First Community Bank Corp of America (FCFL) Inactive
Filed: 5 Jun 06, 12:00am
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2005
Commission File Number 000- 50357
FIRST COMMUNITY BANK CORPORATION OF AMERICA
A Florida Corporation
IRS Employer Identification No. 65-0623023
9001 Belcher Road
Pinellas Park, Florida 33782
(727) 520-0987
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934: NONE
Securities Registered Pursuant to Section 12(g) of the Securities Exchange
Act of 1934: Common Stock, $0.05 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 159D0 of the Exchange Act. Yes ¨ No x
Note – Checking the box above will not review any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant, based upon the closing price of $20.75, as quoted on the NASDAQ SmallCap Market, on March 1, 2006 was approximately $44,355,740. For the purposes of this response, directors and officers of the Registrant’s common stock are considered the affiliates of the Registrant at that date.
The number of shares outstanding of the Registrant’s common stock, as of March 1, 2006: 3,796,750 shares of $.01 par value common stock.
Portions of the Proxy Statement of the Registrant for the Annual Meeting of Shareholders to be held in April 2006, are incorporated by reference into Part III of this report.
Explanatory Note
We are amending our Form 10-K for the year ended December 31, 2005 to include selected quarterly financial data in Management’s Discussion and Analysis, to indicate in Item 9(a) that our disclosure controls and procedures at the end of the period reported were effective, and to delete references to “small business” in our officers’ certificates.
Item 7. Management’s Discussion and Analysis or Plan of Operation
General
We own all of the outstanding common stock of First Community Bank and First Community Lender Services, Inc. Our primary business activity is the operations of First Community Bank. First Community Bank is a federally-chartered stock savings bank that provides a variety of banking services to small and middle market businesses and individuals through its three banking offices located in Pinellas County, two banking offices located in Hillsborough County and one banking office located in Charlotte County, Florida. FCLS provides tax deferred 1031 exchange services for eligible transactions. The following is a description of the significant accounting policies which the Company follows in preparing and presenting its consolidated financial statements.
Critical Accounting Policies
We believe that the determination of the allowance for loan losses represents a critical accounting policy. The allowance for loan losses is maintained at a level management considers to be adequate to absorb probable loan losses inherent in the portfolio, based on evaluations of the collectibility and historical loss experience of loans. Credit losses are charged and recoveries are credited to the allowance. Provisions for loan losses are based on our review of the historical loan loss experience and such factors which, in management’s judgment, deserve consideration under existing economic conditions in estimating probable credit losses. The allowance is based on ongoing assessments of the probable estimated losses inherent in the loan portfolio. Our methodology for assessing the appropriate allowance level consists of several key elements described below.
Larger commercial loans that exhibit probable or observed credit weaknesses are subject to individual review. Where appropriate, reserves are allocated to individual loans based on our estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flows and available legal options. Included in the review of individual loans are those that are impaired as provided in Statement of Financial Accounting Standards No. 114, “Accounting by Creditors for Impairment of a Loan” as amended. Any specific reserves for impaired loans are measured based on the fair value of the underlying collateral. We evaluate the collectibility of both principal and interest when assessing the need for a specific reserve. Historical loss rates are applied to other commercial loans not subject to specific reserve allocations.
Homogenous loans, such as installment and residential mortgage loans, are not individually reviewed by management. Reserves are established for each pool of loans based on the expected net charge-offs. Loss rates are based on the average net charge-off history by loan category.
Historical loss rates for commercial and consumer loans may be adjusted for significant factors that, in management’s judgment, reflect the impact of any current conditions on loss recognition. Factors which management considers in the analysis include the effects of the local economy, trends in the nature and volume of loans (delinquencies, charge-offs, non-accrual and problem loans), changes in the internal lending policies and credit standards, collection practices, and examination results from bank regulatory agencies and our internal credit review function.
An unallocated reserve is maintained to recognize the imprecision in estimating and measuring loss when evaluating reserves for individual loans or pools of loans.
Specific reserves on individual loans and historical loss rates are reviewed throughout the year and adjusted as necessary based on changing borrower and collateral conditions and actual collection and charge-off experience.
We have not substantially changed any aspect of our overall approach in the determination of the allowance for loan losses. There have been no material changes in assumptions or estimation techniques as compared to prior years that impacted the determination of the allowance during 2005.
Loans
We believe that general economic conditions in our primary service areas, including the real estate market, continue to be healthy due to the growth in the areas’ population and demand for real estate property and personal services. Accordingly, we have experienced continued demand for consumer and commercial loans in 2005 as net loans increased $66.7 million, or 32.4%, to $272.5 million at December 31, 2005. Commercial loan activity is focused on seasonal working capital loans and commercial real estate term loans. At December 31, 2005, 2004 and 2003, we had non-accrual loans with a balance of $0, $80,000 and $480,000, respectively.
We engage, through our bank subsidiary, in a full complement of lending activities, including commercial, consumer/installment and real estate loans.
Our commercial lending activities are directed principally towards businesses whose demands for funds fall within our bank subsidiary’s legal lending limits and who are potential deposit customers. Particular emphasis is placed on loans to small and medium-sized businesses. Our commercial loans consist primarily of loans made to individual, partnership or corporate borrowers, and who obtained those loans for a variety of business purposes.
Our real estate loans consist of residential and commercial first mortgage loans, second mortgage financing and construction loans.
Lines of credit include home equity, commercial, and consumer lines of credit.
Our consumer loans consist primarily of installment loans to individuals for personal, family and household purposes.
We have correspondent relationships with several banks, whereby we can engage in the sale and purchase of loan participations. Participations purchased, if any, are entered into using the same underwriting criteria that would be applied if we had originated the loan. This includes credit and collateral analyses and maintenance of a complete credit file on each purchased participation that is consistent with the credit files that we maintain on our customers.
Non-performing Loans and Real Estate Owned. When a borrower fails to make a required payment on a loan, our loan officers attempt to collect the payment by contacting the borrower. If a payment on a loan has not been received by the end of a grace period (usually 10 days from the payment due date), notices are sent at that time, with follow-up contacts made thereafter. In most cases, delinquencies are cured promptly. If the delinquency exceeds 29 days and is not cured through normal collection procedures, more formal measures are instituted to remedy the default, including the commencement of foreclosure proceedings. We will then attempt to negotiate with the delinquent borrower to establish a satisfactory payment schedule.
A loan is generally placed on non-accrual status and ceases accruing interest when loan payment performance is deemed unsatisfactory. All loans past due 90 days, however, are placed on non-accrual status and all prior accrued interest is reversed against income. Cash payments received while a loan is in non-accrual status are recorded as a reduction of principal as long as doubt exists as to collection. If a loan is brought current it will be taken off non-accrual status.
If foreclosure is required, when completed, the property would be sold at a public auction in which we will generally participate as a bidder. If we are the successful bidder, the acquired real estate property is then included in the foreclosed real estate account until it is sold. We are permitted under federal regulations to finance sales of foreclosed real estate by “loans to facilitate,” which may involve more favorable interest rates and terms than generally would be granted under normal underwriting guidelines.
Charge-Offs Policy. All loans deemed uncollectible by management will be charged-off or written down as per the following guidelines:
| • | All open-end credits past due for more than 90 days and all unsecured closed-end credits past due for 90 days must be charged-off. |
| • | Secured non-real estate loans when deemed uncollectible by management will be charged-off or written down to no more than 100% of the net liquidated collateral value of the loan as determined by management. |
| • | Unsecured loans past due 90 days or more will be charged-off in full or written down to an amount deemed collectible by management. |
| • | Management has the authority to charge-off loan losses and/or overdrafts up to $10,000, when deemed uncollectible. |
The following table presents various categories of loans contained in our loan portfolio and the total amount of all loans at December 31 for the years indicated.
| December 31, | |||||||||||||||||||||||||||||||||||
Type of Loan | Amount 2005 | Percent of Loans in Category Loans 2005 | Amount 2004 | Percent of Loans in Category Loans 2004 | Amount 2003 | Percent of Loans in Category Loans 2003 | Amount 2002 | Percent of Loans in Category Loans 2002 | Amount 2001 | Percent of Loans in Category Loans 2001 | |||||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||||||||||||||
Residential mortgage loans | $ | 75,585 | 27.3 | % | $ | 44,147 | 21.2 | % | $ | 39,783 | 24.5 | % | $ | 38,568 | 30.7 | % | $ | 35,964 | 39.9 | % | |||||||||||||||
Commercial real estate loans | 109,995 | 39.8 | 97,849 | 46.9 | 69,507 | 42.8 | 51,443 | 41. 0 | 32,840 | 36.5 | |||||||||||||||||||||||||
Commercial loans | 31,916 | 11.6 | 24,322 | 11.6 | 21,502 | 13.2 | 14,103 | 11. 3 | 8,983 | 10.0 | |||||||||||||||||||||||||
Installment loans | 58,708 | 21.3 | 42,335 | 20.3 | 31,578 | 19.5 | 21,391 | 17.0 | 12,249 | 13.6 | |||||||||||||||||||||||||
Subtotal | $ | 276,204 | 100.0 | % | $ | 208,653 | 100.0 | % | $ | 162,370 | 100.0 | % | $ | 125,505 | 100.0 | % | $ | 90,036 | 100.0 | % | |||||||||||||||
Deduct: | |||||||||||||||||||||||||||||||||||
Allowance for loan losses | (3,416 | ) | (2,640 | ) | (2,041 | ) | (1,434 | ) | (961 | ) | |||||||||||||||||||||||||
Net deferred loan fees | (254 | ) | (224 | ) | (93 | ) | (139 | ) | (84 | ) | |||||||||||||||||||||||||
Net loans | $ | 272,534 | $ | 205,789 | $ | 160,236 | $ | 123,932 | $ | 88,991 | |||||||||||||||||||||||||
The following is an analysis of maturities of our loans as of December 31, 2005 (in thousands):
Type of Loan | Due in 1 Year or Less | Due in 1 to 5 Years | Due After 5 Years | Total | ||||||||
Residential mortgage loans | $ | 15,135 | $ | 14,955 | $ | 45,495 | $ | 75,585 | ||||
Commercial real estate loans | 17,764 | 29,734 | 62,497 | 109,995 | ||||||||
Commercial loans | 15,134 | 16,631 | 151 | 31,916 | ||||||||
Installment loans | 5,744 | 44,300 | 8,664 | 58,708 | ||||||||
Total | $ | 53,777 | $ | 105,620 | $ | 116,807 | $ | 276,204 | ||||
All loans are recorded according to original terms and demand loans, overdrafts and loans having no stated repayment terms or maturity are reported as due in one year or less.
At December 31, 2005, the amount of loans due after one year with fixed interest rates totaled approximately $62.7 million, while the amount of loans due after one year with floating interest rates totaled approximately $159.7 million. We generally do not make fixed-rate loans with maturities longer than five years.
At December 31, 2005, 2004, 2003, 2002 and 2001 non-accrual loans were as follows for the years indicated (in thousands):
| At December 31, | |||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||
Residential mortgage loans | $ | — | $ | 57 | $ | 480 | $ | 232 | $ | 182 | |||||
Commercial real estate loans | — | — | — | — | — | ||||||||||
Commercial loans | — | — | — | — | — | ||||||||||
Installment loans | — | 23 | — | 73 | 24 | ||||||||||
Total non-accrual loans | $ | — | $ | 80 | $ | 480 | $ | 305 | $ | 206 | |||||
At December 31, 2005, 2004, 2003, 2002 and 2001 there were no loans which would be defined as troubled debt restructurings or past due ninety days or more and still accruing.
An analysis of our allowance for loan losses and loan loss experience (charge-offs and recoveries) is furnished in the following table:
| Year Ended December 31, | ||||||||||||||||||||
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
Balance at beginning of period | $ | 2,640 | $ | 2,041 | $ | 1,434 | $ | 961 | $ | 525 | ||||||||||
Charge-offs: | ||||||||||||||||||||
Consumer | (20 | ) | (54 | ) | (6 | ) | (26 | ) | (8 | ) | ||||||||||
Commercial | (2 | ) | (2 | ) | (25 | ) | (57 | ) | (144 | ) | ||||||||||
Residential | — | — | (30 | ) | — | — | ||||||||||||||
Recoveries: | ||||||||||||||||||||
Consumer | 2 | 14 | — | — | — | |||||||||||||||
Commercial | 1 | — | — | — | 38 | |||||||||||||||
Residential | — | 36 | — | 13 | 1 | |||||||||||||||
Net charge-offs | (19 | ) | (6 | ) | (61 | ) | (70 | ) | (113 | ) | ||||||||||
Provision for losses charged to operations | 795 | 605 | 668 | 543 | 549 | |||||||||||||||
Balance at end of period | $ | 3,416 | $ | 2,640 | $ | 2,041 | $ | 1,434 | $ | 961 | ||||||||||
Asset Quality Ratios | ||||||||||||||||||||
Net charge-offs to average loans | (0.01 | )% | (0.00 | )% | (0.04 | )% | (0.04 | )% | (0.07 | )% | ||||||||||
Allowance for loan losses to total loans | 1.24 | 1.27 | 1.26 | 1.14 | 1.07 | |||||||||||||||
Allowance for loan losses to non-performing loans | — | 3,300.0 | 425.21 | 470.16 | 466.50 | |||||||||||||||
Non-performing loans to total loans | — | 0.04 | 0.30 | 0.24 | 0.23 | |||||||||||||||
Non-performing loans to total assets | — | 0.03 | 0.27 | 0.21 | 0.19 | |||||||||||||||
At December 31 the allowance for possible credit losses were generally allocated as follows for the years indicated:
| 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||||
| Amount | Percent of Loans in Category Loans | Amount | Percent of Loans in Category Loans | Amount | Percent of Loans in Category Loans | Amount | Percent of Loans in Category to Total Loans | Amount | Percent of Loans in Each Category Loans | |||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||
Residential mortgage loans | $ | 417 | 27.3 | % | $ | 238 | 21.2 | % | $ | 196 | 24.5 | % | $ | 175 | 30.7 | % | $ | 174 | 39.9 | % | ||||||||||
Commercial real estate loans | 1,447 | 39.8 | 1,251 | 46.9 | 907 | 42.8 | 676 | 41. 0 | 450 | 36.5 | ||||||||||||||||||||
Commercial loans | 819 | 11.6 | 699 | 11.6 | 426 | 13.2 | 263 | 11. 3 | 156 | 10.0 | ||||||||||||||||||||
Installment loans | 733 | 21.3 | 452 | 20.3 | 512 | 19.5 | 320 | 17.0 | 181 | 13.6 | ||||||||||||||||||||
Total | $ | 3,416 | 100.0 | % | $ | 2,640 | 100.0 | % | $ | 2,041 | 100.0 | % | $ | 1,434 | 100.0 | % | $ | 961 | 100.0 | % | ||||||||||
Although the allowance for loan losses was determined by category of loans, the entire allowance is available to absorb losses from any category.
The allowance for loan losses is established based upon management’s evaluation of the potential losses in our total loan portfolio. In analyzing the adequacy of the allowance for loan losses, management considers its own internal review, as well as the results of independent external credit reviews, changes in the composition and volume of the loan portfolio, levels of non-performing and charged-off loans, local and national economic conditions, and other factors.
Investment Securities. We primarily invest in obligations of the United States or obligations guaranteed as to principal and interest by the United States and other taxable securities or mortgage backed obligations. The following table presents, at December 31, 2005, 2004 and 2003 the carrying value of our investments:
| December 31, | |||||||||
Investment Category | 2005 | 2004 | 2003 | ||||||
| ($ in thousands) | |||||||||
Available for sale: | |||||||||
U.S. treasury securities | $ | 1,971 | $ | 3,474 | $ | — | |||
U.S. government agency securities | 6,104 | 8,432 | 3,542 | ||||||
Mortgage-backed securities | 843 | 1,126 | 321 | ||||||
Collateralized mortgage obligations | — | — | 86 | ||||||
Total | $ | 8,918 | $ | 13,032 | $ | 3,949 | |||
Held to maturity: | |||||||||
U.S. Government agency securities | $ | 1,366 | $ | 1,000 | $ | 3,477 | |||
Mortgage-backed securities Municipal securities | | 1,897 2,015 | | 775 — | | — — | |||
Total | $ | 5,278 | $ | 1,775 | $ | 3,477 | |||
The following table sets forth, by maturity distribution, certain information pertaining to the securities portfolio ($ in thousands):
| One Year or Less | After One Year to Five Years | After Five Years to Ten Years | After Ten Years | Total | |||||||||||||||||||||||||||
Carrying Value | Average Yield | Carrying Value | Average Yield | Carrying Value | Average Yield | Carrying Value | Average Yield | Carrying Value | Average Yield | ||||||||||||||||||||||
Available for Sale: | |||||||||||||||||||||||||||||||
U.S. Treasury Securities | $ | 1,483 | 2.66 | % | $ | 488 | 2.96 | % | $ | — | — | % | $ | — | — | % | $ | 1,971 | 2.74 | % | |||||||||||
U.S. Government agency securities | 5,442 | 2.23 | % | 492 | 3.65 | % | — | — | 170 | 6.11 | % | 6,104 | 2.45 | % | |||||||||||||||||
Total | $ | 6,925 | 2.32 | % | $ | 980 | 3.31 | % | $ | — | $ | — | $ | 170 | 6.11 | % | |||||||||||||||
Mortgage-backed Securities | 843 | 3.70 | % | ||||||||||||||||||||||||||||
Total | $ | 8918 | 2.63 | % | |||||||||||||||||||||||||||
Held to Maturity: | |||||||||||||||||||||||||||||||
U.S. Government agency and municipal securities | $ | 866 | 4.41 | % | $ | 500 | 3.50 | % | $ | — | — | % | $ | 2,015 | 4.08 | % | $ | 3,381 | 4.08 | % | |||||||||||
Mortgage-backed Securities | 1,897 | 3.92 | % | ||||||||||||||||||||||||||||
Total | $ | 5,278 | 4.02 | % | |||||||||||||||||||||||||||
Liquidity and Capital Resources
Liquidity Management. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while attempting to maximize profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. Asset liquidity is provided by cash and assets which are readily marketable, can be pledged, or which will mature in the near future. Liability liquidity is provided by access to core funding sources, principally the ability to generate customer deposits in our primary markets. In addition, liability liquidity is provided through the ability to borrow against approved lines of credit including federal funds purchased from correspondent banks and from the Federal Home Loan Bank.
Dividends. There are statutory and regulatory limitations on the payment of dividends by this subsidiary. The ability of First Community Bank to pay a dividend to us is governed by the OTS’ capital distribution regulation. This regulation and First Community Bank’s ability to pay dividends to us, is addressed in the sections entitled “Regulation and Supervision” and “Dividends.”
Management regularly reviews our liquidity position and has implemented internal policies that establish guidelines for sources of asset-based liquidity and limit the total amount of purchased funds used to support the balance sheet and funding from non-core sources.
Deposits and Other Sources of Funds. In addition to deposits, the sources of funds available for lending and other business purposes include loan repayments, loan sales, and borrowings from the Federal Home Loan Bank. Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and money market conditions. We maintain lines of credit at SunTrust Bank and at the Bankers Bank upon which we can draw up to $7.5 million. The line of credit at SunTrust Bank is secured by our common stock. There was no balance drawn on that line of credit as of December 31, 2005. The line of credit at the Bankers Bank is unsecured and had no funds drawn at year end. Borrowings may be used on a short-term basis to compensate for reductions in other sources, such as deposits at less than projected levels.
We offer a full range of interest bearing and non-interest bearing accounts, including business and consumer checking accounts, negotiable order of withdrawal (“NOW”) accounts, money market accounts with limited transactions, individual retirement accounts, regular interest bearing statement savings accounts and certificates of deposit with a range of maturity date options. The sources of deposits are individuals, businesses and employees of businesses within our market areas. Deposits are generally obtained through the personal solicitation of our officers and directors, direct mail solicitation and advertisements published in the local media. We pay competitive interest rates on time and savings deposits. In addition, we have implemented a service charge fee schedule competitive with other financial institutions in our market areas, covering such matters as maintenance fees on checking accounts, per item processing fees on checking accounts, returned check charges and the like.
Deposits from our primary market provide a relatively stable funding source for our loan portfolio and other earning assets. Our total deposits were $272.6, $200.7 and $134.5 million at December 31, 2005, 2004, and 2003, respectively. Most of the $71.9 million increase in deposits since December 31, 2004, was attributable to strong growth in savings, NOW and money market accounts as management directed a conscious effort to attract deposits from commercial business relationships. The funding requirements for loans have continued to increase in 2005, from 2004 levels. Net loans have increased $66.7 million during the period from December 31, 2004, to December 31, 2005. Management anticipates that a stable base of deposits will be our primary source of funding to meet both its short-term and long-term liquidity needs in the future.
The following table presents, for the years ended December 31 2005, 2004 and 2003 the average amount of, and average rate paid on, each of the following deposit categories
| Average Amount | Average Rate Paid | |||||||||||||||||
Deposit Category | 2005 | 2004 | 2003 | 2005 | 2004 | 2003 | ||||||||||||
| ($ in thousands) | ||||||||||||||||||
Non-interest bearing demand | $ | 35,933 | $ | 34,003 | $ | 16,156 | — | % | — | % | — | % | ||||||
Savings, NOW and money market deposits | 88,654 | 52,822 | 44,851 | 1.31 | 1.03 | .87 | ||||||||||||
Time deposits | 101,681 | 86,162 | 71,531 | 3.04 | 2.54 | 2.76 | ||||||||||||
Total | $ | 226,268 | $ | 172,987 | $ | 132,538 | 1.81 | % | 1.58 | % | 1.79 | % | ||||||
The following table indicates the amount of outstanding time certificates of deposit of $100,000 or more and their respective maturities as of December 31 (in thousands)
| 2005 | |||
months or less | $ | 17,464 | |
3-12 months | 17,640 | ||
1-3 years | 18,543 | ||
Over 3 years | 1,733 | ||
Total | $ | 55,380 | |
Borrowings.To date First Community Bank has relied on deposits, proceeds from sales of its loans and securities, repurchase agreements, and the purchase of overnight funds from correspondent banks as its major sources of funding. As of December 31, 2005, First Community Bank held repurchase agreements, which are used as sweep account for commercial customers, of approximately $3.7 million. In the future, First Community Bank also will rely on loan repayments, loan sales, and the sale of investment securities as additional sources of funding. In addition, in the future if there are periods when the supply of funds from deposits or other sources cannot meet the demand for loans, First Community Bank has the ability to seek a portion of the needed funds through loans (advances) from the FHLB where it currently has the ability to borrow up to $30 million. The amounts advanced under FHLB advances, the maturity date, and the
weighted-average interest rate as of December 31, 2005, 2004 and 2003 are set forth in the table below ($ in thousands):
Maturing in Year Ending December 31, | Interest Rate | At December 31, | |||||||||
| 2005 | 2004 | 2003 | |||||||||
2004 | 5.93 | — | — | 1,000 | |||||||
2004 | 3.86 | — | — | 1,000 | |||||||
2004 | 1.15 | — | — | 6,000 | |||||||
2004 | 1.32 | — | — | 2,000 | |||||||
2005 | 4.54 | — | 1,000 | 1,000 | |||||||
2005 | 1.94 | — | 1,000 | 1,000 | |||||||
2006 | 2.48 | 2,000 | 2,000 | 2,000 | |||||||
2007(1) | 3.66 | — | 2,000 | 2,000 | |||||||
2007 | 3.34 | 2,000 | 2,000 | 2,000 | |||||||
2008 2008 | 4.14 4.45 | | 2,000 3,000 | | 2,000 — | | 2,000 — | ||||
2009 2010(2) | 3.71 4.02 | | 1,000 1,000 | | 1,000 — | | — — | ||||
2012(3) | 3.93 | 1,000 | 1,000 | 1,000 | |||||||
| $ | 12,000 | $ | 12,000 | $ | 21,000 | ||||||
| (1) | FHLB called in July 2005 |
| (2) | FHLB has call option in September 2006 |
| (3) | FHLB has a call option in April 2006 |
Average Contractual Obligations
Contractual obligations for payments under long-term debt and lease obligations are shown as follows, stratified by remaining term to contractual maturity (in thousands):
| Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | ||||||||||
Real estate operating leases | $ | 157 | 309 | 115 | — | $ | 581 | |||||||
Certificates of Deposit | 77,291 | 38,196 | 4,846 | — | 120,333 | |||||||||
Federal home loan bank advances | 2,000 | 7,000 | 2,000 | 1,000 | 12,000 | |||||||||
Total | $ | 79,448 | $ | 45,505 | $ | 6,961 | 1,000 | $ | 132,914 | |||||
Further discussion of the nature of each obligation is included in “Note 4-Premises and Equipment, Net”, “Note 5-Deposits”, and “Note 6-Federal Home Loan Bank Advances”.
Average Balance, Interest and Average Yields and Costs
The following is an analysis of the net interest earnings for the years ended December 31, 2005, 2004 and 2003 with respect to each major category of interest-earning assets and each major category of interest-bearing liabilities.
For purposes of these analyses, non-accruing loans, if any, are included in the average balances.
| For the Year Ended December 31, | |||||||||||||||||||||||||||
| 2005 | 2004 | 2003 | |||||||||||||||||||||||||
Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | Average Balance | Interest and Dividends | Average Yield/ Rate | |||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||||||
ASSETS: | |||||||||||||||||||||||||||
Earning assets: | |||||||||||||||||||||||||||
Loans(1) | $ | 233,888 | $ | 16,093 | 6.88 | % | $ | 179,279 | $ | 11,165 | 6.23 | % | $ | 139,572 | $ | 8,960 | 6.42 | % | |||||||||
Securities(2) | 16,352 | 455 | 2.78 | 12,089 | 277 | 2.29 | 7,034 | 193 | 2.74 | ||||||||||||||||||
Other interest earnings assets | 11,787 | 217 | 1.84 | 10,690 | 120 | 1.12 | 5,775 | 58 | 1.00 | ||||||||||||||||||
Total earning assets | 262,027 | 16,765 | 6.40 | 202,058 | 11,562 | 5.72 | 152,381 | 9,211 | 6.04 | ||||||||||||||||||
Non-earning assets | 17,542 | 12,325 | 11,823 | ||||||||||||||||||||||||
Total Assets | $ | 279,569 | $ | 214,383 | $ | 164,204 | |||||||||||||||||||||
LIABILITIES: | |||||||||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||||||
Savings NOW and money market | $ | 88,654 | $ | 1,161 | 1.31 | $ | 52,822 | $ | 544 | 1.03 | $ | 44,851 | $ | 390 | .87 | ||||||||||||
Time Deposits | 101,681 | 3,092 | 3.04 | 86,162 | 2,190 | 2.54 | 71,531 | 1,976 | 2.76 | ||||||||||||||||||
Total Interest Bearing Deposits | 190,335 | 4,253 | 2.23 | 138,984 | 2,734 | 1.97 | 116,382 | 2,366 | 2.03 | ||||||||||||||||||
Other borrowings(3) | 16,017 | 542 | 3.38 | 15,674 | 478 | 3.05 | 14,212 | 426 | 3.00 | ||||||||||||||||||
Total interest-bearing liabilities | 206,352 | 4,795 | 2.32 | 154,658 | 3,212 | 2.08 | 130,594 | 2,792 | 2.14 | ||||||||||||||||||
Non interest-bearing liabilities | 47,967 | 37,606 | 17,262 | ||||||||||||||||||||||||
Stockholders’ equity | 25,250 | 22,119 | 16,348 | ||||||||||||||||||||||||
Total liabilities and equity | $ | 279,569 | $ | 214,383 | $ | 164,204 | |||||||||||||||||||||
Net interest income | $ | 11,970 | $ | 8,350 | $ | 6.419 | |||||||||||||||||||||
Interest-rate spread(4) | 4.08 | % | 3.64 | % | 3.90 | % | |||||||||||||||||||||
Net interest margin(5) | 4.57 | % | 4.13 | % | 4.21 | % | |||||||||||||||||||||
Ratio of average interest-earning assets to average interest-bearing liabilities | 1.27 | 1.31 | 1.17 | ||||||||||||||||||||||||
| (1) | Balances are net of deferred loan origination costs, undisbursed proceeds of construction loans in process, and include non-performing loans. |
| (2) | Yields on securities available for sale are based on average amortized cost. |
| (3) | Other borrowings include Federal Home Loan Bank Advances, repurchase agreements with customers and First Community’s line of credit. |
| (4) | Interest-rate spread represents the difference between the weighted-average yield on interest-earnings assets and the weighted-average cost of interest bearing liabilities. |
| (5) | Net interest margin represents net interest income as a percentage of average interest-earning assets. |
Rate/Volume Analysis
The following tables set forth certain information regarding changes in interest income and interest expense for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to:
| • | Changes in rate (change in rate multiplied by prior volume); |
| • | Changes in volume (change in volume multiplied by prior rate); and |
| • | Changes in rate-volume (change in rate multiplied by change in volume). |
Year Ended December 31, 2005 Compared to 2004 Increase (Decrease) Due to | ||||||||||||||
| (In thousands) | ||||||||||||||
| Rate | Volume | Rate/Volume | Total | |||||||||||
Interest Income: | ||||||||||||||
Loans | $ | 1,165 | $ | 3,402 | $ | 361 | $ | 4,928 | ||||||
Securities | 59 | 98 | 21 | 178 | ||||||||||
Other interest-earning assets | 77 | 12 | 8 | 97 | ||||||||||
Total increase (decrease) in interest income | $ | 1,301 | $ | 3,512 | $ | 390 | $ | 5,203 | ||||||
Interest Expense: | ||||||||||||||
Deposits: | ||||||||||||||
Savings, NOW and money-market deposits | 148 | 369 | 100 | 617 | ||||||||||
Time deposits | 431 | 394 | 77 | 902 | ||||||||||
Other borrowings | 52 | 10 | 2 | 64 | ||||||||||
Total increase (decrease) in interest expense | 631 | 773 | 179 | 1,583 | ||||||||||
Net change in net interest income | $ | 670 | $ | 2,739 | $ | 211 | $ | 3,620 | ||||||
Year Ended December 31, 2004 Compared to 2003 Increase (Decrease) Due to | ||||||||||||||
| (In thousands) | ||||||||||||||
| Rate | Volume | Rate/Volume | Total | |||||||||||
Interest Income: | ||||||||||||||
Loans | $ | (265 | ) | $ | 2,549 | $ | (79 | ) | $ | 2,205 | ||||
Securities | (32 | ) | 139 | (23 | ) | 84 | ||||||||
Other interest-earning assets | 7 | 49 | 6 | 62 | ||||||||||
Total increase (decrease) in interest income | $ | (290 | ) | $ | 2,737 | $ | (96 | ) | $ | 2,351 | ||||
Interest Expense: | ||||||||||||||
Deposits: | ||||||||||||||
Savings, NOW and money-market deposits | 67 | 69 | 18 | 154 | ||||||||||
Time deposits | (157 | ) | 404 | (33 | ) | 214 | ||||||||
Other borrowings | 7 | 44 | 1 | 52 | ||||||||||
Total increase (decrease) in interest expense | (83 | ) | 517 | (14 | ) | 420 | ||||||||
Net change in net interest income | $ | (207 | ) | $ | 2,220 | $ | (82 | ) | $ | 1,931 | ||||
Comparison of the Years Ended December 31, 2005 and 2004
General. Our net earnings for the year ended December 31, 2005, increased to $2.9 million or $0.86 earnings per basic share and $0.78 earnings per diluted share compared to $2.0 million or $0.62 earnings per basic share and $0.56 earnings per diluted share for the year ended December 31 2004. Net earnings increased due to an increase in net interest income, which was partially offset by an increase in non-interest expenses and the provision for income taxes.
Net Interest Income. Interest income increased to $16.8 million during the year ended December 31, 2005, from $11.6 million in 2004. Interest on loans for the year ended December 31, 2005 increased to $16.1 million from $11.2 million for the year ended December 31, 2004. The increase in interest on loans was primarily due to an increase in the average balance of loans during the year ended December 31, 2005 when compared the year ended December 31, 2004. This was primarily due to the opening of two new banking offices during 2005. This increase was also due to an increase in the average yield earned for the year ended December 31, 2005 when compared to 2004. Interest on securities increased to $455,000
during the year ended December 31, 2005, from $277,000 for the year ended December 31, 2004. The increase in interest income on securities was due to an increase in the average balance of securities in 2005 when compared to 2004 and an increase in the average yield earned in 2005 when compared to 2004. Interest on other interest earning assets increased to $217,000 during the year ended December 31, 2005, from $120,000 during the year ended December 31, 2004 due to an increase in the average balance and average yield earned in 2005.
Interest expense on interest bearing deposit accounts increased to $4.3 million during the year ended December 31, 2005, compared to $2.7 million during the year ended December 31, 2004. The increase was due to an increase in the average balance of interest bearing deposits in 2005 due to the opening of additional banking offices in 2005 and also an increase in the average rate paid on deposit accounts.
Interest expense on other borrowings increased to $542,000 during the year ended December 31, 2005, compared to $478,000 in 2004. The increase was primarily due to an increase in the average balance of such accounts.
Provision for Loan Losses.Calculating the allowance for loan losses is divided into two primary allocation groups: (1) specific allocation loans and (2) all other passing grade loans. For specific allocation loans, the Company has determined an allowance amount to set aside which it believes is sufficient to cover any potential collateral shortfall. Problem loans are identified by the loan officer, loan review, loan committee or by the examiners. Those loans identified as problem loans are assigned a risk grade. Loans graded special mention are multiplied by an inherent loss factor of 3% - 5% to determine the amount to be included in the allowance. Loans graded substandard are generally multiplied by a loss factor of 5% to 15%, loans graded doubtful are generally multiplied by a loss factor of 50% and loans graded loss are multiplied by a loss factor of 100%. In addition to the 5% - 15% and 50% on substandard and doubtful loans, respectively, the loans are individually reviewed for any additional reserve that may be necessary. All other loans, graded pass are multiplied by an historical experience factor to determine the appropriate level of the allowance for loan losses. In addition to historical experience factors, the Company also provides for losses due to economic factors, concentration of credit risk and portfolio composition changes.
The provision for loan losses was $795,000 for the year ended December 31, 2005 compared to $605,000 for the year ended December 31, 2004. Continued economic weakness, rapidly rising interest rates, or other factors could cause stress on the loan portfolio and affect the levels of nonperforming assets and charge-offs which would require an increase to the loan loss reserves in the future.
The allowance for loan losses is $3,416,000 at December 31, 2005. While management believes that its allowance for loan losses is adequate as of December 31, 2005, future adjustments to the Company’s allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the initial determination.
Non-interest Income. Non-interest income increased to $1,165,000 in 2005 from $1,081,000 for the year ended December 31, 2004. The increase is primarily due to an increase in gains recognized on the sale of loans held for sale.
Non-interest Expense. Total non-interest expense increased to $7.8 million for the year ended December 31, 2005 from $5.6 million for the comparable period ended December 31, 2004, primarily due to an increase in employee compensation and benefits of $1.4 million due to the overall growth of the Company and the opening of two new banking offices in 2005.
Income Taxes. Income taxes for the year ended December 31, 2005, was $1,672,000 or 36.9% compared to $1,183,000 or 36.9% for the year ended December 31, 2004.
Comparison of the Years Ended December 31, 2004 and 2003
General. Our net earnings for the year ended December 31, 2004, increased to $2.0 million or $0.62 earnings per basic share and $0.56 earnings per diluted share compared to $1.5 million or $0.55 earnings per basic share and $0.51 earnings per diluted share for the year ended December 31 2003. Net earnings increased due to an increase in net interest income, which was partially offset by decrease in non-interest income, an increase in non-interest expenses and the provision for income taxes.
Net Interest Income. Interest income increased to $11.6 million during the year ended December 31, 2004, from $9.2 million in 2003. Interest on loans for the year ended December 31, 2004 increased to $11.2 million from $9.0 million for the year ended December 31, 2003. The increase in interest on loans was primarily due to an increase in the average balance of loans during the year ended December 31, 2004 when compared the year ended December 31, 2003. This was primarily due to the opening of two new banking offices during 2002 and 2003. This increase was partially offset by a decrease in the average yield earned for the year ended December 31, 2004 when compared to 2003. Interest on securities increased to $277,000 during the year ended December 31, 2004, from $193,000 for the year ended December 31, 2003. The increase in interest income on securities was due to an increase in the average balance of securities in 2004 when compared to 2003 partially offset by a decrease in the average yield earned in 2004 when compared to 2003. Interest on other interest earning assets increased to $120,000 during the year ended December 31, 2004, from $58,000 during the year ended December 31, 2003 due to an increase in the average balance and average yield earned in 2004.
Interest expense on interest bearing deposit accounts increased to $2.7 million during the year ended December 31, 2004, compared to $2.4 million during the year ended December 31, 2003. The increase was due to an increase in the average balance of interest bearing deposits in 2004 due to the opening of additional banking offices in 2002 and 2003 which was partially offset by a decrease in the average rate paid on deposit accounts. The decline in the average rate paid was the result of management’s efforts to increase low cost deposit accounts and the continued decline in overall interest rates.
Interest expense on other interest bearing liabilities increased to $478,000 during the year ended December 31, 2004, compared to $426,000 in 2003. The increase was primarily due to an increase in the average balance of such liability accounts.
Provision for Loan Losses.Calculating the allowance for loan losses is divided into two primary allocation groups: (1) specific allocation loans and (2) all other passing grade loans. For specific allocation loans, the Company has determined an allowance amount to set aside which it believes is sufficient to cover any potential collateral shortfall. Problem loans are identified by the loan officer, loan review, loan committee or by the examiners. Those loans identified as problem loans are assigned a risk grade. Loans graded special mention are multiplied by an inherent loss factor of 2% to determine the amount to be included in the allowance. Loans graded substandard are generally multiplied by a loss factor of 5%, loans graded doubtful are generally multiplied by a loss factor of 50% and loans graded loss are multiplied by a loss factor of 100%. In addition to the 5% and 50% on substandard and doubtful loans, respectively, the loans are individually reviewed for any additional reserve that may be necessary. All other loans, graded pass are multiplied by an historical experience factor to determine the appropriate level of the allowance for loan losses. In addition to historical experience factors, the Company also provides for losses due to economic factors, concentration of credit risk and portfolio composition changes.
The provision for loan losses was $605,000 for the year ended December 31, 2004 compared to $668,000 for the year ended December 31, 2003. While continued economic weakness, rapidly rising interest rates, or other factors could cause stress on the loan portfolio and affect the levels of nonperforming assets and charge-offs, management believes that the levels of nonperforming assets and the charge-off ratio are stable under the current circumstances.
The allowance for loan losses is $2,640,000 at December 31, 2004. While management believes that its allowance for loan losses is adequate as of December 31, 2004, future adjustments to the Company’s allowance for loan losses may be necessary if economic conditions differ substantially from the assumptions used in making the initial determination.
Non-interest Income. Non-interest income decreased to $1,081,000 in 2004 from $1,248,000 for the year ended December 31, 2003. The decrease is primarily due to a decrease in gains recognized on the sale of loans held for sale.
Non-interest Expense. Total non-interest expense increased to $5.6 million for the year ended December 31, 2004 from $4.7 million for the comparable period ended December 31, 2003, primarily due to an increase in employee compensation and benefits of $591,000 due to the opening of new banking offices in 2002 and 2003.
Income Taxes. Income taxes for the year ended December 31, 2004, was $1,183,000 or 36.9% compared to $831,000 or 36.1% for the year ended December 31, 2003.
Selected Quarterly Results
Selected quarterly results of operations for the four quarters ended December 31, 2005 and 2004 are as follows. All per share amounts reflect the 5% stock dividend declared in February, 2005 and the three-for-two stock split declared in December 2005 (in thousands, except share amounts):
| 2005 | |||||||||
| Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||
Interest income | $ | 4,899 | 4,381 | 3,930 | 3,555 | ||||
Interest expense | 1,505 | 1,273 | 1,075 | 942 | |||||
Net interest income | 3,394 | 3,108 | 2,855 | 2,613 | |||||
Provision for loan losses | 237 | 197 | 203 | 158 | |||||
Net interest income after provision for loan losses | 3,157 | 2,911 | 2,652 | 2,455 | |||||
Noninterest income | 315 | 323 | 276 | 251 | |||||
Noninterest expense | 2,125 | 2,051 | 1,922 | 1,707 | |||||
Earnings before income taxes | 1,347 | 1,183 | 1,006 | 999 | |||||
Income taxes | 494 | 432 | 377 | 369 | |||||
Net earnings | 853 | 751 | 629 | 630 | |||||
Basic earnings per share | $ | .25 | .23 | .19 | .19 | ||||
Diluted earnings per share | $ | .24 | .20 | .17 | .17 | ||||
| 2004 | |||||||||
| Fourth Quarter | Third Quarter | Second Quarter | First Quarter | ||||||
Interest income | $ | 3,267 | 2,944 | 2,756 | 2,595 | ||||
Interest expense | 881 | 819 | 782 | 730 | |||||
Net interest income | 2,386 | 2,125 | 1,974 | 1,865 | |||||
Provision for loan losses | 224 | 119 | 137 | 125 | |||||
Net interest income after provision for loan losses | 2,162 | 2,006 | 1,837 | 1,740 | |||||
Noninterest income | 238 | 257 | 273 | 313 | |||||
Noninterest expense | 1,574 | 1,378 | 1,332 | 1,336 | |||||
Earnings before income taxes | 826 | 885 | 778 | 717 | |||||
Income taxes | 309 | 326 | 285 | 263 | |||||
Net earnings | 517 | 559 | 493 | 454 | |||||
Basic earnings per share | $ | .15 | .17 | .15 | .15 | ||||
Diluted earnings per share | $ | .14 | .15 | .14 | .13 | ||||
Item 9a. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon their evaluation of those controls and procedures performed within 90 days of the filing date of this report, our Chief Executive and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms..
(b) Changes in internal controls.
We made no significant changes in its internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation of those controls by the Chief Executive and Chief Financial Officer.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| FIRST COMMUNITY BANK CORPORATION OF AMERICA | ||
| By | /s/ Kenneth P. Cherven | |
| Kenneth P. Cherven, President and Chief Executive Officer | ||
| Date: June 5, 2006 | ||
| By: | /s/ John A. Stewart, Jr. | |
| John A. Stewart, Jr., Chief Financial Officer | ||
| Date: June 5, 2006 | ||
Exhibit Index
| Exhibit No. | Description | |
| 31.1 | Certification of Chief Executive Officer required by Rule 13a-14(a)/15-14(a) under the Exchange Act | |
| 31.2 | Certification of Chief Financial Officer required by Rule 13a-14(a)/15-14(a) under the Exchange Act | |
| 32.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 | |
| 32.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002 | |