FIRST COMMUNITY CORP current report, Q2 FY2008

Business Context and Reporting Period

Company: First Community Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: May 15, 2008
Context: The company announced the initiation of a leverage strategy involving the acquisition of non-agency mortgage-backed securities and collateralized mortgage obligations.

Key Financial Metrics

  • Total Assets Acquired: Approximately $63.2 million in non-agency mortgage-backed securities and collateralized mortgage obligations.
  • Asset Classification: Prime or ALT-A securities; senior or super-senior tranches; classified as held-to-maturity.
  • Weighted Average Yield: Approximately 6.82%.
  • Funding Sources:
    • Federal Home Loan Bank Advances: $36.0 million.
    • Brokered Certificates of Deposit: $23.0 million.
  • Weighted Average Cost of Funding: Approximately 4.28%.
  • Regulatory Capital Status: "Well capitalized" under regulatory guidelines.

Material Changes

The primary material change is the deployment of capital into a new leverage strategy. The company has acquired $63.2 million in specific mortgage assets, funded by a combination of Federal Home Loan Bank advances and brokered deposits. This represents a strategic shift to capitalize on market volatility and pricing dislocations in the mortgage sector.

Outlook, Management Commentary, and Risks

  • Management Rationale: Management believes current pricing levels and funding opportunities allow for significant spreads not typically available. They view the economic value of these securities as undervalued due to market volatility.
  • Risk Management: Prior to transactions, the company performs thorough analysis of credit risk, interest rate risk, liquidity, and capital risk.
  • Future Outlook: Management may continue to evaluate opportunities within this sector. The strategy is not expected to impact the company's focus on growing core customer relationships.
  • Liquidity and Capital: The company anticipates remaining "well capitalized" and believes current liquidity levels support this strategy.

Key Facts for Investor Verification

  • Verify the specific credit ratings and tranche structures of the $63.2 million in acquired non-agency securities.
  • Confirm the duration and terms of the $36.0 million in Federal Home Loan Bank Advances.
  • Monitor the spread between the 6.82% yield and the 4.28% funding cost for sustainability.
  • Review subsequent filings for any additional acquisitions under this leverage strategy.
  • Assess the impact of these assets on the company's overall liquidity ratios and regulatory capital buffers.