Business Context and Reporting Period
Company: First Community Bancshares, Inc.
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 2009
Business Overview: A financial holding company operating primarily through its subsidiary, First Community Bank, N.A., providing commercial banking services across Virginia, West Virginia, North Carolina, South Carolina, and Tennessee. The Company also operates GreenPoint Insurance Group, Inc. and Investment Planning Consultants. As of year-end 2009, the Company operated 57 banking locations and employed 646 full-time equivalent employees.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Assets | $2.27 billion | $2.13 billion |
| Total Deposits | $1.65 billion | $1.50 billion |
| Net Interest Income | $69.25 million | $65.84 million |
| Provision for Loan Losses | $15.05 million | $7.42 million |
| Net (Loss) Income | $(38.23) million | $3.08 million |
| Net (Loss) Income Available to Common Shareholders | $(40.39) million | $2.83 million |
| Diluted EPS (Loss) | $(2.72) | $0.25 |
| Return on Average Assets | -1.81% | 0.14% |
| Return on Average Equity | -16.46% | 1.40% |
| Non-Performing Assets | $22.11 million | $14.09 million |
| Allowance for Loan Losses | $21.73 million | $15.98 million |
| Tier 1 Risk-Based Capital Ratio | 12.65% | 11.92% |
| Total Risk-Based Capital Ratio | 13.90% | 12.91% |
Material Changes vs. Prior Period
- Significant Net Loss: The Company reported a net loss of $38.23 million in 2009, a reversal from the $3.08 million net income in 2008. This was primarily driven by pre-tax impairment charges and losses on the sale of securities totaling approximately $90.54 million.
- Securities Impairment: Other-than-temporary impairment (OTTI) charges on debt securities were $77.59 million in 2009, compared to $29.92 million in 2008. Additionally, the Company recognized net securities losses of $11.67 million on sales in 2009.
- Loan Loss Provisions: The provision for loan losses more than doubled to $15.05 million from $7.42 million, reflecting rising net charge-offs ($9.31 million in 2009 vs. $5.45 million in 2008) and deteriorating credit quality in the real estate market.
- Acquisitions: The Company acquired TriStone Community Bank in July 2009 for approximately $10.78 million, resulting in a $4.49 million gain on purchase. This acquisition added $132.23 million in loans and $142.27 million in deposits.
- Capital Actions: In June 2009, the Company completed a public offering of 5.29 million shares of common stock, raising net proceeds of approximately $61.67 million. In July 2009, the Company repurchased $41.50 million of Series A Preferred Stock issued to the U.S. Treasury under the TARP program.
Guidance, Outlook, Risks, and Contingencies
- Economic Environment: Management cites significant disruption in financial markets and a recessionary environment as primary challenges. Declines in real estate values and rising unemployment are expected to continue impacting credit quality and loan charge-offs.
- Regulatory Capital: The Company and its Bank subsidiary remain "well-capitalized" under regulatory standards. However, the Bank's ability to pay dividends to the holding company is restricted due to prior securities impairments and a special dividend in 2008, requiring OCC approval for future dividends.
- FDIC Assessments: The Company anticipates significantly higher FDIC deposit insurance premiums in 2010. A prepayment of approximately $10.88 million was made in December 2009 covering assessments through 2012.
- Interest Rate Risk: The Company is in a slightly liability-sensitive position. Simulations indicate that a 200 basis point increase in interest rates would decrease net interest income by 1.9% and the economic value of equity by 6.9%.
- Goodwill Impairment: Goodwill totaled $84.65 million. While no impairment was identified in the annual test, management notes that further declines in stock price or market multiples could trigger future impairment charges.
Investor Verification Checklist
- Securities Portfolio Quality: Verify the status of the remaining pooled trust preferred securities and non-Agency Alt-A residential MBS, which carry significant unrealized losses and credit risk.
- Loan Loss Adequacy: Assess whether the $21.73 million allowance for loan losses is sufficient given the 1.26% non-performing loan ratio and the concentration of non-performing assets in residential real estate (39.40% of non-performing loans).
- Dividend Restrictions: Confirm the Bank's retained earnings status and the likelihood of receiving regulatory approval for future dividends, which are the holding company's primary source of liquidity.
- FDIC Prepayment Impact: Review the amortization schedule of the $10.88 million FDIC prepayment and its impact on future operating expenses.
- Acquisition Integration: Monitor the credit quality of the TriStone Community Bank loan portfolio, which contributed significantly to the increase in non-performing assets.