$ |
13,818 |
|
|
|
2,298,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
Ended September 30, 2009 |
|
|
|
Community |
|
|
Insurance |
|
|
Parent/ |
|
|
|
|
(In thousands) |
|
Banking |
|
|
Services |
|
|
Elimination |
|
|
Total |
|
Net interest income |
|
$ |
50,373 |
|
|
$ |
(46 |
) |
|
$ |
(37 |
) |
|
$ |
50,290 |
|
Provision for loan losses |
|
|
8,057 |
|
|
|
|
|
|
|
|
|
|
|
8,057 |
|
Noninterest income |
|
|
(8,600 |
) |
|
|
5,605 |
|
|
|
(243 |
) |
|
|
(3,238 |
) |
Noninterest expense |
|
|
45,321 |
|
|
|
4,640 |
|
|
|
(856 |
) |
|
|
49,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
|
|
(11,605 |
) |
|
|
919 |
|
|
|
576 |
|
|
|
(10,110 |
) |
Provision for income taxes (benefit) |
|
|
(8,476 |
) |
|
|
419 |
|
|
|
1,613 |
|
|
|
(6,444 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(3,129 |
) |
|
$ |
500 |
|
|
$ |
(1,037 |
) |
|
$ |
(3,666 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period goodwill and other intangibles |
|
$ |
79,127 |
|
|
$ |
11,007 |
|
|
$ |
|
|
|
|
90,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period assets |
|
$ |
2,273,335 |
|
|
$ |
11,188 |
|
|
$ |
13,818 |
|
|
|
2,298,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 21 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
|
|
Ended September 30, 2008 |
|
|
|
Community |
|
|
Insurance |
|
|
Parent/ |
|
|
|
|
(In thousands) |
|
Banking |
|
|
Services |
|
|
Elimination |
|
|
Total |
|
Net interest income |
|
$ |
16,559 |
|
|
$ |
(19 |
) |
|
$ |
(217 |
) |
|
$ |
16,323 |
|
Provision for loan losses |
|
|
3,461 |
|
|
|
|
|
|
|
|
|
|
|
3,461 |
|
Noninterest income |
|
|
3,872 |
|
|
|
1,267 |
|
|
|
2,693 |
|
|
|
7,832 |
|
Noninterest expense |
|
|
13,584 |
|
|
|
1,110 |
|
|
|
(304 |
) |
|
|
14,390 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
3,386 |
|
|
|
138 |
|
|
|
2,780 |
|
|
|
6,304 |
|
Provision for income taxes |
|
|
962 |
|
|
|
41 |
|
|
|
750 |
|
|
|
1,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,424 |
|
|
$ |
97 |
|
|
$ |
2,030 |
|
|
$ |
4,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period goodwill and other intangibles |
|
$ |
62,142 |
|
|
$ |
10,080 |
|
|
$ |
|
|
|
|
72,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period assets |
|
$ |
1,946,454 |
|
|
$ |
10,889 |
|
|
$ |
10,114 |
|
|
|
1,967,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months |
|
|
|
Ended September 30, 2008 |
|
|
|
Community |
|
|
Insurance |
|
|
Parent/ |
|
|
|
|
(In thousands) |
|
Banking |
|
|
Services |
|
|
Elimination |
|
|
Total |
|
Net interest income |
|
$ |
50,034 |
|
|
$ |
(30 |
) |
|
$ |
(696 |
) |
|
$ |
49,308 |
|
Provision for loan losses |
|
|
4,721 |
|
|
|
|
|
|
|
|
|
|
|
4,721 |
|
Noninterest income |
|
|
18,510 |
|
|
|
3,757 |
|
|
|
2,430 |
|
|
|
24,697 |
|
Noninterest expense |
|
|
43,422 |
|
|
|
3,147 |
|
|
|
(1,137 |
) |
|
|
45,432 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
20,401 |
|
|
|
580 |
|
|
|
2,871 |
|
|
|
23,852 |
|
Provision for income taxes |
|
|
5,763 |
|
|
|
171 |
|
|
|
817 |
|
|
|
6,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
14,638 |
|
|
$ |
409 |
|
|
$ |
2,054 |
|
|
$ |
17,101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period goodwill and other intangibles |
|
$ |
62,142 |
|
|
$ |
10,080 |
|
|
$ |
|
|
|
|
72,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period assets |
|
$ |
1,946,454 |
|
|
$ |
10,889 |
|
|
$ |
10,114 |
|
|
|
1,967,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12. Fair Value
ASC Topic 820 on Fair Value Measurements and Disclosure defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles and expands disclosures about
fair value measurements. Fair value is defined as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants. A fair
value measurement assumes that the transaction to sell the asset or transfer the liability occurs
in the principal market for the asset or liability or, in the absence of a principal market, the
most advantageous market for the asset or liability. The price in the principal, or most
advantageous, market used to measure the fair value of the asset or liability shall not be adjusted
for transaction costs. An orderly transaction is a transaction that assumes exposure to the market
for a period prior to the measurement date to allow for marketing activities that are usual and
customary for transactions involving such assets and liabilities; it is not a forced transaction.
Market participants are buyers and sellers in the principal market that are (i) independent, (ii)
knowledgeable, (iii) able to transact, and (iv) willing to transact.
ASC Topic 820 establishes a fair value hierarchy for valuation inputs that gives the highest
priority to quoted prices in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The fair value hierarchy is as follows:
|
|
|
Level 1 Inputs |
|
Unadjusted quoted prices in active markets for identical assets or
liabilities that the reporting entity has the ability to access at the measurement date. |
|
|
|
Level 2 Inputs |
|
Inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly or indirectly. These might include quoted
prices for similar assets or liabilities in active markets, quoted prices for identical or
similar assets or liabilities in markets that are not active, inputs other than quoted
prices that are observable for the asset or liability, such as interest rates,
volatilities, prepayment speeds, and credit risks, or inputs that are derived principally
from or corroborated by market data by correlation or other means. |
- 22 -
|
|
|
Level 3 Inputs |
|
Unobservable inputs for determining the fair values of assets or
liabilities that reflect an entitys own assumptions about the assumptions that market
participants would use in pricing the assets or liabilities. |
A description of the valuation methodologies used for instruments measured at fair value, as well
as the general classification of such instruments pursuant to the valuation hierarchy, is set forth
below. These valuation methodologies were applied to all of the Companys assets and liabilities
carried at fair value. In general, fair value is based upon quoted market prices, where available.
If such quoted market prices are not available, fair value is based upon third party models that
primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to
ensure that financial instruments are recorded at fair value. These adjustments may include
amounts to reflect counterparty credit quality, the Companys creditworthiness, among other things,
as well as unobservable parameters. Any such valuation adjustments are applied consistently over
time. The Companys valuation methodologies may produce a fair value calculation that may not be
indicative of net realizable value or reflective of future fair values. While management believes
the Companys valuation methodologies are appropriate and consistent with other market
participants, the use of different methodologies or assumptions to determine the fair value of
certain financial instruments could result in a different estimate of fair value at the reporting
date.
Securities Available-for-Sale: Securities classified as available-for-sale are reported at fair
value utilizing Level 1, Level 2, and Level 3 inputs. Securities are classified as Level 1 within
the valuation hierarchy when quoted prices are available in an active market. This includes
securities whose value is based on quoted market prices in active markets for identical assets. The
Company also uses Level 1 inputs for the valuation of equity securities traded in active markets.
Securities are classified as Level 2 within the valuation hierarchy when the Company obtains fair
value measurements from an independent pricing service. The fair value measurements consider
observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield
curve, live trading levels, trade execution data, market consensus prepayment speeds, credit
information, and the bonds terms and conditions, among other things. Level 2 inputs are used to
value U.S. Agency securities, mortgage-backed securities, municipal securities, single-issue trust
preferred securities, certain pooled trust preferred securities, and certain equity securities that
are not actively traded.
Securities are classified as Level 3 within the valuation hierarchy in certain cases when there is
limited activity or less transparency to the valuation inputs. These securities include pooled
trust preferred securities. In the absence of observable or corroborated market data, internally
developed estimates that incorporate market-based assumptions are used when such information is
available. The Level 3 inputs used to value our pooled trust preferred security holdings are
weighted between discounted cash flow model results and actual trades of the same and similar
securities in the inactive trust preferred market. The cash flow modeling uses discount rates based
upon observable market expectations, known defaults and deferrals, projected future defaults and
deferrals, and projected prepayments to arrive at fair value.
Fair value models may be required when trading activity has declined significantly or does not
exist, prices are not current or pricing variations are significant. The Companys fair value from
third party models utilize modeling software that uses market participant data and knowledge of the
structures of each individual security to develop cash flows specific to each security. The fair
values of the securities are determined by using the cash flows developed by the fair value model
and applying appropriate market observable discount rates. The discount rates are developed by
determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for
illiquidity developed based on a comparison of initial issuance spread to LIBOR versus a financial
sector curve for recently issued debt to LIBOR. Specific securities that have increased
uncertainty regarding the receipt of cash flows are discounted at higher rates due to the addition
of a deal specific credit premium. Finally, internal fair value model pricing and external pricing
observations are combined by assigning weights to each pricing observation. Pricing is reviewed
for reasonableness based on the direction of the specific markets and the general economic
indicators.
Other Assets and Associated Liabilities: Securities held for trading purposes are recorded at fair
value and included in other assets on the consolidated balance sheets. Securities held for
trading purposes include assets related to employee deferred compensation plans. The assets
associated with these plans are generally invested in equities and classified as Level 1. Deferred
compensation liabilities, also classified as Level 1, are carried at the fair value of the
obligation to the employee, which corresponds to the fair value of the invested assets.
Derivatives: Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains
dealer quotations based on observable data to value its derivatives.
- 23 -
Impaired Loans: Certain impaired loans are reported at the fair value of the underlying collateral
if repayment is expected solely from the collateral. Collateral values are estimated using Level 3
inputs based on appraisals adjusted for customized discounting criteria.
The Company maintains an active and robust problem credit identification system. When a credit is identified as exhibiting
characteristics of weakening, the Company will assess the credit for potential impairment. As part of the impairment review,
the Company will evaluate the current collateral value. It is the Companys standard practice to obtain updated third party
collateral valuations to assist management in measuring potential impairment of a credit.
Internal collateral valuations are generally performed in the relatively short time period between the original identification of
potential impairment and receipt of the third party valuation. The internal valuation is performed by comparing the original
appraisal to current local real estate market conditions and experience. If warranted, a specific allocation of the allowance for
loan losses will be established at the completion of the internal evaluation. When the third party valuation is received, the
results are adjusted by the estimated costs of liquidation to arrive at an estimated net realizable value. That estimated net
realizable value is then compared to the outstanding loan balance to determine the amount of impairment. The specific
allocation, if necessary, is adjusted to reflect the results of the updated evaluation. Impaired loans without any specific
allocation have generally been written down to their net realizable value.
The Companys Special Assets staff assumes the management of all loans determined to be impaired. While awaiting the
completion of the third party evaluation, the Company generally
begins to complete the tasks necessary to gain control of the collateral and prepare for liquidation, including, but not limited to engagement of counsel, inspection of collateral, and
continued communication with the borrower, if appropriate.
- 24 -
Other Real Estate Owned. The fair value of the Companys other real estate owned is determined
using current and prior appraisals, estimates of costs to sell, and proprietary qualitative
adjustments. Accordingly, other real estate owned is stated at a Level 3 fair value.
The following table summarizes financial assets and financial liabilities measured at fair value on
a recurring basis as of September 30, 2009, and December 31, 2008, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
|
Fair Value Measurements Using |
|
|
Total |
|
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency securities |
|
$ |
|
|
|
$ |
66,888 |
|
|
$ |
|
|
|
$ |
66,888 |
|
Agency mortgage-backed securities |
|
|
|
|
|
|
290,606 |
|
|
|
|
|
|
|
290,606 |
|
Non-Agency prime residential MBS |
|
|
|
|
|
|
5,539 |
|
|
|
|
|
|
|
5,539 |
|
Non-Agency Alt-A residential MBS |
|
|
|
|
|
|
11,531 |
|
|
|
|
|
|
|
11,531 |
|
Municipal securities |
|
|
|
|
|
|
138,496 |
|
|
|
|
|
|
|
138,496 |
|
Single-issue trust preferred securities |
|
|
|
|
|
|
37,454 |
|
|
|
|
|
|
|
37,454 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
|
|
|
|
23,102 |
|
|
|
23,102 |
|
Equity securities |
|
|
2,164 |
|
|
|
20 |
|
|
|
|
|
|
|
2,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale securities |
|
|
2,164 |
|
|
|
550,534 |
|
|
|
23,102 |
|
|
|
575,800 |
|
Other assets |
|
|
2,738 |
|
|
|
|
|
|
|
|
|
|
|
2,738 |
|
Derivative assets |
|
|
|
|
|
|
46 |
|
|
|
|
|
|
|
46 |
|
Other liabilities |
|
|
2,738 |
|
|
|
|
|
|
|
|
|
|
|
2,738 |
|
Derivative liabilities |
|
|
|
|
|
|
2,582 |
|
|
|
|
|
|
|
2,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Fair Value Measurements Using |
|
|
Total |
|
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Fair Value |
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency securities |
|
$ |
|
|
|
$ |
54,818 |
|
|
$ |
|
|
|
$ |
54,818 |
|
Agency mortgage-backed securities |
|
|
|
|
|
|
216,962 |
|
|
|
|
|
|
|
216,962 |
|
Non-Agency prime residential MBS |
|
|
|
|
|
|
5,766 |
|
|
|
|
|
|
|
5,766 |
|
Non-Agency Alt-A residential MBS |
|
|
|
|
|
|
10,750 |
|
|
|
|
|
|
|
10,750 |
|
Municipal securities |
|
|
|
|
|
|
159,419 |
|
|
|
|
|
|
|
159,419 |
|
Single-issue trust preferred securities |
|
|
|
|
|
|
33,541 |
|
|
|
|
|
|
|
33,541 |
|
Pooled trust preferred securities |
|
|
|
|
|
|
4,445 |
|
|
|
28,067 |
|
|
|
32,512 |
|
Equity securities |
|
|
6,811 |
|
|
|
144 |
|
|
|
|
|
|
|
6,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Available-for-sale securities |
|
|
6,811 |
|
|
|
485,845 |
|
|
|
28,067 |
|
|
|
520,723 |
|
Other assets |
|
|
2,637 |
|
|
|
|
|
|
|
|
|
|
|
2,637 |
|
Derivative assets |
|
|
|
|
|
|
39 |
|
|
|
|
|
|
|
39 |
|
Other liabilities |
|
|
2,637 |
|
|
|
|
|
|
|
|
|
|
|
2,637 |
|
Derivative liabilities |
|
|
|
|
|
|
3,343 |
|
|
|
|
|
|
|
3,343 |
|
- 25 -
The following table shows a reconciliation of the beginning and ending balances for assets measured
at fair value on a recurring basis using significant unobservable inputs.
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale Securities |
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
(In thousands) |
|
September 30, 2009 |
|
|
September 30, 2009 |
|
Beginning balance |
|
$ |
28,150 |
|
|
$ |
28,067 |
|
Total gains or loss (realized/unrealized) |
|
|
|
|
|
|
|
|
Included in earnings |
|
|
(30,527 |
) |
|
|
(33,897 |
) |
Included in other comprehensive income |
|
|
24,536 |
|
|
|
25,843 |
|
Paydowns and maturities |
|
|
|
|
|
|
(33 |
) |
Transfers into Level 3 |
|
|
943 |
|
|
|
3,122 |
|
|
|
|
|
|
|
|
Ending balance September 30, 2009 |
|
$ |
23,102 |
|
|
$ |
23,102 |
|
|
|
|
|
|
|
|
Certain financial and non-financial assets are measured at fair value on a nonrecurring basis; that
is, the instruments are not measured at fair value on an ongoing basis but are subject to fair
value adjustments in certain circumstances, for example, when there is evidence of impairment. The
fair value of impaired loans at September 30, 2009, includes $4.24 million of acquired loans with
credit deterioration. Items subjected to nonrecurring fair value adjustments at September 30,
2009, and December 31, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
Fair Value Measurements Using |
|
Total |
(In thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
Impaired loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
8,503 |
|
|
$ |
8,503 |
|
Other real estate owned |
|
|
|
|
|
|
|
|
|
|
3,955 |
|
|
|
3,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31. 2008 |
|
|
Fair Value Measurements Using |
|
Total |
(In thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
Impaired loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,980 |
|
|
$ |
5,980 |
|
- 26 -
Fair Value of Financial Instruments
Fair value information about financial instruments, whether or not recognized in the balance sheet,
for which it is practical to estimate the value is based upon the characteristics of the
instruments and relevant market information. Financial instruments include cash, evidence of
ownership in an entity, or contracts that convey or impose on an entity that contractual right or
obligation to either receive or deliver cash for another financial instrument. Fair value is the
amount at which a financial instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price
if one exists.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
December 31, 2008 |
|
|
Carrying |
|
|
|
|
|
Carrying |
|
|
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
|
(In Thousands) |
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
55,257 |
|
|
$ |
55,257 |
|
|
$ |
46,439 |
|
|
$ |
46,439 |
|
Investment Securities |
|
|
583,252 |
|
|
|
583,395 |
|
|
|
529,393 |
|
|
|
529,525 |
|
Loans held for sale |
|
|
4,376 |
|
|
|
4,376 |
|
|
|
1,024 |
|
|
|
1,026 |
|
Loans held for investment |
|
|
1,379,173 |
|
|
|
1,376,908 |
|
|
|
1,282,181 |
|
|
|
1,276,479 |
|
Accrued interest receivable |
|
|
9,046 |
|
|
|
9,046 |
|
|
|
10,084 |
|
|
|
10,084 |
|
Bank owned life insurance |
|
|
40,510 |
|
|
|
40,510 |
|
|
|
40,784 |
|
|
|
40,784 |
|
Derivative financial assets |
|
|
46 |
|
|
|
46 |
|
|
|
39 |
|
|
|
39 |
|
Deferred compensation assets |
|
|
2,738 |
|
|
|
2,738 |
|
|
|
2,637 |
|
|
|
2,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
198,107 |
|
|
$ |
198,107 |
|
|
$ |
199,712 |
|
|
$ |
199,712 |
|
Interest-bearing demand deposits |
|
|
216,184 |
|
|
|
216,184 |
|
|
|
185,117 |
|
|
|
185,117 |
|
Savings deposits |
|
|
351,450 |
|
|
|
351,450 |
|
|
|
309,577 |
|
|
|
309,577 |
|
Time deposits |
|
|
896,716 |
|
|
|
910,428 |
|
|
|
809,352 |
|
|
|
824,068 |
|
Securities sold under agreements to repurchase |
|
|
147,042 |
|
|
|
157,446 |
|
|
|
165,914 |
|
|
|
177,454 |
|
Accrued interest payable |
|
|
4,805 |
|
|
|
4,805 |
|
|
|
5,326 |
|
|
|
5,326 |
|
FHLB and other indebtedness |
|
|
198,932 |
|
|
|
213,654 |
|
|
|
215,877 |
|
|
|
242,223 |
|
Derivative financial liabilities |
|
|
2,582 |
|
|
|
2,582 |
|
|
|
3,343 |
|
|
|
3,343 |
|
Deferred compensation liabilities |
|
|
2,738 |
|
|
|
2,738 |
|
|
|
2,637 |
|
|
|
2,637 |
|
The following summary presents the methodologies and assumptions used to estimate the fair value of
the Companys financial instruments presented below. The information used to determine fair value
is highly subjective and judgmental in nature and, therefore, the results may not be precise.
Subjective factors include, among other things, estimates of cash flows, risk characteristics,
credit quality, and interest rates, all of which are subject to change. Since the fair value is
estimated as of the balance sheet date, the amounts that will actually be realized or paid upon
settlement or maturity on these various instruments could be significantly different.
Cash and Cash Equivalents: The book values of cash and due from banks and federal funds sold and
purchased are considered to be equal to fair value as a result of the short-term nature of these
items.
Investment Securities and Deferred Compensation Assets and Liabilities: Fair values are determined
in the same manner as previously disclosed.
Loans: The estimated fair value of loans held for investment is measured based upon discounted
future cash flows using current rates for similar loans. Loans held for sale are recorded at lower
of cost or estimated fair value. The fair value of loans held for sale is determined based upon
the market sales price of similar loans.
Accrued Interest Receivable and Payable: The book value is considered to be equal to the fair value
due to the short-term nature of the instrument.
- 27 -
Bank-owned Life Insurance: The fair value is determined by stated contract values.
Derivative Financial Instruments: The estimated fair value of derivative financial instruments is
based upon the current market price for similar instruments.
Deposits and Securities Sold Under Agreements to Repurchase: Deposits without a stated maturity,
including demand, interest-bearing demand, and savings accounts, are reported at their carrying
value in accordance with the Financial Instruments Topic 825 of the ASC. No value has been
assigned to the franchise value of these deposits. For other types of deposits and repurchase
agreements with fixed maturities and rates, fair value has been estimated by discounting future
cash flows based on interest rates currently being offered on instruments with similar
characteristics and maturities.
FHLB and Other Indebtedness: Fair value has been estimated based on interest rates currently
available to the Company for borrowings with similar characteristics and maturities.
Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees: The amount of
off-balance sheet commitments to extend credit, standby letters of credit, and financial guarantees
is considered equal to fair value. Because of the uncertainty involved in attempting to assess the
likelihood and timing of commitments being drawn upon, coupled with the lack of an established
market and the wide diversity of fee structures, the Company does not believe it is meaningful to
provide an estimate of fair value that differs from the given value of the commitment.
Note 13. Derivatives and Hedging Activities
The Company, through its mortgage banking and risk management operations, is party to various
derivative instruments that are used for asset and liability management and customers financing
needs. Derivative assets and liabilities are recorded at fair value on the balance sheet.
The primary derivatives that the Company uses are interest rate swaps and interest rate lock
commitments (IRLCs). Generally, these instruments help the Company manage exposure to market
risk and meet customer financing needs. Market risk represents the possibility that economic value
or net interest income will be adversely affected by fluctuations in external factors, such as
interest rates, market-driven loan rates and prices or other economic factors.
The following table presents the aggregate contractual, or notional, amounts of derivative
financial instruments as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
September 30, 2009 |
|
December 31, 2008 |
|
September 30, 2008 |
Interest rate swap |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
IRLCs |
|
|
9,529 |
|
|
|
10,500 |
|
|
|
4,356 |
|
- 28 -
As of September 30, 2009, December 31, 2008 and September 30, 2008, the fair values of the
Companys derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
September 30, 2008 |
|
|
|
Balance Sheet |
|
|
Fair |
|
|
Balance Sheet |
|
|
Fair |
|
|
Balance Sheet |
|
|
Fair |
|
(In thousands) |
|
Location |
|
|
Value |
|
|
Location |
|
|
Value |
|
|
Location |
|
|
Value |
|
Derivatives not
designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
Other assets |
|
$ |
46 |
|
|
Other assets |
|
$ |
39 |
|
|
Other assets |
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
46 |
|
|
|
|
|
|
$ |
39 |
|
|
|
|
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
September 30, 2009 |
|
|
December 31, 2008 |
|
|
September 30, 2008 |
|
|
|
Balance Sheet |
|
|
Fair |
|
|
Balance Sheet |
|
|
Fair |
|
|
Balance Sheet |
|
|
Fair |
|
(In thousands) |
|
Location |
|
|
Value |
|
|
Location |
|
|
Value |
|
|
Location |
|
|
Value |
|
Derivatives designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
Other liabilities |
|
$ |
2,558 |
|
|
Other liabilities |
|
$ |
3,327 |
|
|
Other liabilities |
|
$ |
1,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
2,558 |
|
|
|
|
|
|
$ |
3,327 |
|
|
|
|
|
|
$ |
1,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
Other liabilities |
|
$ |
24 |
|
|
Other liabilities |
|
$ |
16 |
|
|
Other liabilities |
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
24 |
|
|
|
|
|
|
$ |
16 |
|
|
|
|
|
|
$ |
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
$ |
2,582 |
|
|
|
|
|
|
$ |
3,343 |
|
|
|
|
|
|
$ |
1,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps. The Company uses interest rate swap contracts to modify its exposure to
interest rate risk. The Company currently employs a cash flow hedging strategy to effectively
convert certain floating-rate liabilities into fixed-rate instruments. The interest rate swap is
accounted for under the short-cut method as required by the Derivatives and Hedging Topic 815 of
the ASC. Changes in fair value of the interest rate swap are reported as a component of other
comprehensive income. The Company does not currently employ fair value hedging strategies.
Interest Rate Lock Commitments. In the normal course of business, the Company sells originated
mortgage loans into the secondary mortgage loan market. During the period of loan origination and
prior to the sale of the loans in the secondary market, the Company has exposure to movements in
interest rates associated with mortgage loans that are in the mortgage pipeline. A pipeline loan
is one on which the potential borrower has set the interest rate for the loan by entering into an
IRLC. Once a mortgage loan is closed and funded, it is included within loans held for sale and
awaits sale and delivery into the secondary market. During the term of an IRLC, the Company has
the risk that interest rates will change from the rate quoted to the borrower.
The Companys balance of mortgage loans held for sale is subject to changes in fair value, due to
fluctuations in interest rates from the loan closing date through the date of sale of the loan into
the secondary market. Typically, the fair value of the warehouse declines in value when interest
rates increase and rises in value when interest rates decrease.
- 29 -
Effect of Derivatives and Hedging Activities on the Income Statement
For the quarters ended September 30, 2009 and 2008, the Company has determined there was no amount
of ineffectiveness on cash flow hedges. The following table details gains and losses recognized in
income on non-designated hedging instruments for the three- and nine-month periods ended September
30, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss) |
|
|
|
|
|
Derivatives not |
|
Location of Gain/(Loss) |
|
|
Recognized in Income on Derivative |
|
designated as hedging |
|
Recognized in Income on |
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
instruments |
|
Derivative |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
(In Thousands) |
|
IRLCs |
|
Other income |
|
$ |
46 |
|
|
$ |
1 |
|
|
$ |
(2 |
) |
|
$ |
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
46 |
|
|
$ |
1 |
|
|
$ |
(2 |
) |
|
$ |
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty Credit Risk. Like other financial instruments, derivatives contain an element of
credit risk. Credit risk is the possibility that the Company will incur a loss because a
counterparty, which may be a bank, a broker-dealer or a customer, fails to meet its contractual
obligations. This risk is measured as the expected positive replacement value of contracts. All
derivative contracts may be executed only with exchanges or counterparties approved by the
Companys Asset/Liability Management Committee. The Company reviews its counterparty risk
regularly and has determined that, as of September 30, 2009, there is no significant counterparty
credit risk.
Note 14. Subsequent Events
Subsequent events have been evaluated through November 6, 2009, the date of financial statement
issuance.
- 30 -
PART I. ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is provided to address information about the Companys
financial condition and results of operations. This discussion and analysis should be read in
conjunction with the Companys 2008 Annual Report on Form 10-K and the other financial information
included in this report.
The Company is a multi-state financial holding company headquartered in Bluefield, Virginia, with
total assets of $2.30 billion at September 30, 2009. Through its community bank subsidiary, First
Community Bank, N. A. (the Bank), the Company provides financial, trust and investment advisory
services to individuals and commercial customers through more than sixty locations in Virginia,
West Virginia, North Carolina, South Carolina, and Tennessee. The Company is also the parent of
GreenPoint Insurance Group, Inc., a North Carolina-based full-service insurance agency offering
commercial and personal lines (GreenPoint). The Bank is the parent of Investment Planning
Consultants, Inc. (IPC), a registered investment advisory firm that offers wealth management and
investment advice. The Companys common stock is traded on the NASDAQ Global Select Market under
the symbol, FCBC.
FORWARD-LOOKING STATEMENTS
The Company may from time to time make written or oral forward-looking statements, including
statements contained in its filings with the SEC (including this Quarterly Report on Form 10-Q and
the Exhibits hereto and thereto), in its reports to stockholders and in other communications which
are made in good faith by the Company pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995.
These forward-looking statements include, among others, statements with respect to the Companys
beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates and
intentions that are subject to significant risks and uncertainties and are subject to change based
on various factors (many of which are beyond the Companys control). The words may, could,
should, would, believe, anticipate, estimate, expect, intend, plan, and similar
expressions are intended to identify forward-looking statements. 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; |
|
|
|
|
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 SEC, the Public Company Accounting Oversight
Board, the FASB 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. |
- 31 -
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 Quarterly
Report on Form 10-Q and other reports filed by us with the SEC. Therefore, we caution you not to
place undue reliance on our forward-looking information and statements.
The Company cautions that the foregoing list of important factors is not exclusive. The Company
does not undertake to update any forward-looking statement, whether written or oral, that may be
made from time to time by or on behalf of the Company. These factors and other risks and
uncertainties are discussed in Item 1A. Risk Factors in Part II of this Quarterly Report on Form
10-Q and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, which revise
certain risk factors previously disclosed in the Companys Annual Report on Form 10-K for the year
ended December 31, 2008, and add certain new risk factors.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The Companys consolidated financial statements are prepared in accordance with GAAP and conform to
general practices within the banking industry. The Companys financial position and results of
operations are affected by managements application of accounting policies, including judgments
made to arrive at the carrying value of assets and liabilities and amounts reported for revenues,
expenses and related disclosures. Different assumptions in the application of these policies could
result in material changes in the Companys consolidated financial position and consolidated
results of operations.
Estimates, assumptions, and judgments are necessary principally when assets and liabilities are
required to be recorded at estimated fair value, when a decline in the value of an asset carried on
the financial statements at fair value warrants an impairment write-down or valuation reserve to be
established, or when an asset or liability needs to be recorded based upon the probability of
occurrence of a future event. Carrying assets and liabilities at fair value inherently results in
more financial statement volatility. The fair values and the information used to record valuation
adjustments for certain assets and liabilities are based either on quoted market prices or are
provided by third party sources, when available. When third party information is not available,
valuation adjustments are estimated by management primarily through the use of internal modeling
techniques and appraisal estimates.
The Companys accounting policies are fundamental to understanding Managements Discussion and
Analysis of Financial Condition and Results of Operation. The disclosures presented in the Notes
to the Consolidated Financial Statements and in Managements Discussion and Analysis provide
information on how significant assets and liabilities are valued in the financial statements and
how those values are determined. Based on the valuation techniques used and the sensitivity of
financial statement amounts to the methods, assumptions, and estimates underlying those amounts,
management has identified the accounting for and valuation of investment securities, the
determination of the allowance for loan losses, accounting for acquisitions and intangible assets,
and accounting for income taxes as the four accounting areas that require the most subjective or
complex judgments. The identified critical accounting policies are described in detail in the
Companys 2008 Annual Report on Form 10-K.
COMPANY OVERVIEW
The Company is a financial holding company which operates within the five-state region of Virginia,
West Virginia, North Carolina, South Carolina, and Tennessee. The Company operates through the
Bank, IPC, and GreenPoint to offer a wide range of financial services. The Company reported total
assets of $2.30 billion at September 30, 2009.
The Company funds its lending activities primarily through the retail deposit operations of its
branch banking network. Retail and wholesale repurchase agreements and borrowings from the Federal
Home Loan Bank (FHLB) provide additional funding as needed. The Company invests its funds
primarily in loans to retail and commercial customers. In addition to loans, the Company invests a
portion of its funds in various debt securities, including those of United States agencies, state
and political subdivisions, and certain corporate notes and debt instruments. The Company also
maintains overnight interest-bearing balances with the FHLB and correspondent banks. The
difference between interest earned on assets and interest paid on liabilities is the Companys
primary source of earnings. Net interest income is supplemented by fees for services, commissions
on sales, and various deposit service charges.
The Company also conducts asset management activities through the Banks Trust and Financial
Services Division (Trust Division) and its registered investment advisory firm, IPC. The Banks
Trust Division and IPC manage assets with an aggregate market value of $841 million as of September
30, 2009. These assets are not assets of the Company, but are managed under various fee-based
arrangements as fiduciary or agent.
- 32 -
RECENT MARKET DEVELOPMENTS
The global and U.S. economies continue to experience significantly reduced business activity as a
result of recessionary economic conditions and disruptions in the financial system. Dramatic
declines in home prices and increasing foreclosures and unemployment have resulted in significant
write-downs of asset values by financial institutions, including government-sponsored entities and
major commercial and investment banks. These write-downs, initially of mortgage-backed securities
but spreading to credit default swaps, other derivative securities, and to loan portfolios, have
caused many financial institutions to seek additional capital, to merge with larger and stronger
institutions and, in some cases, to fail. Further adverse effects could have an adverse impact on
the Company and its business.
MERGERS, ACQUISITIONS AND BRANCHING ACTIVITY
On July 31, 2009, the Company completed the acquisition of TriStone Community Bank (TriStone),
based in Winston-Salem, North Carolina. TriStone had two full service locations in Winston-Salem,
North Carolina. At acquisition, TriStone had total assets of approximately $166.82 million, loans
of approximately $132.23 million, and deposits of approximately $142.27 million. Under the terms of
the merger agreement, subject to dissenters rights, shares of TriStone were exchanged for .5262
shares of the Companys common stock, resulting in a purchase price of approximately $10.78
million. As a result of the acquisition and purchase price allocation, a preliminary gain of
approximately $4.49 million was recorded on the acquisition, which represents the excess fair
market value of the net assets acquired and indentified intangibles over the purchase price.
On November 14, 2008, the Company completed the acquisition of Coddle Creek Financial Corp.
(Coddle Creek), based in Mooresville, North Carolina. Coddle Creek had three full service
locations in Mooresville, Cornelius, and Huntersville, North Carolina. At acquisition, Coddle
Creek had total assets of approximately $158.66 million, loans of approximately $136.99 million,
and deposits of approximately $137.06 million. Under the terms of the merger agreement, shares of
Coddle Creek were exchanged for .9046 shares of the Companys common stock and $19.60 in cash, for
a total purchase price of approximately $32.29 million. As a result of the acquisition and
purchase price allocation, approximately $14.41 million in goodwill was recorded, which represents
the excess purchase price over the fair market value of the net assets acquired and identified
intangibles.
Since January 1, 2008, GreenPoint has acquired a total of five agencies, issuing cash consideration
of approximately $2.04 million. Acquisition terms in all instances call for additional cash
consideration if certain operating performance targets are met. If those targets are met, the
value of the consideration ultimately paid will be added to the cost of the acquisitions. Goodwill
and other intangibles associated with GreenPoints acquisitions total approximately $2.04 million.
The Company opened a new branch location in Richmond, Virginia in July 2009.
RESULTS OF OPERATIONS
Overview
The Company experienced the following developments in the third quarter of 2009:
|
|
|
For the third quarter of 2009 net income decreased to a loss of $11.30 million and net
income available to common shareholders decreased to a loss of $12.31 million from the
comparable period in 2008. Net income is reduced by accrued and deemed preferred stock
dividends and amortization of a preferred stock discount to arrive at net income available
to common shareholders. |
|
|
|
Impairment losses of $30.81 million and $34.80 million were recorded on collateralized
debt obligations and bank equity securities for the three- and nine-month periods ended
September 30, 2009. |
|
|
|
Net interest margin, on a tax equivalent basis, decreased 22 basis points to 3.68% for
the three-months ended September 30, 2009 and 19 basis points to 3.68% for the nine-months
ended September 30, 2009, as compared to the three- and nine- month periods ended September
30, 2008. |
|
|
|
For the three- and nine-month periods ended September 30, 2009, earnings per common
share decreased to a loss of $0.71 and $0.42, respectively, as compared to earnings of
$0.42 and $1.56 in the comparable periods in the prior year. Diluted earnings per share
for the three- and nine-month periods ended September 30, 2009 reflects an increase in
common shares issued and outstanding due to the issuance of 741,588 shares related to the
TriStone merger in July 2009, an accelerated deemed dividend related to the prepayment of
$41.5 million of preferred stock, and cash dividends paid on preferred stock. |
|
|
|
The allowance for loan losses as a percentage of total loans increased to 1.25% in the
third quarter of 2009, as compared to 1.24% in the third quarter of 2008. |
- 33 -
|
|
|
Average shareholders equity increased $67.38 million, or 34.96%, from third quarter
2008 primarily due to the sale of 5.29 million shares of common stock in June 2009, which
generated net proceeds of approximately $61.67 million. |
Net loss available to common shareholders for the three months ended September 30, 2009, was $12.31
million, or $0.71 per diluted share, compared with net income of $4.55 million, or $0.41 per
diluted share, for the three months ended September 30, 2008, a decrease of $16.86 million. The
principal cause of the decrease in net income between the three months ended September 30, 2009 and
2008 was other-than-temporary impairment of debt securities totaling $30.53 million.
Net loss available to common shareholders for the nine months ended September 30, 2009, was $5.83
million, or $0.42 per diluted share, compared with net income of $17.10 million, or $1.54 per
diluted share, for the nine months ended September 30, 2008, a decrease of $22.93 million. The
above referenced impairments also led to the decrease in net income between the nine months ended
September 30, 2009 and 2008 coupled with increased provisions for loan losses and a special
insurance premium assessment by the FDIC.
Net Interest Income Quarterly Comparison (See Table I)
Net interest income, the largest contributor to earnings, was $17.54 million for the three months
ended September 30, 2009, compared with $16.32 million for the corresponding period in 2008, an
increase of $1.21 million, or 7.43%. Tax-equivalent net interest income totaled $18.33 million for
the three months ended September 30, 2009, an increase of $1.07 million, or 6.17%, from $17.26
million for the third quarter of 2008. The increase in tax-equivalent net interest income was due
primarily to increases in total earning assets and decreases in deposit and borrowing costs.
Compared with the third quarter of 2008, average earning assets increased $219.73 million while
interest-bearing liabilities increased $205.44 million during the three months ended September 30,
2009. The changes include the impact of the November 2008 Coddle Creek and the July 2009 TriStone
acquisitions. The yield on average earning assets decreased 62 basis points to 5.60% from 6.22%
between the three months ended September 30, 2009 and 2008, respectively. Total cost of
interest-bearing liabilities decreased 45 basis points between the third quarters of 2008 and 2009,
which resulted in a net interest rate spread that was 17 basis points lower at 3.47% for the third
quarter of 2009 compared with 3.64% for the same period last year. The Companys tax-equivalent
net interest margin of 3.68% for the three months ended September 30, 2009 decreased 22 basis
points from 3.90% for the same period of 2008.
The rate earned on loans decreased 39 basis points to 6.14% from 6.53% for the three months ended
September 30, 2009 and 2008, respectively. The effect of the cuts in the target federal funds rate
by the Federal Open Market Committee and the associated decline in the Prime rate had a significant
impact on loan yields throughout 2008 and 2009 and when combined with the addition of Coddle Creek
and TriStone resulted in a net increase of $1.79 million, or 9.29%, in tax-equivalent loan interest
income for the third quarter of 2009 compared with the third quarter of 2008.
During the three months ended September 30, 2009, the tax-equivalent yield on available-for-sale
securities decreased 67 basis points to 4.91%, while the average balance decreased by $36.56
million, or 6.81%, compared with the same period in 2008. The decline in average balance was due
largely to declines in the fair value of available-for-sale securities. The average balance of the
held-to-maturity securities portfolio continued to decline as securities matured or were called and
were not replaced.
Compared with the third quarter of 2008, average interest-bearing balances with banks increased to
$71.96 million during the third quarter of 2009, as the yield decreased 220 basis points to 0.30%
during the same period. Interest-bearing balances with banks are comprised largely of excess
liquidity bearing overnight market rates. The rate earned on these overnight balances during the
third quarter of 2009 decreased along with decreases in short-term benchmark interest rates. The
Company maintained a strong liquidity position in the third quarter to balance the risks associated
with the fed funds market and general economic conditions.
Compared with the same period in 2008, the average balances of interest-bearing demand deposits
increased $30.94 million, or 17.32%, while the average rate paid during the third quarter of 2009
increased by five basis points. During the three months ended September 30, 2009, the average
balances of savings deposits increased $30.24 million, or 9.77%, while the average rate paid
decreased 76 basis points compared to the same period in 2008. Average time deposits increased
$256.45 million, or 40.57%, while the average rate paid on time deposits decreased 63 basis points
from 3.42% in the third quarter of 2008 to 2.79% in the third quarter of 2009. The level of
average non-interest-bearing demand deposits decreased $12.17 million, or 5.77%, to $198.98 million
during the quarter ended September 30, 2009, compared with the corresponding period of the prior
year. The overall increase in the level of average deposits reflects the addition of Coddle Creek
and TriStone. Movements within the deposit types reflect customers seeking yield enhancement and
safety within FDIC-insured products.
- 34 -
Retail repurchase agreements, which consist of collateralized retail deposits and commercial
treasury accounts, decreased $48.92 million, or 32.62%, to $101.07 million for the third quarter of
2009, while the rate decreased 63 basis points to 1.31% during the same period. The decrease in
average balance can be largely attributed to the customers converting retail repurchase agreements
to certificates of deposit and businesses using cash during difficult economic times. There were
no federal funds purchased on average during the third quarter of 2009, compared with $42.70
million in the same period in 2008. Wholesale repurchase agreements remained unchanged at $50.00
million, while the rate increased 66 basis points between the two periods due to structure within
those borrowings. The average balance of FHLB borrowings and other long-term debt decreased by
$20.56 million, or 9.48%, in the third quarter of 2009 to $196.23 million, while the rate paid on
those borrowings decreased 37 basis points.
Net Interest Income Year-to-Date Comparison (See Table II)
Net interest income was $50.29 million for the nine months ended September 30, 2009, compared with
$49.31 million for the corresponding period in 2008, an increase of $982 thousand, or 1.99%.
Tax-equivalent net interest income totaled $52.77 million for the nine months ended September 30,
2009, an increase of $293 thousand, or 0.56%, from $52.48 million for the first nine months ended
September 30, 2008. The increase in tax-equivalent net interest income was due primarily to
decreases in savings and time deposit yields.
Compared with the first nine months of 2008, average earning assets increased $106.84 million while
interest-bearing liabilities increased $140.05 million during the nine months ended September 30,
2009. The changes include the impact of the November 2008 Coddle Creek and July 2009 TriStone
acquisitions. The yield on average earning assets decreased 63 basis points to 5.76% from 6.39%
between the nine months ended September 30, 2009 and 2008, respectively. Total cost of
interest-bearing liabilities decreased 56 basis points between the third quarters of 2008 and 2009,
which resulted in a net interest rate spread that was seven basis points lower at 3.47% for the
first nine months of 2009 compared with 3.54% for the same period last year. The Companys
tax-equivalent net interest margin of 3.68% for the nine months ended September 30, 2009 decreased
19 basis points from 3.87% for the same period of 2008.
The rate earned on loans decreased 60 basis points to 6.20% from 6.80% for the nine months ended
September 30, 2009 and 2008, respectively. The effect of the cuts in the target federal funds rate
by the Federal Open Market Committee and the associated decline in the Prime rate had a significant
impact on loan yields throughout 2008 and 2009, although loan income increased $207 thousand, or
0.34%, on a tax-equivalent basis as a result of volume increases, for the first nine months of 2009
compared with the first nine months of 2008.
During the nine months ended September 30, 2009, the tax-equivalent yield on available-for-sale
securities decreased 27 basis points to 5.34%, while the average balance decreased by $67.09
million, or 11.13%, compared with the same period in 2008. The decline in average balance was due
to declines in the fair value of available-for-sale securities. The average balance of the
held-to-maturity securities portfolio continued to decline as securities matured or were called and
were not replaced.
Compared with the first nine months of 2008, average interest-bearing balances with banks increased
to $67.82 million during the first nine months of 2009, as the yield decreased 255 basis points to
0.26% during the same period. Interest-bearing balances with banks is comprised largely of excess
liquidity bearing overnight market rates. The rate earned on these overnight balances during the
first nine months of 2009 decreased along with decreases in short-term benchmark interest rates.
Compared with the same period in 2008, the average balances of interest-bearing demand deposits
increased $27.57 million, or 16.06%, while the average rate paid during the first nine months of
2009 increased one basis point compared with the same period of 2008. During the nine months ended
September 30, 2009, the average balances of savings deposits increased $8.48 million, or 2.69%,
while the average rate paid decreased 87 basis points compared to the same period in 2008. The
decline in yield reflects downward repricing of money market products consistent with declines in
short-term benchmark rates. Average time deposits increased $216.22 million, or 33.35%, while the
average rate paid on time deposits decreased 79 basis points from 3.81% in the first nine months of
2008 to 3.02% in the first nine months of 2009. The level of average non-interest-bearing demand
deposits decreased $13.95 million, or 6.97%, to $199.99 million during the nine months ended
September 30, 2009, compared with the corresponding period of the prior year. The overall increase
in the level of average deposits reflects the addition of Coddle Creek and TriStone. Movements
within the deposit types reflect customers seeking yield enhancement within FDIC insured products.
Retail repurchase agreements, which consist of collateralized retail deposits and commercial
treasury accounts, decreased $48.11 million, or 38.84%, to $103.00 million for the first nine
months of 2009, while the rate decreased 88 basis points to
- 35 -
1.37% during the same period. The decrease in average balance can be largely attributed to the
customers converting retail repurchase agreements to certificates of deposit and lower business
account cash balances reflective of recessionary conditions. There were no federal funds purchased
on average during the first nine months of 2009, compared with $18.24 million in the same period in
2008. Wholesale repurchase agreements remained unchanged at $50.00 million, while the rate
increased 99 basis points between the two periods due to structure within those borrowings. The
average balance of FHLB borrowings and other long-term debt decreased by $45.88 million, or 18.17%,
in the first nine months of 2009 to $206.64 million, while the rate paid on those borrowings
decreased 37 basis points.
- 36 -
Table I
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (1) |
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (1) |
|
|
|
(Dollars in Thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (2) |
|
$ |
1,362,603 |
|
|
$ |
21,078 |
|
|
|
6.14 |
% |
|
$ |
1,174,855 |
|
|
$ |
19,286 |
|
|
|
6.53 |
% |
Securities available for sale |
|
|
536,485 |
|
|
|
6,636 |
|
|
|
4.91 |
% |
|
|
573,046 |
|
|
|
8,035 |
|
|
|
5.58 |
% |
Securities held to maturity |
|
|
7,575 |
|
|
|
154 |
|
|
|
8.07 |
% |
|
|
9,559 |
|
|
|
161 |
|
|
|
6.70 |
% |
Interest-bearing deposits |
|
|
71,963 |
|
|
|
55 |
|
|
|
0.30 |
% |
|
|
1,435 |
|
|
|
9 |
|
|
|
2.50 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,978,626 |
|
|
|
27,923 |
|
|
|
5.60 |
% |
|
|
1,758,895 |
|
|
|
27,491 |
|
|
|
6.22 |
% |
Other assets |
|
|
291,966 |
|
|
|
|
|
|
|
|
|
|
|
242,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,270,592 |
|
|
|
|
|
|
|
|
|
|
$ |
2,001,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
209,569 |
|
|
$ |
110 |
|
|
|
0.21 |
% |
|
$ |
178,632 |
|
|
$ |
73 |
|
|
|
0.16 |
% |
Savings deposits |
|
|
339,601 |
|
|
|
639 |
|
|
|
0.75 |
% |
|
|
309,364 |
|
|
|
1,172 |
|
|
|
1.51 |
% |
Time deposits |
|
|
888,593 |
|
|
|
6,249 |
|
|
|
2.79 |
% |
|
|
632,142 |
|
|
|
5,439 |
|
|
|
3.42 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,437,763 |
|
|
|
6,998 |
|
|
|
1.93 |
% |
|
|
1,120,138 |
|
|
|
6,684 |
|
|
|
2.37 |
% |
Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,702 |
|
|
|
251 |
|
|
|
2.34 |
% |
Retail repurchase agreements |
|
|
101,065 |
|
|
|
333 |
|
|
|
1.31 |
% |
|
|
149,984 |
|
|
|
730 |
|
|
|
1.94 |
% |
Wholesale repurchase agreements |
|
|
50,000 |
|
|
|
474 |
|
|
|
3.76 |
% |
|
|
50,000 |
|
|
|
389 |
|
|
|
3.10 |
% |
FHLB borrowings and other indebtedness |
|
|
196,227 |
|
|
|
1,789 |
|
|
|
3.62 |
% |
|
|
216,789 |
|
|
|
2,173 |
|
|
|
3.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
347,292 |
|
|
|
2,596 |
|
|
|
2.97 |
% |
|
|
459,475 |
|
|
|
3,543 |
|
|
|
3.07 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,785,055 |
|
|
|
9,594 |
|
|
|
2.13 |
% |
|
|
1,579,613 |
|
|
|
10,227 |
|
|
|
2.58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interestbearing demand deposits |
|
|
198,981 |
|
|
|
|
|
|
|
|
|
|
|
211,155 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
26,430 |
|
|
|
|
|
|
|
|
|
|
|
17,680 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
260,126 |
|
|
|
|
|
|
|
|
|
|
|
192,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY |
|
$ |
2,270,592 |
|
|
|
|
|
|
|
|
|
|
$ |
2,001,191 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, tax equivalent |
|
|
|
|
|
$ |
18,329 |
|
|
|
|
|
|
|
|
|
|
$ |
17,264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (3) |
|
|
|
|
|
|
|
|
|
|
3.47 |
% |
|
|
|
|
|
|
|
|
|
|
3.64 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
3.90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fully taxable equivalent (FTE) at the rate of 35%. The FTE basis adjusts for the tax
benefits of income on certain tax-exempt loans and investments using the federal
statutory rate of 35% for each period presented. The Company believes this measure to
be the preferred industry measurement of net interest income and provides relevant
comparison between taxable and non-taxable amounts. |
|
(2) |
|
Non-accrual loans are included in average balances outstanding but with no related
interest income during the period of non-accrual. |
|
(3) |
|
Represents the difference between the yield on earning assets and cost of funds. |
|
(4) |
|
Represents tax equivalent net interest income divided by average interest-earning assets. |
- 37 -
Table II
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
|
September 30, 2008 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (1) |
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (1) |
|
|
|
(Dollars in Thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (2) |
|
$ |
1,308,380 |
|
|
$ |
60,663 |
|
|
|
6.20 |
% |
|
$ |
1,187,006 |
|
|
$ |
60,456 |
|
|
|
6.80 |
% |
Securities available for sale |
|
|
535,710 |
|
|
|
21,378 |
|
|
|
5.34 |
% |
|
|
602,802 |
|
|
|
25,310 |
|
|
|
5.61 |
% |
Securities held to maturity |
|
|
7,954 |
|
|
|
490 |
|
|
|
8.24 |
% |
|
|
10,849 |
|
|
|
675 |
|
|
|
8.31 |
% |
Interest-bearing deposits |
|
|
67,819 |
|
|
|
133 |
|
|
|
0.26 |
% |
|
|
12,363 |
|
|
|
260 |
|
|
|
2.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total earning assets |
|
|
1,919,863 |
|
|
|
82,664 |
|
|
|
5.76 |
% |
|
|
1,813,020 |
|
|
|
86,701 |
|
|
|
6.39 |
% |
Other assets |
|
|
290,180 |
|
|
|
|
|
|
|
|
|
|
|
232,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,210,043 |
|
|
|
|
|
|
|
|
|
|
$ |
2,045,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
199,235 |
|
|
$ |
270 |
|
|
|
0.18 |
% |
|
$ |
171,661 |
|
|
$ |
213 |
|
|
|
0.17 |
% |
Savings deposits |
|
|
323,387 |
|
|
|
1,836 |
|
|
|
0.76 |
% |
|
|
314,903 |
|
|
|
3,847 |
|
|
|
1.63 |
% |
Time deposits |
|
|
864,503 |
|
|
|
19,535 |
|
|
|
3.02 |
% |
|
|
648,282 |
|
|
|
18,483 |
|
|
|
3.81 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,387,125 |
|
|
|
21,641 |
|
|
|
2.09 |
% |
|
|
1,134,846 |
|
|
|
22,543 |
|
|
|
2.65 |
% |
Borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,241 |
|
|
|
330 |
|
|
|
2.42 |
% |
Retail repurchase agreements |
|
|
103,000 |
|
|
|
1,057 |
|
|
|
1.37 |
% |
|
|
151,107 |
|
|
|
2,540 |
|
|
|
2.25 |
% |
Wholesale repurchase agreements |
|
|
50,000 |
|
|
|
1,449 |
|
|
|
3.87 |
% |
|
|
50,000 |
|
|
|
1,077 |
|
|
|
2.88 |
% |
FHLB borrowings and other indebtedness |
|
|
206,643 |
|
|
|
5,745 |
|
|
|
3.72 |
% |
|
|
252,520 |
|
|
|
7,732 |
|
|
|
4.09 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
359,643 |
|
|
|
8,251 |
|
|
|
3.07 |
% |
|
|
471,868 |
|
|
|
11,679 |
|
|
|
3.31 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,746,768 |
|
|
|
29,892 |
|
|
|
2.29 |
% |
|
|
1,606,714 |
|
|
|
34,222 |
|
|
|
2.85 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interestbearing demand deposits |
|
|
199,986 |
|
|
|
|
|
|
|
|
|
|
|
213,934 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
25,517 |
|
|
|
|
|
|
|
|
|
|
|
19,326 |
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
237,772 |
|
|
|
|
|
|
|
|
|
|
|
205,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY |
|
$ |
2,210,043 |
|
|
|
|
|
|
|
|
|
|
$ |
2,045,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income, tax equivalent |
|
|
|
|
|
$ |
52,772 |
|
|
|
|
|
|
|
|
|
|
$ |
52,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread (3) |
|
|
|
|
|
|
|
|
|
|
3.47 |
% |
|
|
|
|
|
|
|
|
|
|
3.54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
|
|
|
|
3.68 |
% |
|
|
|
|
|
|
|
|
|
|
3.87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fully Taxable Equivalent (FTE) at the rate of 35%. The FTE basis adjusts for the tax
benefits of income on certain tax-exempt loans and investments using the federal
statutory rate of 35% for each period presented. The Company believes this measure to
be the preferred industry measurement of net interest income and provides relevant
comparison between taxable and non-taxable amounts. |
|
(2) |
|
Non-accrual loans are included in average balances outstanding but with no related
interest income during the period of non-accrual. |
|
(3) |
|
Represents the difference between the yield on earning assets and cost of funds. |
|
(4) |
|
Represents tax equivalent net interest income divided by average interest-earning assets. |
- 38 -
The following table summarizes the changes in tax-equivalent interest earned and paid
detailing the amounts attributable to (i) changes in volume (change in the average volume times the
prior years average rate), (ii) changes in rate (changes in the average rate times the prior
years average volume), and (iii) changes in rate/volume (change in the average column times the
change in average rate)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, 2009 Compared to 2008 |
|
|
September 30, 2009 Compared to 2008 |
|
|
|
$ Increase/(Decrease) due to |
|
|
$ Increase/(Decrease) due to |
|
|
|
|
|
|
|
|
|
|
|
Rate/ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate/ |
|
|
|
|
(In thousands) |
|
Volume |
|
|
Rate |
|
|
Volume |
|
|
Total |
|
|
Volume |
|
|
Rate |
|
|
Volume |
|
|
Total |
|
Interest Earned On: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
|
$ |
3,057 |
|
|
$ |
(1,152 |
) |
|
$ |
(112 |
) |
|
$ |
1,792 |
|
|
$ |
4,095 |
|
|
$ |
(3,557 |
) |
|
$ |
(331 |
) |
|
$ |
207 |
|
Securities available-for-sale (1) |
|
|
(508 |
) |
|
|
(958 |
) |
|
|
68 |
|
|
|
(1,399 |
) |
|
|
(1,866 |
) |
|
|
(816 |
) |
|
|
(1,250 |
) |
|
|
(3,932 |
) |
Securities held-to-maturity (1) |
|
|
(33 |
) |
|
|
33 |
|
|
|
(7 |
) |
|
|
(7 |
) |
|
|
(119 |
) |
|
|
(4 |
) |
|
|
(62 |
) |
|
|
(185 |
) |
Interest-bearing deposits
with other banks |
|
|
438 |
|
|
|
(8 |
) |
|
|
(385 |
) |
|
|
46 |
|
|
|
481 |
|
|
|
(149 |
) |
|
|
(459 |
) |
|
|
(127 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
2,954 |
|
|
|
(2,086 |
) |
|
|
(436 |
) |
|
|
432 |
|
|
|
2,590 |
|
|
|
(4,526 |
) |
|
|
(2,101 |
) |
|
|
(4,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Paid On: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
13 |
|
|
|
20 |
|
|
|
4 |
|
|
|
37 |
|
|
|
26 |
|
|
|
10 |
|
|
|
21 |
|
|
|
57 |
|
Savings deposits |
|
|
114 |
|
|
|
(587 |
) |
|
|
(60 |
) |
|
|
(533 |
) |
|
|
46 |
|
|
|
(1,352 |
) |
|
|
(704 |
) |
|
|
(2,011 |
) |
Time deposits |
|
|
2,189 |
|
|
|
(997 |
) |
|
|
(381 |
) |
|
|
810 |
|
|
|
3,881 |
|
|
|
(2,408 |
) |
|
|
(420 |
) |
|
|
1,052 |
|
Fed funds purchased |
|
|
(249 |
) |
|
|
|
|
|
|
(2 |
) |
|
|
(251 |
) |
|
|
(219 |
) |
|
|
|
|
|
|
(111 |
) |
|
|
(330 |
) |
Retail repurchase agreements |
|
|
(236 |
) |
|
|
(235 |
) |
|
|
74 |
|
|
|
(397 |
) |
|
|
(540 |
) |
|
|
(651 |
) |
|
|
(293 |
) |
|
|
(1,483 |
) |
Wholesale repurchase
agreement |
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
85 |
|
|
|
|
|
|
|
372 |
|
|
|
|
|
|
|
372 |
|
FHLB borrowings and other
long-term debt |
|
|
(204 |
) |
|
|
(200 |
) |
|
|
21 |
|
|
|
(384 |
) |
|
|
(1,210 |
) |
|
|
(134 |
) |
|
|
(643 |
) |
|
|
(1,987 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,625 |
|
|
|
(1,914 |
) |
|
|
(344 |
) |
|
|
(633 |
) |
|
|
1,983 |
|
|
|
(4,163 |
) |
|
|
(2,150 |
) |
|
|
(4,330 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income,
tax-equivalent |
|
$ |
1,329 |
|
|
$ |
(172 |
) |
|
$ |
(92 |
) |
|
$ |
1,065 |
|
|
$ |
607 |
|
|
$ |
(363 |
) |
|
$ |
49 |
|
|
$ |
293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Fully taxable equivalent using a rate of 35%. |
Provision and Allowance for Loan Losses
There was significant disruption and volatility in the financial and capital markets during 2008
and the first nine months of 2009. Turmoil in the mortgage market adversely impacted both domestic
and global markets, resulting in a credit and liquidity crisis. The disruption has been
exacerbated by significant declines in valuations within the real estate and housing markets.
Decreases in real estate values could adversely affect the value of property used as collateral for
loans, including loans originated by the Company. In addition, adverse changes in the economy,
particularly continued high rates of unemployment, may have a negative effect on the ability of the
Companys borrowers to make timely loan payments, which would have an adverse impact on the
Companys earnings. A further increase in loan delinquencies could adversely impact loan loss
experience, causing potential increases in the provision and allowance for loan losses.
- 39 -
The allowance for loan losses was $17.44 million at September 30, 2009, $15.98 million at December
31, 2008 and $14.51 million at September 30, 2008. The Companys allowance for loan loss activity
for the three- and nine-month periods ended September 30, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
16,678 |
|
|
$ |
13,433 |
|
|
$ |
15,978 |
|
|
$ |
12,833 |
|
Provision for loan losses |
|
|
3,418 |
|
|
|
3,461 |
|
|
|
8,057 |
|
|
|
4,721 |
|
Charge-offs |
|
|
(2,993 |
) |
|
|
(2,601 |
) |
|
|
(7,404 |
) |
|
|
(4,765 |
) |
Recoveries |
|
|
341 |
|
|
|
217 |
|
|
|
813 |
|
|
|
1,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(2,652 |
) |
|
|
(2,384 |
) |
|
|
(6,591 |
) |
|
|
(3,044 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
17,444 |
|
|
$ |
14,510 |
|
|
$ |
17,444 |
|
|
$ |
14,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total allowance for loan losses to loans held for investment ratio was 1.25% at September 30,
2009, compared with 1.23% at December 31, 2008, and 1.24% at September 30, 2008. There was no
allowance for loan losses carried over related to the loans acquired from TriStone. Excluding the
impact of that acquisition, the ratio of allowance for loan losses to loans held for investment was
1.37%. Management considers the allowance adequate based upon its analysis of the portfolio as of
September 30, 2009. Management believes that it uses relevant information available to make
determinations about the allowance. If circumstances differ substantially from the assumptions
used in making determinations, adjustments to the allowance may be necessary and results of
operations could be affected. Because events affecting borrowers and collateral charge-offs cannot
be predicted with certainty, there can be no assurance that increases to the allowance will not be
necessary should the quality of any loans deteriorate.
Throughout the third quarter and first nine months of 2009, the Company incurred net charge-offs of
$2.65 million and $6.59 million, respectively, compared with $2.38 million and $3.04 million in the
respective periods of 2008. Annualized net charge-offs for the third quarter and first nine months
of 2009 were 0.77% and 0.67%, respectively. The Company made provisions for loan losses of $3.42
million and $8.06 million for the third quarter and first nine months of 2009, respectively,
compared to $3.46 million and $4.72 million in the
respective periods of 2008. Provisions for loan losses covered
128.88% and 122.24% of charge offs for the three- and nine-month
periods ended
September 30, 2009. The increase in
loan loss provision is primarily attributable to rising loss factors as net charge-offs were higher
than in 2008 reflective of increases in unemployment and the general impact of recessionary
conditions and stress in the residential real estate market. Qualitative risk factors were also
higher, reflective of the higher risk of inherent loan losses due to rising unemployment,
recessionary pressures, and devaluation of various categories of
collateral, including residential and commercial real estate.
Total
delinquent loans as of September 30, 2009, measured 1.62% of total loans and was comprised of loans 30-89 days
delinquent of 0.74% and loans in non-accrual status of 0.88%. This represents an improvement as compared to total
delinquency of 1.97% at December 31, 2008. Non-performing loans comprised entirely of non-accrual loans as the
Company does not have any loans that are 90 days past due and still
accruing, have remained in a fairly tight range as they have
measured 0.60%, 0.98%, 0.92% as of September 30, 2008, December 31, 2008 and June 30, 2009, respectively.
The primary composition of non-performing loans is 38.57% residential real estate, 18.70% owner occupied commercial real
estate, and 15.75% non-owner occupied commercial real estate. Approximately $2.79 million, or 58.91%, of the non-
performing residential real estate loans can be attributed to the Coddle Creek loan portfolio that was acquired during the
fourth quarter of 2008.
- 40 -
Noninterest Income
Noninterest income consists of all revenues that are not included in interest and fee income
related to earning assets. Total noninterest income for the third quarter of 2009 was a loss of
$17.28 million compared with noninterest income of $7.83 million in the same period of 2008, a
decrease of $25.12 million. Exclusive of the impact of securities impairments and acquisition
gains, noninterest income for the quarter ended September 30, 2009, increased $1.15 million, or
14.60%, compared to the same period in 2008. Wealth management revenues increased $14 thousand, or
1.46%, to $971 thousand for the three months ended September 30, 2009, compared with the same
period in 2008. IPC added several large accounts during 2008 and 2009, which offset revenue
decline caused by broad market declines. Service charges on deposit accounts decreased $149
thousand, or 3.91%, to $3.66 million for the three months ended September 30, 2009, compared with
the same period in 2008. The decrease is believed to be due to reduced consumer spending and a
generally higher rate of savings. Other service charges and fees increased $116 thousand, or
11.15%, to $1.16 million for the three months ended September 30, 2009, compared with the same
period in 2008. Insurance commissions for the third quarter of 2009 were $1.57 million, an
increase of $327 thousand, or 26.37%, over 2008. Increased insurance commissions reflect revenue
increases associated with agency acquisitions made by GreenPoint throughout 2008. Other operating
income was $815 thousand for the three months ended September 30, 2009, an increase of $140
thousand, or 20.74%, compared with the same period in 2008. At September 30, 2009, the Company
recognized $30.81 million of other-than-temporary impairment on eight pooled trust preferred
securities and several smaller equity security holdings. During the third quarter of 2009,
securities gains of $866 thousand were realized compared with a gain of $163 thousand in the
comparable period in 2008.
Total noninterest income for the first nine months of 2009 was a loss of $3.24 million compared
with noninterest income of $24.70 million in the same period of 2008, a decrease of $27.94 million.
Exclusive of the impact of securities impairments and acquisition gains, noninterest income for
the nine months ended September 30, 2009, increased $2.32 million, or 9.39%, compared to the same
period in 2008. Wealth management revenues increased $134 thousand, or 4.54%, to $3.09 million for
the nine months ended September 30, 2009, compared with the same period in 2008. IPC added several
large accounts during 2008 and 2009, which offset revenue decline caused by asset devaluation.
Service charges on deposit accounts decreased $63 thousand, or 0.61%, to $10.31 million for the
nine months ended September 30, 2009, compared with the same period in 2008. The decrease is due
to lower consumer spending and a generally higher rate of savings. Other service charges and fees
increased $242 thousand, or 7.50%, to $3.47 million for the nine months ended September 30, 2009,
compared with the same period in 2008. Insurance commissions for the first nine months of 2009
were $5.52 million, an increase of $1.79 million, or 48.07%, over 2008. Increased insurance
commissions reflect revenue increases associated with agency acquisitions made by GreenPoint
throughout 2008 including its largest acquisition to date in the fourth quarter of 2008. Other
operating income was $1.75 million for the nine months ended September 30, 2009, a decrease of $586
thousand, or 25.09%, compared with the same period in 2008. Other operating income was down due
largely to decreases in dividends on FHLB stock. Through September 30, 2009, the Company
recognized $34.80 million of other-than-temporary impairment on eight pooled trust preferred
securities and several smaller equity security holdings. During the first nine months of 2009,
securities gains of $2.93 million were realized, compared with a gain of $2.13 million in the
comparable period in 2008.
During the third quarter, the Company recognized other-than-temporary impairment charges in
earnings related to eight pooled trust preferred securities of $30.53 million. During the three-
and nine-month periods ended September 30, 2009, the Company recognized impairment charges on
equity securities of $284 thousand and $899 thousand, respectively.
For a more detailed discussion of activities regarding investment securities and impairment
charges, please see Note 3 to the Financial Statements.
Noninterest Expense
Noninterest expense totaled $17.77 million for the quarter ended September 30, 2009, an increase of
$3.38 million, or 23.47%, from the same period in 2008. Salaries and employee benefits for the
third quarter of 2009 increased $489 thousand, or 6.63%, compared to the same period in 2008.
Coddle Creek Financial branches accounted for an increase in salaries and employee benefits of $294
thousand, TriStone Community Bank branches accounted for an increase of $148 thousand, and
GreenPoint Insurance Groups acquisitions accounted for an increase of $309 thousand. Decreases in
general bank staffing levels and benefits partially offset the increases due to acquisitions.
Occupancy and furniture and equipment expenses decreased $27 thousand between the comparable
periods. Other operating expense totaled $4.84 million for the third quarter of 2009, an increase
of $268 thousand, or 5.86%, from $4.57 million for the third quarter of 2008. Also included in
total non-interest expenses are merger-related expenses amounting to $1.51 million for the three
months ended September 30,
- 41 -
2009. Merger-related expenses include legal expense, salary and data services termination costs,
and severance payments related to the TriStone acquisition.
Over the course of the last three quarters, the FDIC has announced increases in deposit insurance
premiums, proposals to levy special assessments, and shift to a three year prepaid collection
versus payment in arrears. Deposit insurance premiums and assessments were $1.11 million and $2.58
million for the three- and nine-month periods ended September 30, 2009. The Company expects that
quarterly premium accruals for the remainder of 2009 could approximate $1.30 million. The FDIC
special assessment for the period ended June 30, 2009, totaled $988 thousand. The FDIC is
considering a prepaid assessment that would be payable December 31, 2009, and use as a credit
against future premium assessments. The Company expects that prepaid assessment, if approved, will
amount to approximately $10.00 million.
Noninterest expense totaled $49.11 million for the nine months ended September 30, 2009, an
increase of $3.67 million, or 8.08%, from the same period in 2008. Salaries and employee benefits
for the first nine months of 2009 increased $390 thousand, or 1.71%, compared to the same period in
2008. Salaries and employee benefits at GreenPoint increased $1.11 million over the prior first
nine months, a result of new agency acquisitions, salaries and employee benefits at the new
branches from Coddle Creek were $926 thousand, and salaries and employee benefits at the new
branches from TriStone were $148 thousand. Decreases in general bank staffing levels and benefits
largely offset the increases. Occupancy and furniture and equipment expenses increased $445
thousand between the comparable periods with the addition of GreenPoint and the Coddle Creek and
TriStone branches. Other operating expense totaled $14.01 million for the first nine months of
2009, an increase of $107 thousand, or 0.77%, from $13.90 million for the first nine months of
2008. Also included in total non-interest expenses are merger-related expenses amounting to $1.58
million for the nine months ended September 30, 2009. Merger-related expenses include legal
expense, salary and data services termination costs, and severance payments related to the TriStone
acquisition.
Income Tax Expense
Income tax expense is comprised of federal and state current and deferred income taxes on pre-tax
earnings of the Company. Income taxes as a percentage of pre-tax income may vary significantly
from statutory rates due to items of income and expense which are excluded, by law, from the
calculation of taxable income. These items are commonly referred to as permanent differences. The
most significant permanent differences for the Company include income on state and municipal
securities which are exempt from federal income tax, certain dividend payments which are deductible
by the Company, tax credits generated by investments in low income housing and historic building
rehabilitations, and bargain purchase gains in business combinations.
For the third quarter of 2009, the income tax benefit was $9.63 million compared with income taxes
of $1.75 million for the third quarter of 2008. For the quarters ended September 30, 2009 and
2008, the effective tax (benefit)/expense rates were (46.02%) and 27.81%, respectively. The
increase in the effective benefit rate is due largely to the reduction in taxable income and annual
tax return true-ups. For the nine months ended September 30, 2009, the income tax benefit was $6.44
million compared with income taxes of $6.75 million for the same period in 2008. For the nine
months ended September 30, 2009 and 2008, the effective tax (benefit)/expense rates were (63.74%)
and 28.30%, respectively. The increase in the effective benefit rate is due largely to the
reduction in taxable income and annual tax return true-ups.
FINANCIAL CONDITION
Total assets at September 30, 2009, increased $165.03 million, or 7.74%, to $2.30 billion from
December 31, 2008. The increase reflects the acquisition of TriStone, net increases in the
customer deposits as a result of deposit campaigns and a general movement of funds into
FDIC-insured products and continued loan payoffs.
Securities
Available-for-sale securities were $575.80 million at September 30, 2009, compared with $520.72
million at December 31, 2008, an increase of $55.08 million, or 10.58%. Held-to-maturity
securities declined to $7.45 million at September 30, 2009, compared with $8.67 million at December
31, 2008.
During the third quarter, the Company recognized other-than-temporary impairment charges in
earnings related to eight pooled trust preferred securities of $30.53 million. During the three-
and nine-month periods ended September 30, 2009, the Company recognized impairment charges on
equity securities of $284 thousand and $899 thousand, respectively.
- 42 -
For a more detailed discussion of activities regarding investment securities and impairment
charges, please see Note 3 to the Financial Statements.
Loan Portfolio
Loans Held for Sale: The $4.38 million balance of loans held for sale at September 30, 2009,
represents mortgage loans that are sold to investors on a best efforts basis. Accordingly, the
Company does not retain the interest rate risk involved in the commitment. The gross notional
amount of outstanding commitments on loans committed but not closed at September 30, 2009, was
$9.53 million on 58 loans.
Loans Held for Investment: Total loans held for investment were $1.40 billion at September 30,
2009, representing an increase of $98.46 million from December 31, 2008 and $228.33 million from
September 30, 2008. The increases are due primarily to the acquisition of TriStone. The average
loan to deposit ratio decreased to 83.25% for the third quarter of 2009, compared with 86.01% for
the year ended 2008 and 88.25% for the third quarter of 2008. Year-to-date average loans of $1.31
billion increased $121.37 million when compared to 2008.
Over the course of the last four years, the Company has taken measures to enhance its commercial
underwriting standards. The more stringent underwriting has sustained credit quality; however,
these measures, coupled with a reduced complement of commercial loan officers, have resulted in
decreases in the loan portfolio. The Company also continues to realize net payoffs in the area of
consumer finance, as it competes with credit card lenders and captive automobile finance companies.
The held for investment loan portfolio continues to be diversified among loan types and industry
segments. The following table presents the various loan categories and changes in composition as
of September 30, 2009, December 31, 2008, and September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 , 2009 |
|
|
December 31, 2008 |
|
|
September 30 , 2008 |
|
(Dollars in Thousands) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Loans Held for Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural |
|
$ |
86,068 |
|
|
|
6.16 |
% |
|
$ |
85,034 |
|
|
|
6.55 |
% |
|
$ |
83,271 |
|
|
|
7.13 |
% |
Commercial real estate |
|
|
452,670 |
|
|
|
32.41 |
% |
|
|
407,638 |
|
|
|
31.40 |
% |
|
|
386,287 |
|
|
|
33.06 |
% |
Residential real estate |
|
|
652,155 |
|
|
|
46.70 |
% |
|
|
602,573 |
|
|
|
46.42 |
% |
|
|
498,721 |
|
|
|
42.69 |
% |
Construction |
|
|
137,750 |
|
|
|
9.86 |
% |
|
|
130,610 |
|
|
|
10.06 |
% |
|
|
127,076 |
|
|
|
10.88 |
% |
Consumer |
|
|
62,995 |
|
|
|
4.51 |
% |
|
|
66,258 |
|
|
|
5.10 |
% |
|
|
66,333 |
|
|
|
5.68 |
% |
Other |
|
|
4,979 |
|
|
|
0.36 |
% |
|
|
6,046 |
|
|
|
0.47 |
% |
|
|
6,598 |
|
|
|
0.56 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,396,617 |
|
|
|
100.00 |
% |
|
$ |
1,298,159 |
|
|
|
100.00 |
% |
|
$ |
1,168,286 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held for Sale |
|
$ |
4,376 |
|
|
|
|
|
|
$ |
1,024 |
|
|
|
|
|
|
$ |
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Performing Assets
Non-performing assets include loans on non-accrual status, loans contractually past due 90 days or
more and still accruing interest, and other real estate owned (OREO). Non-performing assets were
$16.23 million at September 30, 2009, $14.09 million at December 31, 2008, and $7.89 million at
September 30, 2008. The percentage of non-performing assets to total loans and OREO was 1.16% at
September 30, 2009, 1.08% at December 31, 2008, and 0.68% at September 30, 2008.
The following schedule details non-performing assets by category at the close of each of the
quarters ended September 30, 2009 and 2008, and December 31, 2008.
- 43 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
(In thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Non-accrual |
|
$ |
12,278 |
|
|
$ |
12,763 |
|
|
$ |
6,997 |
|
Ninety days past due and accruing |
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
3,955 |
|
|
|
1,326 |
|
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
16,233 |
|
|
$ |
14,089 |
|
|
$ |
7,893 |
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans as a percentage of: loans held for investment |
|
|
0.88 |
% |
|
|
0.98 |
% |
|
|
0.60 |
% |
Non-performing assets as a percentage
of total assets |
|
|
0.71 |
% |
|
|
0.66 |
% |
|
|
0.40 |
% |
Non-performing assets as a percentage
of total loans and OREO |
|
|
1.16 |
% |
|
|
1.08 |
% |
|
|
0.68 |
% |
Ongoing activity within the classification and categories of non-performing loans includes
collections on delinquencies, foreclosures and movements into or out of the non-performing
classification as a result of changing customer business conditions. OREO was $3.96 million at
September 30, 2009, an increase of $2.63 million from December 31, 2008, and is carried at the
lesser of estimated net realizable value or cost. OREO increased from December 31, 2008 as
non-performing loans were converted to foreclosed real estate. At September 30, 2009, OREO
consisted of 56 properties with an average value of $113 thousand.
The
Company has identified a $7.0 million retained portion of a
$34.3 million participated loan which has displayed early stage
delinquency for which management has concerns regarding the
ability of the borrowers to meet existing repayment terms. The collateral for this loan is a large
tract of undeveloped land in Virginia and the Company currently feels it is
adequately secured. Although this loan has been identified as a
potential problem loan, it has not risen to the level of nonperforming or impaired.
Deposits and Other Borrowings
Total deposits increased by $158.70 million, or 10.55%, during the first nine months of 2009.
Noninterest-bearing demand deposits decreased $1.61 million to $198.11 million at September 30,
2009, compared with $199.71 million at December 31, 2008. Interest-bearing demand deposits
increased $31.07 million to $216.18 million at September 30, 2009. Savings increased $41.87
million, or 13.53%, and time deposits increased $87.36 million, or 10.79%, during the first nine
months of 2009. The Companys increase in deposits is due to the acquisition of TriStone,
increasing customer household savings, a desire for FDIC insured deposit products, and a flow of
funds out of equity markets.
Securities sold under repurchase agreements decreased $18.87 million, or 11.37%, in the first nine
months of 2009 to $147.04 million. There were no federal funds purchased outstanding at September
30, 2009, as the Company maintained strong liquidity through the third quarter.
Stockholders Equity
Total stockholders equity increased $45.19 million, or 20.51%, from $220.34 million at December
31, 2008, to $265.54 million at September 30, 2009. In June 2009, we completed the sale of 5.29
million shares of our common stock in a public offering. The purchase price was $12.50 per share,
and net proceeds from the sale totaled approximately $61.67 million. In July 2009, in connection
with the TriStone acquisition we issued 741,588 shares of the Companys common stock for
approximately $10.13 million towards the total purchase price of $10.78 million. Other changes in
equity were the result of a net loss of $3.67 million, less preferred dividends of $1.12 million,
common dividends declared of $4.62 million, the cumulative effect adjustment of $6.13 million, and
other comprehensive loss of $19.48 million.
On November 21, 2008, we completed the issuance of $41.5 million of Series A perpetual preferred
stock and a related warrant under the Treasurys voluntary TARP Capital Purchase Program (CPP).
The warrant initially represented the right to purchase 176,546 shares of our common stock at an
initial exercise price of $35.26 per share. Our June 2009 common stock offering reduced the number
of shares under warrant to 88,273. On July 8, 2009, we repurchased the $41.5 million in preferred
stock from the Treasury. We did not repurchase the warrant, so the Treasury retains the option to
sell the warrant in the open market to a third party.
- 44 -
Risk-Based Capital
Risk-based capital guidelines promulgated by federal banking agencies weight balance sheet assets
and off-balance sheet commitments based on inherent risks associated with the respective asset
types. At September 30, 2009, the Companys total capital to risk-weighted assets ratio was 13.11%
compared with 12.91% at December 31, 2008. The Companys Tier 1 capital to risk-weighted assets
ratio was 12.15% at September 30, 2009, compared with 11.92% at December 31, 2008. The Companys
Tier 1 leverage ratio at September 30, 2009, was 10.10% compared with 9.75% at December 31, 2008.
All of the Companys regulatory capital ratios exceed the current well-capitalized levels.
Regulatory capital ratios decreased from December 31, 2008, primarily because of common stock
offering, offset by the treatment of certain debt securities when rated below investment grade.
PART I. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Liquidity and Capital Resources
At September 30, 2009, the Company maintained liquidity in the form of cash and cash equivalent
balances of $51.91 million, unpledged securities available-for-sale of $199.85 million, and total
FHLB credit availability of approximately $126.23 million. Cash and cash equivalents as well as
advances from the FHLB are immediately available for satisfaction of deposit withdrawals, customer
credit needs and operations of the Company. Investment securities available-for-sale represents a
secondary level of liquidity available for conversion to liquid funds in the event of extraordinary
needs. The Company also maintains approved lines of credit with correspondent banks as backup
liquidity sources.
The Company maintained cash balances of $17.14 million in the holding company. As a result of
investment securities impairments recognized in 2008 and 2009, the Bank is restricted from paying
dividends to the parent company. The Company believes the cash reserves held in the holding
companys account provide adequate working capital to meet its obligations for the next 12 months..
The Company maintains a liquidity policy as a means to manage liquidity and the associated risk.
The policy includes a Liquidity Contingency Plan (the Liquidity Plan) that is designed as a tool
for the Company to detect liquidity issues promptly in order to protect depositors, creditors and
shareholders. The Liquidity Plan includes monitoring various internal and external indicators such
as changes in core deposits and changes in market conditions. It provides for timely responses to a
wide variety of funding scenarios ranging from changes in loan demand to a decline in the Companys
quarterly earnings to a decline in the market price of the Companys stock. The Liquidity Plan
calls for specific responses designed to meet a wide range of liquidity needs based upon
assessments on a recurring basis by the Company and its Board of Directors.
Interest Rate Risk and Asset/Liability Management
The Companys profitability is dependent to a large extent upon its net interest income, which is
the difference between its interest income on interest-earning assets, such as loans and
securities, and its interest expense on interest-bearing liabilities, such as deposits and
borrowings. The Company, like other financial institutions, is subject to interest rate risk to
the degree that interest-earning assets reprice differently than interest-bearing liabilities. The
Company manages its mix of assets and liabilities with the goals of limiting its exposure to
interest rate risk, ensuring adequate liquidity, and coordinating its sources and uses of funds
while maintaining an acceptable level of net interest income given the current interest rate
environment.
The Companys primary component of operational revenue, net interest income, is subject to
variation as a result of changes in interest rate environments in conjunction with unbalanced
repricing opportunities on earning assets and interest-bearing liabilities. Interest rate risk has
four primary components: repricing risk, basis risk, yield curve risk and option risk. Repricing
risk occurs when earning assets and paying liabilities reprice at differing times as interest rates
change. Basis risk occurs when the underlying rates on the assets and liabilities the institution
holds change at different levels or in varying degrees. Yield curve risk is the risk of adverse
consequences as a result of unequal changes in the spread between two or more rates for different
maturities for the same instrument. Lastly, option risk is due to embedded options, often put or
call options, given or sold to holders of financial instruments.
In order to mitigate the effect of changes in the general level of interest rates, the Company
manages repricing opportunities and thus, its interest rate sensitivity. The Company seeks to
control its interest rate risk exposure to insulate net interest income and net earnings from
fluctuations in the general level of interest rates. To measure its exposure to interest rate
risk, quarterly simulations of net interest income are performed using financial models that
project net interest income through a range of possible interest rate environments including
rising, declining, most likely and flat rate scenarios. The simulation model used by the Company
captures all earning assets, interest-bearing liabilities and off-balance sheet financial
instruments
- 45 -
and combines the various factors affecting rate sensitivity into an earnings outlook. The results
of these simulations indicate the existence and severity of interest rate risk in each of those
rate environments based upon the current balance sheet position, assumptions as to changes in the
volume and mix of interest-earning assets and interest-paying liabilities and the Companys
estimate of yields to be attained in those future rate environments and rates that will be paid on
various deposit instruments and borrowings. These assumptions are inherently uncertain and, as a
result, the model cannot precisely predict the impact of fluctuations in interest rates on net
interest income. Actual results will differ from simulated results due to timing, magnitude, and
frequency of interest rate changes, as well as changes in market conditions and the Companys
strategies. However, the earnings simulation model is currently the best tool available to the
Company for managing interest rate risk.
Specific strategies for management of interest rate risk have included shortening the amortized
maturity of new fixed-rate loans, increasing the volume of adjustable-rate loans to reduce the
average maturity of the Companys interest-earning assets, and monitoring the term and structure of
liabilities to maintain a balanced mix of maturity and repricing structures to mitigate potential
exposure. At September 30, 2009, net interest income modeling shows the Company to be in a
slightly liability sensitive position.
The Company has established policy limits for tolerance of interest rate risk that allow for no
more than a 10% reduction in projected net interest income for the next twelve months based on a
comparison of net interest income simulations in various interest rate scenarios. In addition, the
policy addresses exposure limits to changes in the economic value of equity according to predefined
policy guidelines. The most recent simulation indicates that current exposure to interest rate
risk is within the Companys defined policy limits.
The following table summarizes the projected impact on the next twelve months net interest income
and the economic value of equity as of September 30, 2009, and December 31, 2008, of immediate and
sustained rate shocks in the interest rate environments of plus and minus 100 and 200 basis points
from the base simulation, assuming no remedial measures are affected. As of September 30, 2009,
the Federal Open Market Committee maintains a target range for federal funds of 0 to 25 basis
points, rendering a complete downward shock of 200 basis points unrealistic and not meaningful. In
the downward rate shocks presented, benchmark interest rates are dropped with floors near 0%.
The economic value of equity is a measure which reflects the impact of changing rates on the
underlying values of the Companys assets and liabilities in various rate scenarios. The scenarios
illustrate the potential estimated impact of instantaneous rate shocks on the underlying value of
equity. The economic value of the equity is based on the present value of all the future cash
flows under the different rate scenarios.
Rate Sensitivity Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
September 30, 2009 |
|
|
Change in |
|
|
|
|
|
Change in |
|
|
Increase (Decrease) in |
|
Net Interest |
|
% |
|
Econcomic Value |
|
% |
Interest Rates (Basis Points) |
|
Income |
|
Change |
|
of Equity |
|
Change |
200 |
|
$ |
(3,020 |
) |
|
|
(4.0 |
) |
|
$ |
(24,523 |
) |
|
|
(8.8 |
) |
100 |
|
|
(1,687 |
) |
|
|
(2.2 |
) |
|
|
(5,453 |
) |
|
|
(2.0 |
) |
(100) |
|
|
1,327 |
|
|
|
1.8 |
|
|
|
16,382 |
|
|
|
5.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands) |
|
December 31, 2008 |
|
|
Change in |
|
|
|
|
|
Change in |
|
|
Increase (Decrease) in |
|
Net Interest |
|
% |
|
Econcomic Value |
|
% |
Interest Rates (Basis Points) |
|
Income |
|
Change |
|
of Equity |
|
Change |
200 |
|
$ |
1,479 |
|
|
|
2.3 |
|
|
$ |
(8,040 |
) |
|
|
(3.7 |
) |
100 |
|
|
1,493 |
|
|
|
2.3 |
|
|
|
719 |
|
|
|
0.3 |
|
(100) |
|
|
1,874 |
|
|
|
2.9 |
|
|
|
(21,443 |
) |
|
|
(9.9 |
) |
- 46 -
PART I. ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under
the supervision and with the participation of the Companys management, including the Companys
Chief Executive Officer (CEO) along with the Companys Chief Financial Officer (CFO), of the
effectiveness of the Companys disclosure controls and procedures pursuant to the Securities
Exchange Act of 1934 (Exchange Act) Rule 13a-15(b). Based on that evaluation, the Companys CEO
along with the Companys CFO concluded that the Companys disclosure controls and procedures are
effective in timely alerting them to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Companys periodic SEC filings.
The Companys management, including the CEO and CFO, does not expect that the Companys disclosure
controls and internal controls will prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty, and that breakdowns can
occur because of simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by management override of
the controls.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Companys internal controls over financial reporting during
the quarter ended September 30, 2009, that have materially affected, or are reasonably likely to
materially affect, the Companys internal controls over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is currently a defendant in various legal actions and asserted claims in the normal
course of business. Although the Company and legal counsel are unable to assess the ultimate
outcome of each of these matters with certainty, they are of the belief that the resolution of
these actions should not have a material adverse affect on the financial position, results of
operations, or cash flows of the Company.
ITEM 1A. Risk Factors
In addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2008, and in our Quarterly Report on Form 10-Q for the quarter ended
June 30, 2009, you should carefully consider the following additional risk factor
Higher FDIC deposit insurance premiums and assessments could adversely affect our financial condition.
The Banks FDIC insurance premiums have increased substantially in 2009, and we expect to pay
significantly higher premiums in the future. A large number of depository institution failures
have significantly depleted the Deposit Insurance Fund (DIF) and reduced the ratio of reserves to
insured deposits. In order to restore the DIF to its statutorily mandated minimum of 1.15 percent
over a period of several years, the FDIC increased deposit insurance premium rates at the beginning
of 2009 and imposed a special assessment on June 30, 2009, which amounted to $988 thousand for the
Bank. The FDIC may impose additional special assessments in the future.
On September 29, 2009, in order to ensure sufficient liquidity to pay for projected depository
institution failures, the FDIC issued a proposed rule pursuant to which all insured depository
institutions would be required to prepay their estimated quarterly risk-based assessments for the
fourth quarter of 2009 and for all of 2010, 2011, and 2012. The proposed prepayment would be due
on December 31, 2009. For purposes of calculating the prepaid assessment amount, an institutions
assessment base for the quarter ended September 30, 2009, would be increased quarterly by an
estimated five percent annual growth rate through the end of 2012. An institutions assessment
rate for the fourth quarter of 2009 and for all of 2010 would be equal to the rate in effect on
September 30, 2009, under the proposed rule, but would be increased by three
- 47 -
basis points for all of 2011 and 2012. If the proposed rule is passed, we would be required to
make a payment to the FDIC on December 31, 2009, and to record the payment as a prepaid expense,
which would be amortized to expense over three years.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
(a) |
|
Not Applicable |
|
|
(b) |
|
Not Applicable |
|
|
(c) |
|
Issuer Purchases of Equity Securities |
The following table sets forth open market purchases by the Company of its equity securities during
the three months ended
September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Maximum |
|
|
|
Total |
|
|
|
|
|
|
of Shares |
|
|
Number of |
|
|
|
Number of |
|
|
Average |
|
|
Purchased as |
|
|
Shares That May |
|
|
|
Shares |
|
|
Price Paid |
|
|
Part of a Publicly |
|
|
Yet be Purchased |
|
|
|
Purchased |
|
|
per Share |
|
|
Announced Plan |
|
|
Under the Plan |
|
July 1-31, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
668,358 |
|
August 1-31, 2009 |
|
|
1,000 |
|
|
$ |
12.72 |
|
|
|
1,000 |
|
|
|
667,358 |
|
September 1-30, 2009 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
697,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,000 |
|
|
$ |
12.72 |
|
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys stock repurchase plan allows for the purchase and retention of up to 1,100,000
shares. The plan has no expiration date and remains open. The Company held 402,494 shares in
treasury at September 30, 2009.
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not Applicable
ITEM 5. Other Information
Not Applicable
ITEM 6. Exhibits
|
|
|
Exhibit |
|
|
No. |
|
Exhibit |
|
|
|
2.1
|
|
Reserved. |
|
|
|
2.2
|
|
Reserved. |
|
|
|
3(i)
|
|
Articles of Incorporation of First Community Bancshares, Inc., as amended. (1) |
|
|
|
3(ii)
|
|
Certificate of Designation Series A Preferred Stock (22) |
|
|
|
3(iii)
|
|
Bylaws of First Community Bancshares, Inc., as amended. (17) |
|
|
|
4.1
|
|
Specimen stock certificate of First Community Bancshares, Inc. (3) |
|
|
|
4.2
|
|
Indenture Agreement dated September 25, 2003. (11) |
|
|
|
4.3
|
|
Amended and Restated Declaration of Trust of FCBI Capital Trust dated September 25, 2003. (11) |
|
|
|
4.4
|
|
Preferred Securities Guarantee Agreement dated September 25, 2003. (11) |
|
|
|
4.5
|
|
Reserved. |
|
|
|
4.6
|
|
Warrant to purchase 176,546 shares of common stock of First Community Bancshares, Inc (22) |
|
|
|
10.1
|
|
First Community Bancshares, Inc. 1999 Stock Option Contracts (2) and Plan. (4) |
- 48 -
|
|
|
Exhibit |
|
|
No. |
|
Exhibit |
|
|
|
10.1.1
|
|
Amendment to First Community Bancshares, Inc. 1999 Stock Option Plan. (11) |
|
|
|
10.2
|
|
First Community Bancshares, Inc. 2001 Non-Qualified Directors Stock Option Plan. (5) |
|
|
|
10.3
|
|
Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and John M.
Mendez. (6) |
|
|
|
10.4
|
|
First Community Bancshares, Inc. 2000 Executive Retention Plan, as amended. (24) |
|
|
|
10.5
|
|
First Community Bancshares, Inc. Split Dollar Plan and Agreement. (2) |
|
|
|
10.6
|
|
First Community Bancshares, Inc. 2001 Directors Supplemental Retirement Plan. (2) |
|
|
|
10.6.1
|
|
First Community Bancshares, Inc. 2001 Directors Supplemental Retirement Plan. Second Amendment (B.W.
Harvey, Sr. October 19, 2004). (14) |
|
|
|
10.7
|
|
First Community Bancshares, Inc. Wrap Plan. (7) |
|
|
|
10.8
|
|
Reserved. |
|
|
|
10.9
|
|
Form of Indemnification Agreement between First Community Bancshares, Inc., its Directors and Certain
Executive
Officers. (9) |
|
|
|
10.10
|
|
Form of Indemnification Agreement between First Community Bank, N. A, its Directors and Certain Executive
Officers. (9) |
|
|
|
10.11
|
|
Reserved. |
|
|
|
10.12
|
|
First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan (10) and Award Agreement. (13) |
|
|
|
10.13
|
|
Reserved. |
|
|
|
10.14
|
|
First Community Bancshares, Inc. Directors Deferred Compensation Plan. (7) |
|
|
|
10.15
|
|
First Community Bancshares, Inc. Deferred Compensation and Supplemental Bonus Plan For Key Employees. (15) |
|
|
|
10.16
|
|
Employment Agreement dated November 30, 2006, between First Community Bank, N. A. and Ronald L. Campbell.
(19) |
|
|
|
10.17
|
|
Employment Agreement dated September 28, 2007, between GreenPoint Insurance Group, Inc. and Shawn C.
Cummings. (20) |
|
|
|
10.18
|
|
Securities Purchase Agreement by and between the United States Department of the Treasury and First
Community Bancshares, Inc. dated November 21, 2008. (22) |
|
|
|
10.19
|
|
Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and David D.
Brown. (23) |
|
|
|
10.20
|
|
Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and Robert L.
Buzzo (26) |
|
|
|
10.21
|
|
Employment Agreement dated December 16, 2008, between First Community Bancshares, Inc. and E. Stephen
Lilly (26) |
|
|
|
10.22
|
|
Employment Agreement dated December 16, 2008, between First Community Bank, N. A. and Gary R. Mills (26) |
|
|
|
10.23
|
|
Employment Agreement dated December 16, 2008, between First Community Bank, N. A. and Martyn A. Pell (26) |
|
|
|
10.24
|
|
Employment Agreement dated December 16, 2008, between First Community Bank, N. A. and Robert L.
Schumacher (26) |
|
|
|
10.25
|
|
Employment Agreement dated July 31, 2009, between First Community Bank, N. A. and Simpson O. Brown (25) |
|
|
|
10.25
|
|
Employment Agreement dated July 31, 2009, between First Community Bank, N. A. and Mark R. Evans (25) |
|
|
|
31.1*
|
|
Rule 13a-14(a)/a5d-14(a) Certification of Chief Executive Officer. |
|
|
|
31.2*
|
|
Rule 13a-14(a)/a5d-14(a) Certification of Chief Financial Officer. |
|
|
|
32*
|
|
Certification of Chief Executive Officer and Chief Financial Officer Section 1350. |
|
|
|
* |
|
Furnished herewith. |
|
(1) |
|
Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2005,
filed on August 5, 2005. |
|
(2) |
|
Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2002,
filed on August 14, 2002. |
|
(3) |
|
Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2002,
filed on March 25, 2003, as amended on March 31, 2003. |
|
(4) |
|
Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 1999,
filed on March 30, 2000, as amended April 13, 2000. |
|
(5) |
|
The option agreements entered into pursuant to the 1999 Stock Option Plan and the 2001 Non-Qualified
Directors Stock Option Plan are incorporated by reference from the Quarterly Report on Form 10-Q for the
period ended June 30, 2002, filed on August 14, 2002. |
- 49 -
|
|
|
(6) |
|
Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated and filed December
16, 2008. |
|
(7) |
|
Incorporated by reference from the Current Report on Form 8-K dated August 22, 2006, and filed August 23,
2006. |
|
(8) |
|
Reserved. |
|
(9) |
|
Form of indemnification agreement entered into by the Company and by First Community Bank, N. A. with
their respective directors and certain officers of each including, for the Registrant and Bank: John M.
Mendez, Robert L. Schumacher, Robert L. Buzzo, E. Stephen Lilly, David D. Brown, and Gary R. Mills.
Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2003,
filed on March 15, 2004, and amended on May 19, 2004. |
|
(10) |
|
Incorporated by reference from the 2004 First Community Bancshares, Inc. Definitive Proxy filed on March
19, 2004. |
|
(11) |
|
Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended September 30, 2003,
filed on
November 10, 2003. |
|
(12) |
|
Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended March 31, 2004,
filed on May 7, 2004. |
|
(13) |
|
Incorporated by reference from the Quarterly Report on Form 10-Q for the period ended June 30, 2004,
filed on August 6, 2004. |
|
(14) |
|
Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2004, and
filed on March 16, 2005. Amendments in substantially similar form were executed for Directors Clark,
Kantor, Hamner, Modena, Perkinson, Stafford, and
Stafford II. |
|
(15) |
|
Incorporated by reference from the Current Report on Form 8-K dated October 24, 2006, and filed October
25, 2006. |
|
(16) |
|
Reserved. |
|
(17) |
|
Incorporated by reference from Exhibit 3.1 of the Current Report on Form 8-K dated February 14, 2008,
filed on February 20, 2008. |
|
(18) |
|
Reserved |
|
(19) |
|
Incorporated by reference from Exhibit 2.1 of the Form S-3 registration statement filed May 2, 2007. |
|
(20) |
|
Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2007,
filed on March 13, 2008. |
|
(21) |
|
Reserved. |
|
(22) |
|
Incorporated by reference from the Current Report on Form 8-K dated November 21, 2008, and filed November
24, 2008. |
|
(23) |
|
Incorporated by reference from Exhibit 10.2 of the Current Report on Form 8-K dated and filed December
16, 2008. |
|
(24) |
|
Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated December 30, 2008,
and filed January 5, 2009. |
|
(25) |
|
Reserved. |
|
(26) |
|
Incorporated by reference from the Current Report on Form 8-K dated and filed July 6, 2009. |
- 50 -
SIGNATURES
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: November 6, 2009
|
|
|
/s/ John M. Mendez
John M. Mendez
|
|
|
President & Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
DATE: November 6, 2009
|
|
|
/s/ David D. Brown
David D. Brown
|
|
|
Chief Financial Officer |
|
|
(Principal Accounting Officer) |
|
|
- 51 -
EXHIBIT INDEX
|
|
|
Exhibit No. |
|
Exhibit |
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
|
|
|
32
|
|
Certification of Chief Executive and Chief Financial Officer pursuant to 18 USC Section 1350 |
- 52 -