FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2009
Commission file number 000-19297
FIRST COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
|
|
|
Nevada
|
|
55-0694814 |
|
|
|
(State or other jurisdiction of
incorporation)
|
|
(IRS Employer Identification No.) |
|
|
|
P.O. Box 989
Bluefield, Virginia
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|
24605-0989 |
|
|
|
(Address of principal executive offices)
|
|
(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 the to such filing requirements for the past 90 days.
Yes
þ No o
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).
Yes
o No o
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 and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
|
|
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|
|
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|
Large accelerated filer o
|
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Accelerated filer þ
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|
Non-accelerated filer o
|
|
Smaller reporting company o |
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|
|
|
(Do not check if a smaller reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
o No þ
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; 11,596,249 shares outstanding as of May 4, 2009
FIRST COMMUNITY BANCSHARES, INC.
FORM 10-Q
For the quarter ended March 31, 2009
INDEX
- 2 -
PART I. ITEM 1. Financial Statements
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008* |
|
(Dollars in Thousands, Except Per Share Data) |
|
(Unaudited) |
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
32,758 |
|
|
$ |
39,310 |
|
Interest-bearing balances with banks |
|
|
68,202 |
|
|
|
7,129 |
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
100,960 |
|
|
|
46,439 |
|
Securities available-for-sale |
|
|
549,664 |
|
|
|
520,723 |
|
Securities held-to-maturity |
|
|
8,471 |
|
|
|
8,670 |
|
Loans held for sale |
|
|
1,445 |
|
|
|
1,024 |
|
Loans held for investment, net of unearned income |
|
|
1,276,790 |
|
|
|
1,298,159 |
|
Less allowance for loan losses |
|
|
16,555 |
|
|
|
15,978 |
|
|
|
|
|
|
|
|
Net loans held for investment |
|
|
1,260,235 |
|
|
|
1,282,181 |
|
Premises and equipment |
|
|
54,893 |
|
|
|
55,024 |
|
Other real estate owned |
|
|
3,114 |
|
|
|
1,326 |
|
Interest receivable |
|
|
8,848 |
|
|
|
10,084 |
|
Goodwill and other intangible assets |
|
|
89,338 |
|
|
|
89,612 |
|
Other assets |
|
|
122,173 |
|
|
|
118,231 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
2,199,141 |
|
|
$ |
2,133,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Noninterest-bearing |
|
$ |
207,947 |
|
|
$ |
199,712 |
|
Interest-bearing |
|
|
1,375,497 |
|
|
|
1,304,046 |
|
|
|
|
|
|
|
|
Total Deposits |
|
|
1,583,444 |
|
|
|
1,503,758 |
|
Interest, taxes and other liabilities |
|
|
28,293 |
|
|
|
27,423 |
|
Securities sold under agreements to repurchase |
|
|
153,824 |
|
|
|
165,914 |
|
FHLB borrowings and other indebtedness |
|
|
215,870 |
|
|
|
215,877 |
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,981,431 |
|
|
|
1,912,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Preferred stock, par value undesignated; 1,000,000 shares authorized; 41,500 issued
at March 31, 2009, and December 31, 2008 |
|
|
40,471 |
|
|
|
40,419 |
|
Common stock, $1 par value; 25,000,000 shares authorized; 12,051,234 shares
issued at March 31, 2009, and December 31, 2008,
including 454,985
and 483,785 shares in treasury, respectively |
|
|
12,051 |
|
|
|
12,051 |
|
Additional paid-in capital |
|
|
127,992 |
|
|
|
128,526 |
|
Retained earnings |
|
|
118,021 |
|
|
|
107,231 |
|
Treasury stock, at cost |
|
|
(14,453 |
) |
|
|
(15,368 |
) |
Accumulated other comprehensive loss |
|
|
(66,372 |
) |
|
|
(52,517 |
) |
|
|
|
|
|
|
|
Total Stockholders Equity |
|
|
217,710 |
|
|
|
220,342 |
|
|
|
|
|
|
|
|
Total Liabilities and
Stockholders Equity |
|
$ |
2,199,141 |
|
|
$ |
2,133,314 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Derived from audited financial statements. |
See Notes to Consolidated Financial Statements.
- 3 -
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
(Dollars in Thousands, Except Per Share Data) |
|
2009 |
|
|
2008 |
|
Interest Income |
|
|
|
|
|
|
|
|
Interest and fees on loans held for investment |
|
$ |
19,984 |
|
|
$ |
21,237 |
|
Interest on securities-taxable |
|
|
5,164 |
|
|
|
6,067 |
|
Interest on securities-nontaxable |
|
|
1,676 |
|
|
|
2,063 |
|
Interest on deposits in banks |
|
|
39 |
|
|
|
180 |
|
|
|
|
|
|
|
|
Total interest income |
|
|
26,863 |
|
|
|
29,547 |
|
Interest Expense |
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
7,567 |
|
|
|
8,741 |
|
Interest on borrowings |
|
|
2,863 |
|
|
|
4,446 |
|
|
|
|
|
|
|
|
Total interest expense |
|
|
10,430 |
|
|
|
13,187 |
|
|
|
|
|
|
|
|
Net interest income |
|
|
16,433 |
|
|
|
16,360 |
|
Provision for loan losses |
|
|
2,087 |
|
|
|
323 |
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
14,346 |
|
|
|
16,037 |
|
|
|
|
|
|
|
|
Noninterest Income |
|
|
|
|
|
|
|
|
Wealth management income |
|
|
984 |
|
|
|
899 |
|
Service charges on deposit accounts |
|
|
3,157 |
|
|
|
3,099 |
|
Other service charges, commissions and fees |
|
|
1,178 |
|
|
|
1,121 |
|
Insurance commissions |
|
|
2,317 |
|
|
|
1,344 |
|
Total other-than-temporary impairment losses |
|
|
(209 |
) |
|
|
|
|
Portion of loss recognized in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment losses recognized in earnings |
|
|
(209 |
) |
|
|
|
|
Gain on sale of securities |
|
|
411 |
|
|
|
1,820 |
|
Other operating income |
|
|
586 |
|
|
|
858 |
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
8,424 |
|
|
|
9,141 |
|
|
|
|
|
|
|
|
Noninterest Expense |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
7,866 |
|
|
|
7,790 |
|
Occupancy expense of bank premises |
|
|
1,603 |
|
|
|
1,164 |
|
Furniture and equipment expense |
|
|
938 |
|
|
|
901 |
|
Intangible amortization |
|
|
245 |
|
|
|
160 |
|
Prepayment penalty on FHLB advance |
|
|
|
|
|
|
1,647 |
|
Other operating expense |
|
|
4,542 |
|
|
|
4,621 |
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
15,194 |
|
|
|
16,283 |
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
7,576 |
|
|
|
8,895 |
|
Income tax expense |
|
|
2,346 |
|
|
|
2,583 |
|
|
|
|
|
|
|
|
Net income |
|
|
5,230 |
|
|
|
6,312 |
|
Dividends on preferred stock |
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
4,659 |
|
|
$ |
6,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.40 |
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
Diluted earnings per common share |
|
$ |
0.40 |
|
|
$ |
0.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
|
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding |
|
|
11,567,769 |
|
|
|
11,029,931 |
|
Weighted average diluted shares outstanding |
|
|
11,616,568 |
|
|
|
11,107,610 |
|
See Notes to Consolidated Financial Statements.
- 4 -
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
(In Thousands) |
|
|
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
5,230 |
|
|
$ |
6,312 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
2,087 |
|
|
|
323 |
|
Depreciation and amortization of premises and equipment |
|
|
1,096 |
|
|
|
889 |
|
Intangible amortization |
|
|
245 |
|
|
|
160 |
|
Net investment amortization and accretion |
|
|
193 |
|
|
|
(340 |
) |
Net gain on the sale of assets |
|
|
(439 |
) |
|
|
(1,781 |
) |
Mortgage loans originated for sale |
|
|
(8,481 |
) |
|
|
(13,280 |
) |
Proceeds from sales of mortgage loans |
|
|
8,083 |
|
|
|
12,058 |
|
Gain on sales of loans |
|
|
(23 |
) |
|
|
(83 |
) |
Deferred income tax benefit |
|
|
(317 |
) |
|
|
(149 |
) |
Decrease in interest receivable |
|
|
1,235 |
|
|
|
2,723 |
|
Other operating activities, net |
|
|
1,194 |
|
|
|
3,543 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
10,103 |
|
|
|
10,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of securities available-for-sale |
|
|
46,394 |
|
|
|
30,797 |
|
Proceeds from maturities and calls of securities available-for-sale |
|
|
10,346 |
|
|
|
37,723 |
|
Proceeds from maturities and calls of securities held-to-maturity |
|
|
200 |
|
|
|
|
|
Purchase of securities available-for-sale |
|
|
(97,018 |
) |
|
|
(14,118 |
) |
Net decrease in loans held for investment |
|
|
18,065 |
|
|
|
45,809 |
|
Proceeds from the redemption of FHLB stock |
|
|
324 |
|
|
|
|
|
Proceeds from sales of equipment |
|
|
7 |
|
|
|
|
|
Purchase of premises and equipment |
|
|
(971 |
) |
|
|
(1,952 |
) |
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(22,653 |
) |
|
|
98,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Net increase (decrease) in demand and savings deposits |
|
|
27,482 |
|
|
|
(2,662 |
) |
Net increase (decrease) in time deposits |
|
|
52,204 |
|
|
|
(31,828 |
) |
Net decrease in federal funds purchased |
|
|
|
|
|
|
(18,500 |
) |
Net (decrease) increase in securities sold under agreement to repurchase |
|
|
(12,090 |
) |
|
|
573 |
|
Net decrease in FHLB and other borrowings |
|
|
(7 |
) |
|
|
(26,674 |
) |
Proceeds from the exercise of stock options |
|
|
|
|
|
|
66 |
|
Excess tax benefit from stock-based compensation |
|
|
|
|
|
|
10 |
|
Acquisition of treasury stock |
|
|
|
|
|
|
(2,168 |
) |
Preferred dividends paid |
|
|
(518 |
) |
|
|
|
|
Common dividends paid |
|
|
|
|
|
|
(3,082 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
67,071 |
|
|
|
(84,265 |
) |
|
|
|
|
|
|
|
Increase in cash and cash equivalents |
|
|
54,521 |
|
|
|
24,369 |
|
Cash and cash equivalents at beginning of period |
|
|
46,439 |
|
|
|
52,746 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
100,960 |
|
|
$ |
77,115 |
|
|
|
|
|
|
|
|
Supplemental information Noncash items |
|
|
|
|
|
|
|
|
Transfer of loans to other real estate |
|
$ |
2,030 |
|
|
$ |
282 |
|
Cumulative
effect adjustment of FAS 115-2, net of tax |
|
$ |
6,131 |
|
|
$ |
|
|
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 |
|
|
|
|
|
|
Stock |
|
|
Stock |
|
|
Capital |
|
|
Earnings |
|
|
Stock |
|
|
Income (Loss) |
|
|
Total |
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2008 |
|
$ |
|
|
|
$ |
11,499 |
|
|
$ |
108,825 |
|
|
$ |
117,670 |
|
|
$ |
(13,613 |
) |
|
$ |
(7,283 |
) |
|
$ |
217,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in
accounting principle |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(813 |
) |
|
|
|
|
|
|
|
|
|
|
(813 |
) |
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,312 |
|
|
|
|
|
|
|
|
|
|
|
6,312 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,280 |
) |
|
|
(7,280 |
) |
Reclassification adjustment for
gains realized in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(534 |
) |
|
|
(534 |
) |
Unrealized loss on cash flow hedge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(950 |
) |
|
|
(950 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,312 |
|
|
|
|
|
|
|
(8,764 |
) |
|
|
(2,452 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,082 |
) |
|
|
|
|
|
|
|
|
|
|
(3,082 |
) |
Acquisition of 67,300 treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,168 |
) |
|
|
|
|
|
|
(2,168 |
) |
Acquisition of GreenPoint Insurance -
7,728 shares issued |
|
|
|
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
245 |
|
|
|
|
|
|
|
267 |
|
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
Tax benefit from exercise of stock options |
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
Option exercises - 41,470 shares |
|
|
|
|
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2008 |
|
$ |
|
|
|
$ |
11,499 |
|
|
$ |
108,896 |
|
|
$ |
120,087 |
|
|
$ |
(15,457 |
) |
|
$ |
(16,047 |
) |
|
$ |
208,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,230 |
|
|
|
|
|
|
|
|
|
|
|
5,230 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on securities
available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13,863 |
) |
|
|
(13,863 |
) |
Reclassification adjustment for
gains realized in net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140 |
) |
|
|
(140 |
) |
Unrealized gain on cash flow hedge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,230 |
|
|
|
|
|
|
|
(13,855 |
) |
|
|
(8,625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividend, net |
|
|
52 |
|
|
|
|
|
|
|
(38 |
) |
|
|
(571 |
) |
|
|
|
|
|
|
|
|
|
|
(557 |
) |
Equity-based compensation expense |
|
|
|
|
|
|
|
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Retirement plan contribution -
28,800 shares issued |
|
|
|
|
|
|
|
|
|
|
(536 |
) |
|
|
|
|
|
|
915 |
|
|
|
|
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance March 31, 2009 |
|
$ |
40,471 |
|
|
$ |
12,051 |
|
|
$ |
127,992 |
|
|
$ |
118,021 |
|
|
$ |
(14,453 |
) |
|
$ |
(66,372 |
) |
|
$ |
217,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 accounting principles generally accepted in the United
States (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
increased by the dilutive effect of stock options, warrants and contingently issuable shares.
Basic and diluted net income per common share calculations follow:
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
|
ended March 31, |
|
(Amounts in Thousands, Except Share and Per Share Data) |
|
2009 |
|
|
2008 |
|
Net income available to common shareholders |
|
$ |
4,659 |
|
|
$ |
6,312 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
11,567,769 |
|
|
|
11,029,931 |
|
Dilutive shares for stock options |
|
|
6,332 |
|
|
|
57,040 |
|
Contingently issuable shares |
|
|
42,467 |
|
|
|
20,639 |
|
Common stock warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average dilutive shares outstanding |
|
|
11,616,568 |
|
|
|
11,107,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
0.40 |
|
|
$ |
0.57 |
|
Diluted earnings per share |
|
$ |
0.40 |
|
|
$ |
0.57 |
|
For the three months ended March 31, 2009, options and warrants to purchase 391,104 shares of
common stock were outstanding but were not included in the computation of diluted earnings per
common share because their effect would be anti-dilutive. This compares to options to purchase
10,000 shares of common stock outstanding but not included in the computation of diluted earnings
per common share because their effect would be anti-dilutive for the three months ended March 31,
2008.
- 7 -
Recent Accounting Pronouncements
In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP)
107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments. The FSP
requires a public entity to provide disclosures about fair value of financial instruments in
interim financial information. The FSP will be effective for interim and annual financial periods
ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009.
The Company adopted the provisions of FSP FAS 107-1 and APB 28-1 effective January 1, 2009.
In April 2009, the FASB issued FSP FAS 115-2, FAS 124-2 and EITF 99-20-2, Recognition and
Presentation of Other-Than-Temporary-Impairment. The FSP (i) changes existing guidance for
determining whether an impairment is other than temporary to debt securities and (ii) replaces the
existing requirement that the entitys management assert it has both the intent and ability to hold
an impaired debt security until recovery with a requirement that management assert: (a) it does not
have the intent to sell the debt security; and (b) it is more likely than not that it will not have
to sell the debt security before recovery of its cost basis. Under the FSP, declines in the fair
value of held-to-maturity and available-for-sale debt securities below their cost that are deemed
to be other than temporary are reflected in earnings as realized losses to the extent the
impairment is related to credit losses. The amount of impairment related to other factors is
recognized in other comprehensive income. The Company adopted the provisions of FSP FAS 115-2, FAS
124-2 and EITF 99-20-2-1 effective January 1, 2009, and made a cumulative effect credit adjustment
in retained earnings of approximately $6.13 million.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly. The FSP affirms the objective of fair value when a market is not active,
clarifies and includes additional factors for determining whether there has been a significant
decrease in market activity, eliminates the presumption that all transactions are distressed unless
proven otherwise, and requires an entity to disclose a change in valuation technique. The Company
adopted the provisions of FSP FAS 157-4 effective January 1, 2009, which did not have a material
impact on the Companys financial condition or results of operations.
In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). This statement establishes a framework for selecting accounting
principles to be used in preparing financial statements that are presented in conformity with US
GAAP. SFAS 162 is effective 60 days following the SECs approval of the Public Company Accounting
Oversight Board Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles, and is not expected to have an impact on the
Companys consolidated financial statements.
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and
Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). This statement requires
enhanced disclosures about an entitys derivative and hedging activities in order to improve the
transparency of financial reporting. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entitys financial position, financial
performance, and cash flows. The Company adopted SFAS 161 effective January 1, 2009, and the
enhanced disclosures are included in Note 11 Derivatives and Hedging Activities.
In December 2007, the FASB revised Statement No. 141, Business Combinations (SFAS 141R). This
statement requires an acquirer to recognize 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. This statement recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase. This statement 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 of SFAS 141R, the Company has expensed costs associated with recently announced
transactions.
Note 2. Mergers, Acquisitions, and Branching Activity
On April 2, 2009, the Company signed a definitive agreement providing for the acquisition of
TriStone Community Bank (TriStone), a $152.42 million state-chartered commercial bank
headquartered in Winston-Salem, North Carolina. The definitive agreement provides for the exchange
of .5262 shares of the Companys common stock for each outstanding share of TriStone common stock.
TriStone will be merged with and into the Companys wholly-owned national bank subsidiary, First
Community Bank, N. A. The transaction is subject to regulatory approvals and approval by the
stockholders of TriStone, and is expected to close in the third quarter of 2009.
- 8 -
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.
In May 2008, the Company opened a new branch location in Summersville, West Virginia.
Note 3. Investment Securities
As of March 31, 2009, and December 31, 2008, the amortized cost and estimated fair value of
available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government agency securities |
|
$ |
53,425 |
|
|
$ |
702 |
|
|
$ |
|
|
|
$ |
54,127 |
|
States and political subdivisions |
|
|
141,536 |
|
|
|
2,296 |
|
|
|
(2,209 |
) |
|
|
141,623 |
|
Trust-preferred securities |
|
|
148,882 |
|
|
|
|
|
|
|
(99,409 |
) |
|
|
49,473 |
|
Mortgage-backed securities |
|
|
303,431 |
|
|
|
7,149 |
|
|
|
(11,989 |
) |
|
|
298,591 |
|
Equities |
|
|
7,005 |
|
|
|
376 |
|
|
|
(1,531 |
) |
|
|
5,850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
654,279 |
|
|
$ |
10,523 |
|
|
$ |
(115,138 |
) |
|
$ |
549,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
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 |
|
|
148,760 |
|
|
|
|
|
|
|
(82,707 |
) |
|
|
66,053 |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 9 -
As of March 31, 2009, and December 31, 2008, the amortized cost and estimated fair value of
held-to-maturity securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
States and political subdivisions |
|
$ |
8,471 |
|
|
$ |
149 |
|
|
$ |
|
|
|
$ |
8,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,471 |
|
|
$ |
149 |
|
|
$ |
|
|
|
$ |
8,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
States and political subdivisions |
|
$ |
8,670 |
|
|
$ |
133 |
|
|
$ |
(1 |
) |
|
$ |
8,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,670 |
|
|
$ |
133 |
|
|
$ |
(1 |
) |
|
$ |
8,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects those investments in an unrealized loss position at March 31, 2009,
and December 31, 2008. The Company has the intent and ability to hold until maturity or recovery
any security in a continuous unrealized loss position for 12 or more months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
|
Less than 12 Months |
|
|
12 Months or longer |
|
|
Total |
|
Description of Securities |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
(In Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. Government agency securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
States and political subdivisions |
|
|
43,135 |
|
|
|
(1,194 |
) |
|
|
11,225 |
|
|
|
(1,015 |
) |
|
|
54,360 |
|
|
|
(2,209 |
) |
Trust-preferred securities |
|
|
|
|
|
|
|
|
|
|
49,473 |
|
|
|
(99,409 |
) |
|
|
49,473 |
|
|
|
(99,409 |
) |
Mortgage-backed securities |
|
|
24,705 |
|
|
|
(330 |
) |
|
|
16,558 |
|
|
|
(11,659 |
) |
|
|
41,263 |
|
|
|
(11,989 |
) |
Equity securities |
|
|
2,059 |
|
|
|
(1,245 |
) |
|
|
2,153 |
|
|
|
(286 |
) |
|
|
4,212 |
|
|
|
(1,531 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
69,899 |
|
|
$ |
(2,769 |
) |
|
$ |
79,409 |
|
|
$ |
(112,369 |
) |
|
$ |
149,308 |
|
|
$ |
(115,138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Less than 12 Months |
|
|
12 Months or longer |
|
|
Total |
|
Description of Securities |
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
|
Losses |
|
U. S. Government agency securities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
States and political subdivisions |
|
|
86,344 |
|
|
|
(2,949 |
) |
|
|
16,413 |
|
|
|
(1,539 |
) |
|
|
102,757 |
|
|
|
(4,488 |
) |
Trust-preferred securities |
|
|
|
|
|
|
|
|
|
|
60,260 |
|
|
|
(82,707 |
) |
|
|
60,260 |
|
|
|
(82,707 |
) |
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 |
|
$ |
136,951 |
|
|
$ |
(5,768 |
) |
|
$ |
78,917 |
|
|
$ |
(84,467 |
) |
|
$ |
215,868 |
|
|
$ |
(90,235 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in available-for-sale securities is a portfolio of trust-preferred securities with a total
fair value of approximately $49.47 million as of March 31, 2009. That portfolio is comprised of
single-issue securities and pooled trust-preferred securities. The single-issue securities had a
total fair value of approximately $26.77 million as of March 31, 2009, compared with their adjusted
cost basis of approximately $55.52 million.
At March 31, 2009, the total fair value of the pooled trust-preferred securities was approximately
$22.71 million, compared with an adjusted cost basis of approximately $93.37 million. The
collateral underlying these securities is comprised of 86% of bank trust-preferred securities and
subordinated debt issuances of over 500 banks nationwide. The remaining collateral is from
insurance companies and real estate investment trusts. During 2008 and 2009, these securities
experienced credit rating
- 10 -
downgrades and certain of these securities are on negative watch. As of December 31, 2008, the
Company recorded pre-tax other-than-temporary impairment charges of $15.46 million on one of its
pooled trust preferred securities which demonstrated a probable adverse change in cash flow.
Recent modeling of the expected cash flows from the pooled trust-preferred securities, at present,
does not suggest any of the remaining securities will incur credit losses under any of the
scenarios modeled due to the existence of other subordinate classes within the pools and on current
projections for deferrals and defaults of underlying collateral.
The Company made a cumulative effect adjustment of $6.13 million, $10.22 million pre-tax, as of
January 1, 2009, to recognize the portion of non-credit losses associated with a non-agency
mortgage-backed security for which the Company recognized a pre-tax other-than-temporary impairment
charge of $14.47 million as of December 31, 2008. The Company determined that only $4.25 million
of the original impairment charge was due to probable credit losses. The amount due to probable
credit losses was determined using customized default and prepayment scenarios.
At March 31, 2009, the combined depreciation in value of the 193 individual securities in an
unrealized loss position was approximately 26.36% 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. Management does not believe any individual
unrealized loss as of March 31, 2009, represents other-than-temporary impairment. The Company
intends to hold these securities until recovery or maturity and it is more likely than not that it
will not sell these securities before recovery. For the quarter ended March 31, 2009, the Company
recognized impairment of $209 thousand on certain of its equity securities holdings.
The amortized cost and estimated fair value of available-for-sale securities by contractual
maturity, at March 31, 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 |
|
|
|
|
|
|
Cost |
|
|
Fair Value |
|
|
|
(Dollars in Thousands) |
|
Due within one year |
|
$ |
1,378 |
|
|
$ |
1,399 |
|
Due after one year but within five years |
|
|
5,222 |
|
|
|
5,330 |
|
Due after five years within ten years |
|
|
75,311 |
|
|
|
76,792 |
|
Due after ten years |
|
|
261,932 |
|
|
|
161,702 |
|
|
|
|
|
|
|
|
|
|
|
343,843 |
|
|
|
245,223 |
|
Mortgage-backed securities |
|
|
303,431 |
|
|
|
298,591 |
|
Equity securities |
|
|
7,005 |
|
|
|
5,850 |
|
|
|
|
|
|
|
|
Total |
|
$ |
654,279 |
|
|
$ |
549,664 |
|
|
|
|
|
|
|
|
The amortized cost and estimated fair value of held-to-maturity securities by contractual maturity,
at March 31, 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 |
|
|
|
|
|
|
Cost |
|
|
Fair Value |
|
|
|
(Dollars in Thousands) |
|
Due within one year |
|
$ |
551 |
|
|
$ |
556 |
|
Due after one year but within five years |
|
|
4,116 |
|
|
|
4,197 |
|
Due after five years within ten years |
|
|
3,804 |
|
|
|
3,867 |
|
Due after ten years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,471 |
|
|
$ |
8,620 |
|
|
|
|
|
|
|
|
- 11 -
Note 4. Loans
Loans, net of unearned income, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
(Dollars in Thousands) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Loans held for investment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial, financial, and agricultural |
|
$ |
81,880 |
|
|
|
6.41 |
% |
|
$ |
85,034 |
|
|
|
6.55 |
% |
Real estate commercial |
|
|
405,549 |
|
|
|
31.76 |
% |
|
|
407,638 |
|
|
|
31.40 |
% |
Real estate construction |
|
|
124,320 |
|
|
|
9.74 |
% |
|
|
130,610 |
|
|
|
10.06 |
% |
Real estate residential |
|
|
597,372 |
|
|
|
46.79 |
% |
|
|
602,573 |
|
|
|
46.42 |
% |
Consumer |
|
|
62,353 |
|
|
|
4.88 |
% |
|
|
66,258 |
|
|
|
5.10 |
% |
Other |
|
|
5,316 |
|
|
|
0.42 |
% |
|
|
6,046 |
|
|
|
0.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,276,790 |
|
|
|
100.00 |
% |
|
$ |
1,298,159 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
1,445 |
|
|
|
|
|
|
$ |
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.
Financial instruments whose contract amounts represent credit risk are commitments to extend credit
(including availability of lines of credit) of $157.81 million and standby letters of credit and
financial guarantees written of $2.49 million at March 31, 2009. Additionally, the Company had
gross notional amount of outstanding commitments to lend related to secondary market mortgage loans
of $11.28 million at March 31, 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.
- 12 -
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-month
periods ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
(In Thousands) |
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
15,978 |
|
|
$ |
12,833 |
|
Provision for loan losses |
|
|
2,087 |
|
|
|
323 |
|
Charge-offs |
|
|
(1,730 |
) |
|
|
(966 |
) |
Recoveries |
|
|
220 |
|
|
|
672 |
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
16,555 |
|
|
$ |
12,862 |
|
|
|
|
|
|
|
|
Note 6. Deposits
The following is a summary of interest-bearing deposits by type as of March 31, 2009, and December
31, 2008.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In Thousands) |
|
2009 |
|
|
2008 |
|
Interest-bearing demand deposits |
|
$ |
194,934 |
|
|
$ |
185,117 |
|
Savings and money market deposits |
|
|
319,007 |
|
|
|
309,577 |
|
Certificates of deposit |
|
|
861,556 |
|
|
|
809,352 |
|
|
|
|
|
|
|
|
Total |
|
$ |
1,375,497 |
|
|
$ |
1,304,046 |
|
|
|
|
|
|
|
|
- 13 -
Note 7. Borrowings
The following schedule details the Companys Federal Home Loan Bank (FHLB) borrowings and other
indebtedness at March 31, 2009, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
(In Thousands) |
|
|
|
|
|
|
|
|
FHLB borrowings |
|
$ |
200,000 |
|
|
$ |
200,000 |
|
Subordinated debt |
|
|
15,464 |
|
|
|
15,464 |
|
Other long-term debt |
|
|
406 |
|
|
|
413 |
|
|
|
|
|
|
|
|
Total |
|
$ |
215,870 |
|
|
$ |
215,877 |
|
|
|
|
|
|
|
|
FHLB borrowings include $200.00 million in convertible and callable advances at March 31, 2009.
The weighted average interest rate of advances was 2.95% and 3.70% at March 31, 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 3.79% at March 31, 2009. The fair value
of the interest rate swap was a liability of $3.08 million at March 31, 2009.
At March 31, 2009, the FHLB advances have approximate contractual maturities between eight and
twelve years. The scheduled maturities of the advances are as follows:
|
|
|
|
|
|
|
Amount |
|
(In Thousands) |
|
|
|
|
2009 |
|
$ |
|
|
2010 |
|
|
|
|
2011 |
|
|
|
|
2012 |
|
|
|
|
2013 |
|
|
|
|
2014 and thereafter |
|
|
200,000 |
|
|
|
|
|
Total |
|
$ |
200,000 |
|
|
|
|
|
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 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.
- 14 -
Note 8. 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.
Note 9. 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
periods ended March 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
For the Three Months Ended |
|
|
|
March 31, 2009 |
|
|
|
Community |
|
|
Insurance |
|
|
Parent/ |
|
|
|
|
|
|
Banking |
|
|
Services |
|
|
Elimination |
|
|
Total |
|
Net interest income |
|
$ |
16,492 |
|
|
$ |
(18 |
) |
|
$ |
(41 |
) |
|
$ |
16,433 |
|
Provision for loan losses |
|
|
2,087 |
|
|
|
|
|
|
|
|
|
|
|
2,087 |
|
Noninterest income |
|
|
6,124 |
|
|
|
2,344 |
|
|
|
(44 |
) |
|
|
8,424 |
|
Noninterest expense |
|
|
13,582 |
|
|
|
1,638 |
|
|
|
(26 |
) |
|
|
15,194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
6,947 |
|
|
|
688 |
|
|
|
(59 |
) |
|
|
7,576 |
|
Provision for income taxes |
|
|
1,932 |
|
|
|
203 |
|
|
|
211 |
|
|
|
2,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,015 |
|
|
$ |
485 |
|
|
$ |
(270 |
) |
|
$ |
5,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period goodwill and other intangibles |
|
$ |
78,657 |
|
|
$ |
10,681 |
|
|
$ |
|
|
|
|
89,338 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period assets |
|
$ |
2,170,694 |
|
|
$ |
11,698 |
|
|
$ |
16,749 |
|
|
|
2,199,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
For the Three Months Ended |
|
|
|
March 31, 2008 |
|
|
|
Community |
|
|
Insurance |
|
|
Parent/ |
|
|
|
|
|
|
Banking |
|
|
Services |
|
|
Elimination |
|
|
Total |
|
Net interest income |
|
$ |
16,635 |
|
|
$ |
(6 |
) |
|
$ |
(269 |
) |
|
$ |
16,360 |
|
Provision for loan losses |
|
|
323 |
|
|
|
|
|
|
|
|
|
|
|
323 |
|
Noninterest income |
|
|
7,994 |
|
|
|
1,344 |
|
|
|
(197 |
) |
|
|
9,141 |
|
Noninterest expense |
|
|
15,792 |
|
|
|
1,046 |
|
|
|
(555 |
) |
|
|
16,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
8,514 |
|
|
|
292 |
|
|
|
89 |
|
|
|
8,895 |
|
Provision for income taxes |
|
|
2,432 |
|
|
|
86 |
|
|
|
65 |
|
|
|
2,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,082 |
|
|
$ |
206 |
|
|
$ |
24 |
|
|
$ |
6,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period goodwill and other intangibles |
|
$ |
62,352 |
|
|
$ |
8,887 |
|
|
$ |
|
|
|
|
71,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period assets |
|
$ |
2,045,941 |
|
|
$ |
8,900 |
|
|
$ |
10,272 |
|
|
|
2,065,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10. Fair Value Disclosures
Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157, Fair Value
Measurements, (SFAS 157) for financial assets and financial liabilities. In accordance with
FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157, the Company delayed
application of SFAS 157 for non-financial assets and non-financial
liabilities until January 1, 2009. SFAS 157, as amended, defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements.
- 15 -
SFAS 157 defines fair value 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.
SFAS 157 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. |
|
|
|
|
|
|
|
|
|
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 financial assets and
financial 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, such as U.S. Treasuries, whose value is based on quoted market prices in active markets
for identical assets.
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.
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 certain
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.
- 16 -
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.
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 customized discounting criteria.
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 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 March 31, 2009, and December 31,
2008, segregated by the level of the
valuation inputs within the fair value hierarchy utilized to measure fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
March 31, 2009 |
|
|
Fair Value Measurements Using |
|
Total |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
Available-for-sale securities |
|
$ |
5,706 |
|
|
$ |
521,253 |
|
|
$ |
22,705 |
|
|
$ |
549,664 |
|
Other assets |
|
|
2,269 |
|
|
|
|
|
|
|
|
|
|
|
2,269 |
|
Derivative assets |
|
|
|
|
|
|
57 |
|
|
|
|
|
|
|
57 |
|
Other liabilities |
|
|
2,269 |
|
|
|
|
|
|
|
|
|
|
|
2,269 |
|
Derivative liabilities |
|
|
|
|
|
|
3,085 |
|
|
|
|
|
|
|
3,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
December 31, 2008 |
|
|
Fair Value Measurements Using |
|
Total |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
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 |
|
- 17 -
The following table shows a reconciliation of the beginning and ending balances for fair valued
assets measured on a recurring basis using significant unobservable inputs. There were no
financial assets or liabilities stated at Level 3 at March 31, 2008.
|
|
|
|
|
(In Thousands) |
|
Available-for- |
|
|
|
Sale Securities |
|
Beginning balance January 1, 2009 |
|
$ |
28,067 |
|
Total gains or loss (realized/unrealized) |
|
|
|
|
Included in earnings |
|
|
|
|
Included in other comprehensive income |
|
|
(7,508 |
) |
Paydowns and maturities |
|
|
(33 |
) |
Transfers into Level 3 |
|
|
2,179 |
|
|
|
|
|
Ending balance March 31, 2009 |
|
$ |
22,705 |
|
|
|
|
|
Certain financial assets and financial liabilities 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. Items subjected to nonrecurring fair value adjustments at March 31, 2009, and December
31, 2008, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
March 31, 2009 |
|
|
Fair Value Measurements Using |
|
Total |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
Impaired loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
4,923 |
|
|
$ |
4,923 |
|
Other real estate owned |
|
|
|
|
|
|
|
|
|
|
3,114 |
|
|
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Thousands) |
|
December 31. 2008 |
|
|
Fair Value Measurements Using |
|
Total |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Fair Value |
Impaired loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
5,980 |
|
|
$ |
5,980 |
|
Certain non-financial assets and non-financial liabilities measured at fair value on a recurring
basis include reporting units measured at fair value in the first step of a goodwill impairment
test. Certain non-financial assets measured at fair value on a non-recurring basis include
non-financial assets and non-financial liabilities measured at fair value in the second step of a
goodwill impairment test, as well as intangible assets and other non-financial long-lived assets
measured at fair value for impairment assessment.
- 18 -
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
December 31, 2008 |
|
|
Carrying |
|
|
|
|
|
Carrying |
|
|
|
|
Amount |
|
Fair Value |
|
Amount |
|
Fair Value |
|
|
|
|
|
|
(Amounts in Thousands) |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
100,960 |
|
|
$ |
100,960 |
|
|
$ |
46,439 |
|
|
$ |
46,439 |
|
Investment Securities |
|
|
558,135 |
|
|
|
558,284 |
|
|
|
529,393 |
|
|
|
529,525 |
|
Loans held for sale |
|
|
1,445 |
|
|
|
1,458 |
|
|
|
1,024 |
|
|
|
1,026 |
|
Loans held for investment |
|
|
1,260,235 |
|
|
|
1,255,995 |
|
|
|
1,282,181 |
|
|
|
1,276,479 |
|
Derivative financial assets |
|
|
57 |
|
|
|
57 |
|
|
|
39 |
|
|
|
39 |
|
Deferred compensation assets |
|
|
2,269 |
|
|
|
2,269 |
|
|
|
2,637 |
|
|
|
2,637 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
207,947 |
|
|
|
207,947 |
|
|
|
199,712 |
|
|
|
199,712 |
|
Interest-bearing demand deposits |
|
|
194,934 |
|
|
|
194,934 |
|
|
|
185,117 |
|
|
|
185,117 |
|
Savings deposits |
|
|
319,007 |
|
|
|
319,007 |
|
|
|
309,577 |
|
|
|
309,577 |
|
Time deposits |
|
|
861,556 |
|
|
|
876,545 |
|
|
|
809,352 |
|
|
|
824,068 |
|
Securities sold under agreements to repurchase |
|
|
153,824 |
|
|
|
165,340 |
|
|
|
165,914 |
|
|
|
177,454 |
|
FHLB and other indebtedness |
|
|
215,870 |
|
|
|
236,836 |
|
|
|
215,877 |
|
|
|
242,223 |
|
Derivative financial liabilities |
|
|
3,085 |
|
|
|
3,085 |
|
|
|
3,343 |
|
|
|
3,343 |
|
Deferred compensation liabilities |
|
|
2,269 |
|
|
|
2,269 |
|
|
|
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.
Financial Instruments with Book Value Equal to Fair Value: 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 described above.
Loans: The estimated fair value of loans held for investment is measured based upon discounted
future cash flows using current rates for similar loans, applying a discount for illiquidity.
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.
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 SFAS 107. 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.
- 19 -
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 11. 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) |
|
March 31, 2009 |
|
December 31, 2008 |
|
March 31, 2008 |
Interest rate swap |
|
$ |
50,000 |
|
|
$ |
50,000 |
|
|
$ |
50,000 |
|
IRLCs |
|
|
11,300 |
|
|
|
10,500 |
|
|
|
13,200 |
|
As of March 31, 2009, December 31, 2008 and March 31, 2008, the fair values of the Companys
derivatives were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
March 31, 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 assets |
|
$ |
|
|
|
Other assets |
|
$ |
|
|
|
Other assets |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
Other assets |
|
$ |
57 |
|
|
Other assets |
|
$ |
39 |
|
|
Other assets |
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
57 |
|
|
|
|
|
|
$ |
39 |
|
|
|
|
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
$ |
57 |
|
|
|
|
|
|
$ |
39 |
|
|
|
|
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability Derivatives |
|
|
|
March 31, 2009 |
|
|
December 31, 2008 |
|
|
March 31, 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 |
|
$ |
3,081 |
|
|
Other liabilities |
|
$ |
3,327 |
|
|
Other liabilities |
|
$ |
2,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
3,081 |
|
|
|
|
|
|
$ |
3,327 |
|
|
|
|
|
|
$ |
2,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRLCs |
|
Other liabilities |
|
$ |
4 |
|
|
Other liabilities |
|
$ |
16 |
|
|
Other liabilities |
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
4 |
|
|
|
|
|
|
$ |
16 |
|
|
|
|
|
|
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
|
|
|
$ |
3,085 |
|
|
|
|
|
|
$ |
3,343 |
|
|
|
|
|
|
$ |
2,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 in SFAS 133. 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
interest rate lock commitment (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.
Effect of Derivatives and Hedging Activities on the Income Statement
For the quarters ended March 31, 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 under SFAS 133 for the quarters ended March 31, 2009
and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not |
|
|
|
|
|
Amount of Gain/(Loss) |
|
designated as hedging |
|
Location of Gain/(Loss) |
|
|
Recognized in Income on Derivative |
|
instruments under |
|
Recognized in Income on |
|
|
Quarter ended |
|
|
Quarter ended |
|
SFAS 133 |
|
Derivative |
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
|
|
|
|
|
(Amounts in Thousands) |
|
IRLCs |
|
Other income |
|
$ |
30 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
30 |
|
|
$ |
30 |
|
|
|
|
|
|
|
|
|
|
|
|
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 and Liability Management Committee. The Company reviews its counterparty risk regularly and has determined that,
as of March 31, 2009, there is no significant counterparty credit risk.
- 21 -
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 Company
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 $2.20 billion at March 31, 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 fifty 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. The following factors, among
others, could cause the Companys 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 the Company conducts operations; 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 of the Company and
the acceptance of these products and services by new and existing customers; the willingness of
customers to substitute competitors products and services for the Companys products and services
and vice versa; the impact of changes in financial services laws and regulations (including laws
concerning taxes, banking, securities and insurance); technological changes; the effect of
acquisitions, including, without limitation, the failure to achieve the expected revenue growth
and/or expense savings from such acquisitions; the growth and profitability of the Companys
non-interest or fee income being less than expected; unanticipated regulatory or judicial
proceedings; changes in consumer spending and saving habits; and the success of the Company at
managing the risks involved in the foregoing.
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 are described in greater
detail in Item 1A. Risk Factors, in the Companys 2008 Annual Report on Form 10-K.
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.
-22-
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, Investment Planning Consultants, and GreenPoint to offer a wide range of financial services.
The Company reported total assets of $2.20 billion at March 31, 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 $791 million. These assets
are not assets of the Company, but are managed under various fee-based arrangements as fiduciary or
agent.
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 during the past
eighteen months. Dramatic declines in the housing market during the past eighteen months, with
falling 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 April 2, 2009, the Company signed a definitive agreement providing for the acquisition of
TriStone Community Bank (TriStone) a $152.42 million state-chartered commercial bank
headquartered in Winston-Salem, North Carolina. The definitive agreement provides for the exchange
of .5262 shares of the Companys common stock for each outstanding share of TriStone common stock.
TriStone will be merged with and into the Bank. The transaction is subject to regulatory approvals
and approval by the stockholders of TriStone, and is expected to close in the third quarter of
2009.
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.
-23-
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 Summersville, West Virginia, in May 2008.
RESULTS OF OPERATIONS
Overview
Net income available to common shareholders for the three months ended March 31, 2009, was $4.66
million, or $0.40 per basic and diluted share, compared with $6.31 million, or $0.57 per basic and
diluted share, for the three months ended March 31, 2008, a decrease of $1.65 million, or 26.19%.
Return on average assets was 0.87% for the three months ended March 31, 2009, compared with 1.21%
for the same period in 2008. Return on average common equity for the three months ended March 31,
2009, was 10.61% compared with 11.66% for the three months ended March 31, 2008. The main reason
for the decrease in net income was increased provisions for loan losses.
Net Interest Income (See Table I)
Net interest income, the largest contributor to earnings, was $16.43 million for the three months
ended March 31, 2009, compared with $16.36 million for the corresponding period in 2008, an
increase of $73 thousand, or 0.45%. Tax-equivalent net interest income totaled $17.35 million for
the three months ended March 31, 2009, a decrease of $142 thousand from $17.49 million for the
first quarter of 2008. The decrease in tax-equivalent net interest income was due primarily to
decreases in loan and investment yields as a result of the precipitous declines in benchmark
interest rates, including the New York Prime Rate, since late 2007.
Compared with the first quarter of 2008, average earning assets increased $24.15 million while
interest-bearing liabilities increased $93.30 million during the three months ended March 31, 2009.
The changes include the impact of the Coddle Creek acquisition in November 2008. The yield on
average earning assets decreased by 65 basis points to 5.97% from 6.62% between the three months
ended March 31, 2009 and 2008, respectively. Total cost of interest-bearing liabilities decreased
79 basis points between the first quarters of 2008 and 2009, which resulted in a net interest rate
spread that was 14 basis points higher at 3.53% for the first quarter of 2008 compared with 3.39%
for the same period last year. The Companys tax-equivalent net interest margin of 3.73% for the
three months ended March 31, 2009, decreased five basis points from 3.78% for the same period of
2008.
The rate earned on loans decreased 81 basis points to 6.28% from 7.09% for the three months ended
March 31, 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 profound
impact on loan yields throughout 2008 and 2009, resulting in a net decrease of $1.26 million, or
5.93%, in tax-equivalent loan interest income for the first quarter of 2009 compared with the first
quarter of 2008.
During the three months ended March 31, 2009, the tax-equivalent yield on available-for-sale
securities increased 17 basis points to 5.98%, while the average balance decreased by $109.98
million, or 17.64%, 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 quarter of 2008, average interest-bearing balances with banks increased to
$73.63 million during the first quarter of 2008, as the yield decreased 299 basis points to 0.21%
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 quarter of 2008 decreased along with decreases in short-term benchmark interest rates. The
Company maintained a strong liquidity position in the first quarter to balance the risks associated
with the fed funds market and general economic conditions.
-24-
Compared with the same period in 2008, the average balances of interest-bearing demand deposits
increased $28.04 million, or 17.29%, while the average rate paid during the first quarter of 2009
decreased by two basis points. During the three
months ended March 31, 2009, the average balances of savings deposits decreased $14.50 million, or
4.43%, while the average rate paid decreased 98 basis points compared to the same period in 2008.
Average time deposits increased $185.38 million, or 27.56%, while the average rate paid on time
deposits decreased 106 basis points from 4.29% in the first quarter of 2008 to 3.23% in the first
quarter of 2009. The level of average non-interest-bearing demand deposits decreased $13.66
million, or 6.41%, to $199.31 million during the quarter ended March 31, 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. 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 $43.11 million, or 28.82%, to $106.47 million for the first quarter of
2009, while the rate decreased 126 basis points to 1.49% during the same period. The decrease in
average balance can be largely attributed to the customers converting retail repurchase agreements
to certificates of deposit. There were no fed funds purchased on average during the first quarter
of 2009, compared with $1.82 million in the same period in 2008. Wholesale repurchase agreements
remained unchanged at $50.00 million, while the rate increased 34 basis points between the two
periods. The average balance of FHLB borrowings and other long-term debt decreased by $60.69
million, or 21.95%, in the first quarter of 2009 to $215.81 million, while the rate paid on those
borrowings decreased 58 basis points.
-25-
Table I
AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (1) |
|
|
Balance |
|
|
Interest (1) |
|
|
Rate (1) |
|
|
|
(Dollars in Thousands) |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (2) |
|
$ |
1,292,179 |
|
|
$ |
19,997 |
|
|
|
6.28 |
% |
|
$ |
1,205,481 |
|
|
$ |
21,258 |
|
|
|
7.09 |
% |
Securities available for sale |
|
|
513,300 |
|
|
|
7,571 |
|
|
|
5.98 |
% |
|
|
623,275 |
|
|
|
8,998 |
|
|
|
5.81 |
% |
Securities held to maturity |
|
|
8,473 |
|
|
|
172 |
|
|
|
8.23 |
% |
|
|
12,075 |
|
|
|
242 |
|
|
|
8.06 |
% |
Interest-bearing deposits |
|
|
73,628 |
|
|
|
39 |
|
|
|
0.21 |
% |
|
|
22,602 |
|
|
|
180 |
|
|
|
3.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Earning Assets |
|
|
1,887,580 |
|
|
|
27,779 |
|
|
|
5.97 |
% |
|
|
1,863,433 |
|
|
|
30,678 |
|
|
|
6.62 |
% |
Other assets |
|
|
290,182 |
|
|
|
|
|
|
|
|
|
|
|
227,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
2,177,762 |
|
|
|
|
|
|
|
|
|
|
$ |
2,091,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
$ |
190,215 |
|
|
$ |
79 |
|
|
|
0.17 |
% |
|
$ |
162,175 |
|
|
$ |
76 |
|
|
|
0.19 |
% |
Savings deposits |
|
|
312,563 |
|
|
|
656 |
|
|
|
0.85 |
% |
|
|
327,061 |
|
|
|
1,487 |
|
|
|
1.83 |
% |
Time deposits |
|
|
858,020 |
|
|
|
6,832 |
|
|
|
3.23 |
% |
|
|
672,645 |
|
|
|
7,178 |
|
|
|
4.29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,360,798 |
|
|
|
7,567 |
|
|
|
2.26 |
% |
|
|
1,161,881 |
|
|
|
8,741 |
|
|
|
3.03 |
% |
Borrowings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,819 |
|
|
|
18 |
|
|
|
3.98 |
% |
Retail repurchase agreements |
|
|
106,469 |
|
|
|
390 |
|
|
|
1.49 |
% |
|
|
149,581 |
|
|
|
1,022 |
|
|
|
2.75 |
% |
Wholesale repurchase agreements |
|
|
50,000 |
|
|
|
510 |
|
|
|
4.14 |
% |
|
|
50,000 |
|
|
|
473 |
|
|
|
3.80 |
% |
FHLB borrowings and other indebtedness |
|
|
215,813 |
|
|
|
1,963 |
|
|
|
3.69 |
% |
|
|
276,503 |
|
|
|
2,933 |
|
|
|
4.27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
372,282 |
|
|
|
2,863 |
|
|
|
3.12 |
% |
|
|
477,903 |
|
|
|
4,446 |
|
|
|
3.74 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,733,080 |
|
|
|
10,430 |
|
|
|
2.44 |
% |
|
|
1,639,784 |
|
|
|
13,187 |
|
|
|
3.23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interestbearing demand deposits |
|
|
199,311 |
|
|
|
|
|
|
|
|
|
|
|
212,972 |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
25,718 |
|
|
|
|
|
|
|
|
|
|
|
20,962 |
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
219,653 |
|
|
|
|
|
|
|
|
|
|
|
217,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY |
|
$ |
2,177,762 |
|
|
|
|
|
|
|
|
|
|
$ |
2,091,397 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income, Tax Equivalent |
|
|
|
|
|
$ |
17,349 |
|
|
|
|
|
|
|
|
|
|
$ |
17,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Rate Spread (3) |
|
|
|
|
|
|
|
|
|
|
3.53 |
% |
|
|
|
|
|
|
|
|
|
|
3.39 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Margin (4) |
|
|
|
|
|
|
|
|
|
|
3.73 |
% |
|
|
|
|
|
|
|
|
|
|
3.78 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
-26-
The following table summarizes the changes in tax-equivalent interest earned and paid resulting
from changes in the volume of earning assets and paying liabilities and changes in their interest
rates. The changes in interest due to both rate and volume have been allocated to the volume and
rate columns in proportion to dollar amounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, 2009 |
|
|
|
Compared to 2008 |
|
|
|
$ Increase/(Decrease) due to |
|
(In Thousands) |
|
Volume |
|
|
Rate |
|
|
Total |
|
Interest Earned On: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
|
$ |
2,100 |
|
|
$ |
(3,361 |
) |
|
$ |
(1,261 |
) |
Securities available-for-sale (1) |
|
|
(1,722 |
) |
|
|
295 |
|
|
|
(1,427 |
) |
Securities held-to-maturity (1) |
|
|
(75 |
) |
|
|
5 |
|
|
|
(70 |
) |
Interest-bearing deposits with other banks |
|
|
136 |
|
|
|
(277 |
) |
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
439 |
|
|
|
(3,338 |
) |
|
|
(2,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Paid On: |
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
|
8 |
|
|
|
(5 |
) |
|
|
3 |
|
Savings deposits |
|
|
(64 |
) |
|
|
(767 |
) |
|
|
(831 |
) |
Time deposits |
|
|
1,675 |
|
|
|
(2,021 |
) |
|
|
(346 |
) |
Fed funds purchased |
|
|
(9 |
) |
|
|
(9 |
) |
|
|
(18 |
) |
Retail repurchase agreements |
|
|
(244 |
) |
|
|
(388 |
) |
|
|
(632 |
) |
Wholesale repurchase agreements |
|
|
|
|
|
|
37 |
|
|
|
37 |
|
FHLB borrowings and other long-term debt |
|
|
(600 |
) |
|
|
(370 |
) |
|
|
(970 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
766 |
|
|
|
(3,523 |
) |
|
|
(2,757 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income,
tax-equivalent |
|
$ |
(327 |
) |
|
$ |
185 |
|
|
$ |
(142 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 three 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. Adverse changes in the economy 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.
-27-
The allowance for loan losses was $16.56 million at March 31, 2009, $15.98 million at December 31,
2008 and $12.86 million at March 31, 2008. The Companys allowance for loan loss activity for the
quarters ended March 31, 2009 and 2008, is as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
March 31, |
|
(In Thousands) |
|
2009 |
|
|
2008 |
|
Allowance for loan losses |
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
15,978 |
|
|
$ |
12,833 |
|
Provision for loan losses |
|
|
2,087 |
|
|
|
323 |
|
Charge-offs |
|
|
(1,730 |
) |
|
|
(966 |
) |
Recoveries |
|
|
220 |
|
|
|
672 |
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
(1,510 |
) |
|
|
(294 |
) |
|
|
|
|
|
|
|
Ending balance |
|
$ |
16,555 |
|
|
$ |
12,862 |
|
|
|
|
|
|
|
|
The total allowance for loan losses to loans held for investment ratio was 1.30% at March 31, 2009,
compared with 1.24% at December 31, 2008, and 1.09% at March 31, 2008. Management considers the
allowance adequate based upon its analysis of the portfolio as of March 31, 2009. However, no
assurances can be made that future adjustments to the allowance for loan losses will not be
necessary as a result of increases in non-performing loans and other factors.
Throughout the first quarter of 2009, the Company incurred net charge-offs of $1.51 million
compared with $294 thousand in 2008. Annualized net charge-offs for the first quarter of 2009 were
0.47%. The Company made provisions for loan losses of $2.09 million for the first quarter of 2009
compared to $323 thousand in 2008. The increase in loan loss provision is primarily attributable
to rising loss factors as net charge-offs were higher than in 2008. 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.
Noninterest Income
Noninterest income consists of all revenues that are not included in interest and fee income
related to earning assets. Noninterest income for the first quarter of 2009 was $8.42 million
compared with $9.14 million in the same period of 2008, a decrease of $717 thousand, or 7.84%.
Wealth management revenues increased $85 thousand, or 9.45%, to $984 thousand for the three months
ended March 31, 2009, compared with the same period in 2008. IPC added several large accounts
during 2008. Service charges on deposit accounts increased $58 thousand, or 1.87%, to $3.16
million for the three months ended March 31, 2009, compared with the same period in 2008. The
increase is smaller than recent quarters increases due to lower consumer spending and a generally
higher rate of savings. Other service charges, commissions, and fees increased $57 thousand, or
5.08%, to $1.18 million for the three months ended March 31, 2009, compared with the same period in
2008. Insurance commissions for the first quarter of 2009 were $2.32 million, an increase of $973
thousand, or 41.99%, over 2008. Increased insurance commissions reflect revenue increases
associated with agency acquisitions made by GreenPoint throughout 2008. Other operating income was
$586 thousand for the three months ended March 31, 2009, a decrease of $272 thousand, or 46.42%,
compared with the same period in 2008. Other operating income was down due largely to decreases in
dividends on FHLB stock. At March 31, 2009, the Company recognized $209 thousand of
other-than-temporary impairment on several smaller equity security holdings. During the first
quarter of 2009, securities gains of $411 thousand were realized, compared with a gain of $1.82
million in the comparable period in 2008.
Noninterest Expense
Noninterest expense totaled $15.19 million for the quarter ended March 31, 2009, a decrease of
$1.09 million, or 6.69%, from the same period in 2008. Salaries and benefits for the first quarter
of 2009 increased $76 thousand, or 0.98%, compared to the same period in 2008. Salaries and
benefits at GreenPoint increased $438 thousand over the prior first quarter, a result of new agency
acquisitions, and salaries and benefits at the new branches from Coddle Creek were $341 thousand.
Decreases in general bank staffing levels and benefits largely offset the increases. Occupancy and
furniture and fixtures expenses increased between the comparable periods with the addition of
GreenPoint and the Coddle Creek branches. Other non-
interest expense totaled $4.54 million for the first quarter of 2009, a decrease of $79 thousand,
or 1.71%, from $4.62 million for the first quarter of 2008.
-28-
Over the course of the last two quarters, the FDIC has announced increases in deposit insurance
premiums, as well as proposals to levy special assessments. The Company expects the increased
deposit insurance premiums will add approximately $400 thousand in quarterly expense and the FDICs
proposed special assessment could approximate $3.20 million, depending on the final special
assessment level determined by the FDIC.
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, and tax credits generated by investments in low income housing and historic
rehabilitations.
For the first quarter of 2009, income taxes were $2.35 million compared with $2.58 million for the
first quarter of 2008. For the quarters ended March 31, 2009 and 2008, the effective tax rates
were 30.97% and 28.44%, respectively. The increase in the effective tax rate is due largely to
decreases in tax-free municipal security income.
FINANCIAL CONDITION
Total assets at March 31, 2009, increased $65.91 million, or 3.09%, to $2.20 billion from December
31, 2008. The increase reflects net increases in the securities portfolio, continued loan payoffs,
and higher levels of customer deposits as a result of deposit campaigns and a general movement of
funds into FDIC insured products.
Securities
Available-for-sale securities were $549.66 million at March 31, 2009, compared with $520.72 million
at December 31, 2008, an increase of $28.94 million, or 5.56%. Held-to-maturity securities
declined to $8.47 million at March 31, 2009, compared with $8.67 million at December 31, 2008.
Available-for-sale and held-to-maturity securities are reviewed quarterly for possible
other-than-temporary impairment. This review includes an analysis of the facts and circumstances
of each individual investment such as the length of time the fair value has been below cost, timing
and amount of contractual cash flows, the expectation for that securitys performance, the
creditworthiness of the issuer and the Companys intent and ability to hold the security to
recovery or maturity. The portion of a decline in value associated with probable credit losses, if
any, would be recorded as a loss within noninterest income in the Consolidated Statements of
Income. The Company does not believe any unrealized loss remaining in the investment portfolio,
individually or in the aggregate, as of March 31, 2009, represents other-than-temporary impairment.
The Company intends to hold these securities until recovery or maturity and it is more likely than
not that it will not sell these securities before recovery.
Included in available-for-sale securities is a portfolio of trust-preferred securities with a total
market value of approximately $49.47 million as of March 31, 2009. That portfolio is comprised of
single-issue securities and pooled trust-preferred securities. The single-issue securities had a
total market value of approximately $26.77 million as of March 31, 2009, compared with their
adjusted cost basis of approximately $55.52 million.
At March 31, 2009, the total market value of the pooled trust-preferred securities was
approximately $22.71 million, compared with an adjusted cost basis of approximately $93.37 million.
The collateral underlying these securities is comprised of 86% of bank trust-preferred securities
and subordinated debt issuances of over 500 banks nationwide. The remaining collateral is from
insurance companies and real estate investment trusts. The securities carry variable rate
structures that float at a prescribed margin over 3-month LIBOR. During 2008 and 2009, these
securities experienced credit rating downgrades, and certain of these securities are on negative
watch. As of December 31, 2008, the Company recorded pre-tax other-than-temporary impairment
charges of $15.46 million for one of its pooled trust preferred securities with demonstrated a
probable adverse change in cash flow. Recent modeling of the expected cash flows from the pooled
trust-preferred securities, at present, does not suggest any of the remaining securities will have
an adverse cash flow effect under any of the scenarios modeled due to the existence of other
subordinate classes within the pools.
The Company made a cumulative effect adjustment of $6.13 million as of January 1, 2009, to
recognize the portion of non-credit losses associated with a non-agency mortgage-backed security
for which the Company recognized a pre-tax other-than-temporary impairment charge of $14.47 million
as of December 31, 2008. The Company determined that only $4.25 million of the original impairment
charge was due to probable credit losses.
-29-
The following table provides details regarding the type and credit ratings within the securities
portfolios as of March 31, 2009. In the case of multiple ratings, the lower rating was utilized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(Losses) |
|
|
|
|
|
|
Par |
|
|
Fair |
|
|
Amortized |
|
|
Recognized |
|
|
Cumulative |
|
|
|
Value |
|
|
Value |
|
|
Cost |
|
|
in OCL |
|
|
OTTI |
|
|
|
(Amounts in Thousands) |
|
Available for sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency securities |
|
$ |
53,435 |
|
|
$ |
54,127 |
|
|
$ |
53,425 |
|
|
$ |
702 |
|
|
$ |
|
|
Agency mortgage-backed securities |
|
|
273,870 |
|
|
|
282,075 |
|
|
|
275,257 |
|
|
|
6,818 |
|
|
|
|
|
Non-Agency mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
7,250 |
|
|
|
5,786 |
|
|
|
7,206 |
|
|
|
(1,420 |
) |
|
|
|
|
B |
|
|
25,000 |
|
|
|
10,730 |
|
|
|
20,968 |
|
|
|
(10,238 |
) |
|
|
4,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
32,250 |
|
|
|
16,516 |
|
|
|
28,174 |
|
|
|
(11,658 |
) |
|
|
4,252 |
|
Municipals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
|
5,955 |
|
|
|
6,043 |
|
|
|
5,956 |
|
|
|
87 |
|
|
|
|
|
AA |
|
|
54,230 |
|
|
|
54,739 |
|
|
|
54,261 |
|
|
|
478 |
|
|
|
|
|
A |
|
|
46,282 |
|
|
|
46,394 |
|
|
|
46,284 |
|
|
|
110 |
|
|
|
|
|
BBB |
|
|
30,005 |
|
|
|
28,788 |
|
|
|
29,106 |
|
|
|
(318 |
) |
|
|
|
|
Not rated |
|
|
5,920 |
|
|
|
5,659 |
|
|
|
5,929 |
|
|
|
(270 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
142,392 |
|
|
|
141,623 |
|
|
|
141,536 |
|
|
|
87 |
|
|
|
|
|
Single issuer bank trust preferred securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AA |
|
|
10,300 |
|
|
|
4,171 |
|
|
|
10,064 |
|
|
|
(5,893 |
) |
|
|
|
|
A |
|
|
17,130 |
|
|
|
8,852 |
|
|
|
16,750 |
|
|
|
(7,898 |
) |
|
|
|
|
BB |
|
|
29,125 |
|
|
|
13,745 |
|
|
|
28,703 |
|
|
|
(14,958 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
56,555 |
|
|
|
26,768 |
|
|
|
55,517 |
|
|
|
(28,749 |
) |
|
|
|
|
Pooled trust preferred securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A |
|
|
20,000 |
|
|
|
935 |
|
|
|
20,000 |
|
|
|
(19,065 |
) |
|
|
15,456 |
|
CCC |
|
|
88,659 |
|
|
|
21,770 |
|
|
|
73,367 |
|
|
|
(51,597 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
108,659 |
|
|
|
22,705 |
|
|
|
93,367 |
|
|
|
(70,662 |
) |
|
|
15,456 |
|
Equity securities |
|
|
|
|
|
|
5,850 |
|
|
|
7,006 |
|
|
|
(1,156 |
) |
|
|
209 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
667,161 |
|
|
$ |
549,664 |
|
|
$ |
654,282 |
|
|
$ |
(104,618 |
) |
|
$ |
19,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipals: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AA |
|
$ |
3,680 |
|
|
$ |
3,727 |
|
|
$ |
3,665 |
|
|
$ |
|
|
|
$ |
|
|
A |
|
|
3,670 |
|
|
|
3,566 |
|
|
|
3,491 |
|
|
|
|
|
|
|
|
|
BBB |
|
|
1,395 |
|
|
|
1,327 |
|
|
|
1,315 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,745 |
|
|
$ |
8,620 |
|
|
$ |
8,471 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company closely monitors this portfolio due to the substantial market discounts. The market
discounts reflect the credit market disruption in bank subordinated debt instruments and the
possibility of future negative credit events within the banking sector, which could affect
collateral within certain of the pooled and single-issue securities. Monitoring for
other-than-temporary impairment (OTI) is dependent on the aforementioned assumptions regarding
future credit events and the general strength of the banking industry as it deals with credit
losses in the current recessionary real estate market. Acceleration of bank losses and the
possibility of unforeseen bank failures could result in changes in the Companys outlook for these
securities and possible future OTI. Accordingly, there can be no assurance that continued
deterioration of credit portfolios within certain of those banks will not lead to unanticipated
deferrals of interest payments and defaults beyond those assumed in the Companys impairment
testing. At present, cash flow modeling indicates varying ability to absorb additional deferrals
and defaults before incurring breaks in interest or principal for the various pools.
-30-
Loan Portfolio
Loans Held for Sale: The $1.45 million balance of loans held for sale at March 31, 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 at March 31, 2009, was $11.28 million on 71 loans.
Loans Held for Investment: Total loans held for investment were $1.28 billion at March 31, 2009,
representing a decline of $21.37 million from December 31, 2008, and an increase of $97.29 million
from March 31, 2008. The average loan to deposit ratio decreased to 82.83% for the first quarter
of 2009, compared with 86.01% for the fourth quarter of 2008 and 87.68% for the first quarter of
2008. Year-to-date average loans of $1.29 billion increased $86.70 million when compared to 2008.
Over the course of the last three years, the Company has taken measures to enhance its commercial
underwriting standards. The more stringent underwriting has led to improved credit quality, and
coupled with a reduced complement of commercial loan officers, has 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 March 31, 2009, December 31, 2008, and March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31 , 2009 |
|
|
December 31, 2008 |
|
|
March 31 , 2008 |
|
(Dollars in Thousands) |
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
Loans Held for Investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and agricultural |
|
$ |
81,880 |
|
|
|
6.41 |
% |
|
$ |
85,034 |
|
|
|
6.55 |
% |
|
$ |
88,532 |
|
|
|
7.51 |
% |
Commercial real estate |
|
|
405,549 |
|
|
|
31.76 |
% |
|
|
407,638 |
|
|
|
31.40 |
% |
|
|
376,087 |
|
|
|
31.89 |
% |
Residential real estate |
|
|
597,372 |
|
|
|
46.79 |
% |
|
|
602,573 |
|
|
|
46.42 |
% |
|
|
488,860 |
|
|
|
41.45 |
% |
Construction |
|
|
124,320 |
|
|
|
9.74 |
% |
|
|
130,610 |
|
|
|
10.06 |
% |
|
|
151,242 |
|
|
|
12.82 |
% |
Consumer |
|
|
62,353 |
|
|
|
4.88 |
% |
|
|
66,258 |
|
|
|
5.10 |
% |
|
|
69,377 |
|
|
|
5.88 |
% |
Other |
|
|
5,316 |
|
|
|
0.42 |
% |
|
|
6,046 |
|
|
|
0.47 |
% |
|
|
5,406 |
|
|
|
0.46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,276,790 |
|
|
|
100.00 |
% |
|
$ |
1,298,159 |
|
|
|
100.00 |
% |
|
$ |
1,179,504 |
|
|
|
100.01 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans Held for Sale |
|
$ |
1,445 |
|
|
|
|
|
|
$ |
1,024 |
|
|
|
|
|
|
$ |
2,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
$13.74 million at March 31, 2009, $14.09 million at December 31, 2008, and $3.54 million at March
31, 2008. The percentage of non-performing assets to total loans and OREO was 1.07% at March 31,
2009, 1.08% at December 31, 2008, and 0.30% at March 31, 2008.
The following schedule details non-performing assets by category at the close of each of the
quarters ended March 31, 2009 and 2008, and December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
March 31, |
|
(In Thousands) |
|
2009 |
|
|
2008 |
|
|
2008 |
|
Non-accrual |
|
$ |
10,628 |
|
|
$ |
12,763 |
|
|
$ |
3,137 |
|
Ninety days past due and accruing |
|
|
|
|
|
|
|
|
|
|
|
|
Other real estate owned |
|
|
3,114 |
|
|
|
1,326 |
|
|
|
400 |
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets |
|
$ |
13,742 |
|
|
$ |
14,089 |
|
|
$ |
3,537 |
|
|
|
|
|
|
|
|
|
|
|
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 $3.11 million at
March 31, 2009, and is carried at the lesser of estimated net realizable value or cost.
-31-
Deposits and Other Borrowings
Total deposits increased by $79.69 million, or 5.30%, during the first three months of 2009. Non
interest-bearing demand deposits increased $8.24 million to $207.95 million at March 31, 2009,
compared with $199.71 million at December 31, 2008. Interest-bearing demand deposits increased
$9.82 million to $194.93 million at March 31, 2009. Savings increased $9.43 million, or 3.05%, and
time deposits increased $52.20 million, or 6.45%, during the first three months of 2009. The
Companys increase in deposits is likely due to increasing customer household savings and a desire
for FDIC insured deposit products.
Securities sold under repurchase agreements decreased $12.09 million, or 7.29%, in the first
quarter 2009 to $153.82 million. There were no federal funds purchased outstanding at March 31,
2009, as the Company maintained strong liquidity through the first quarter.
Stockholders Equity
Total stockholders equity decreased $2.63 million, or 1.19%, from $220.34 million at December 31,
2008, to $217.71 million at March 31, 2009, as the Company experienced increases in other
comprehensive losses associated with the Companys investment portfolio. The change in equity was
the result of net earnings of $5.23 million, less preferred dividends of $571 thousand, the
cumulative effect adjustment of $6.13 million, and other comprehensive loss of $13.86 million.
During the first quarter, the Company common stock traded at a level below its book value per
share, and as a result, the Company performed a level one goodwill evaluation for each of its
segments. The results of the level one evaluation did not provide evidence of impairment of
goodwill in either of the Companys segments.
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 March 31, 2009, the Companys total capital to risk-weighted assets ratio was 12.64%
compared with 12.91% at December 31, 2008. The Companys Tier 1 capital to risk-weighted assets
ratio was 11.70% at March 31, 2009, compared with 11.92% at December 31, 2008. The Companys Tier
1 leverage ratio at March 31, 2009, was 9.77% compared with 9.75% at December 31, 2008. All of the
Companys regulatory capital ratios exceed the current well-capitalized levels. Regulatory capital
ratios declined from December 31, 2008, primarily because of the treatment of collateralized
mortgage obligations and collateralized debt obligations when rated below investment grade.
PART I. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Liquidity and Capital Resources
At March 31, 2009, the Company maintained liquidity in the form of cash and cash equivalent
balances of $100.96 million, unpledged securities available-for-sale of $183.90 million, and total
FHLB credit availability of approximately $143.9 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 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.
-32-
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 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 March 31, 2009, net interest income modeling shows the Company to be in a relatively
neutral position. Additionally, structure in the Companys assets and liabilities creates a
situation where net interest income decreases in a sustained increasing rate environment.
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.
-33-
The following table summarizes the projected impact on the next twelve months net interest income
and the economic value of equity as of March 31, 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 effected. As of March 31, 2009, the
Federal Open Market Committee set a target range for federal funds of 0 to 25 basis points,
rendering a complete downward shock of 200 basis points not realistic 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) |
|
March 31, 2009 |
|
|
Change in |
|
|
|
|
|
Change in |
|
|
Increase (Decrease) in |
|
Net Interest |
|
% |
|
Econcomic Value |
|
% |
Interest Rates (Basis Points) |
|
Income |
|
Change |
|
of Equity |
|
Change |
200 |
|
$ |
(370 |
) |
|
|
(0.6 |
) |
|
$ |
11,911 |
|
|
|
5.0 |
|
100 |
|
|
(575 |
) |
|
|
(0.9 |
) |
|
|
15,508 |
|
|
|
6.5 |
|
(100) |
|
|
176 |
|
|
|
0.3 |
|
|
|
(26,274 |
) |
|
|
(11.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
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.
-34-
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 March 31, 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
There were no material changes to the risk factors as presented in the Companys Annual Report on
Form 10-K for the year ended December 31, 2008.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
(a) |
|
Not Applicable |
|
|
(b) |
|
Not Applicable |
|
|
(c) |
|
Issuer Purchases of Equity Securities |
There were no open market purchases by the Company of its equity securities during the three months
ended March 31, 2009. The maximum number of shares that may yet be purchased under a publicly
announced plan at March 31, 2009, was 645,015 shares. 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 454,985 shares in treasury at March 31, 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
-35-
ITEM 6. Exhibits
|
|
|
Exhibit |
|
|
No. |
|
Exhibit |
2.1
|
|
Agreement and Plan of Merger dated July 31, 2008, among First Community Bancshares, Inc.
and Coddle Creek Financial Corp. (21) |
|
|
|
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
|
|
Form of Certificate for the Series A Preferred Stock (22) |
|
|
|
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) |
|
|
|
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) |
|
|
|
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. |
-36-
|
|
|
(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. |
|
(6) |
|
Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated and
filed December 16, 2008. The Registrant has entered into substantially identical agreements
with Robert L. Buzzo and E. Stephen Lilly, with the only differences being with respect to
title and salary. |
|
(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) |
|
Incorporated by reference from Exhibit 2.1 of the Current Report on Form 8-K dated and
filed July 31, 2008. |
|
(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. The Registrant has entered into substantially identical agreements
with Gary R. Mills, Martyn A. Pell, and Robert L. Schumacher, with the only differences being
with respect to title, salary, term, and payment upon termination after a change in control. |
|
(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. |
-37-
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: May 11, 2009
|
|
|
|
|
|
John M. Mendez |
|
|
President & Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
DATE: May 11, 2009
|
|
|
|
|
|
David D. Brown |
|
|
Chief Financial Officer |
|
|
(Principal Accounting Officer) |
|
|
-38-
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 |
-39-