Business Context and Reporting Period
Company: First Community Corporation (First Community Bank, National Association)
Filing Type: Form 8-K (Current Report)
Date of Report: April 6, 2010
Event: Entry into a Material Definitive Agreement with the Office of the Comptroller of the Currency (OCC) following a 2009 on-site examination.
Key Financial Metrics
- OTTI Charge: $75,000 recorded in the first quarter of 2010 related to non-agency mortgage-backed securities (MBS).
- Capital Ratios (OCC Minimums): Tier I leverage capital ratio of at least 8.00%; Tier 1 risk-based capital ratio of at least 10.00%; Total risk-based capital ratio of at least 12.00%.
- Capital Status: The Bank maintains a "well-capitalized" status and management believes it exceeds the OCC minimum ratios as of March 31, 2010.
- Financial Statement Impact: The Agreement does not require adjustments to the balance sheet or income statement.
Material Changes and Operational Context
The filing details a regulatory agreement driven by rating agency downgrades of non-agency MBS purchased between 2004 and 2008. While these securities were originally rated AAA, they were impacted by the economic recession. The OCC noted that the downgrades reflect the overall security performance rather than the Bank's specific risk of loss, given the discounted purchase price.
Management has appointed a compliance committee to monitor performance under the Agreement. An independent evaluation of the MBS portfolio was conducted in February 2010, indicating no additional impairment adjustments were required for the quarter beyond the $75,000 charge.
Guidance, Risks, and Contingencies
- Required Actions: The Agreement mandates revisions to the Strategic Plan, Capital Plan, Investment Policy, Liquidity Policy, Loan Portfolio Management systems, allowance for loan and lease loss program, and appraisal documentation practices.
- Progress: Many of the required policy revisions have already been completed.
- Risk Factors: The primary risk cited is the performance of the non-agency MBS portfolio in the context of the residential housing sector stress.
Investor Verification Checklist
- Verify the full text of the Agreement attached as Exhibit 10.1 for specific compliance timelines.
- Confirm the Bank's actual capital ratios as of March 31, 2010, against the OCC's minimum requirements (8.00%, 10.00%, and 12.00%).
- Review the independent valuation report from February 2010 regarding the non-agency MBS portfolio.
- Monitor future filings for updates on the implementation of revised policies and procedures.