U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-25972
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FIRST COMMUNITY CORPORATION
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(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
TENNESSEE 62-1562541
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
809 WEST MAIN STREET
ROGERSVILLE, TENNESSEE 37857
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(423) 272-5800
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(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
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(FORMER NAME, ADDRESS AND FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
1,917,323
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(OUTSTANDING SHARES OF THE ISSUER'S COMMON STOCK AS OF SEPTEMBER 30, 2002)
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES NO X
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FIRST COMMUNITY CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
NUMBER PAGE
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ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
SEPTEMBER 30, 2002 (UNAUDITED) AND DECEMBER 31, 2001
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 4
NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME 5
THREE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS 10
ITEM 3. CONTROLS AND PROCEDURES 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 2. CHANGES IN SECURITIES 15
ITEM 3. DEFAULT UPON SENIOR SECURITIES 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 15
ITEM 5. OTHER INFORMATION 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Balance Sheet
(Unaudited)
September 30, 2002
($ amounts in thousands)
September 30, December 31,
ASSETS 2002 2001
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Cash and due from banks $ 5,110 4,866
Federal funds sold 8,088 3,713
Securities available-for-sale 10,723 10,518
Loans 117,589 110,269
Allowance for loan losses (1,285) (1,243)
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LOANS, NET 116,304 109,026
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Premises and equipment 5,024 3,744
Accrued income receivable 1,142 1,363
Federal Home Loan Bank stock 1,426 1,378
Cash surrender value of life insurance 3,320 644
Computer Software, net of amortization 492 500
Other assets 1,032 703
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$152,661 136,455
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Liabilities:
Deposits:
Noninterest-bearing $ 15,000 12,426
Interest-bearing 107,479 93,576
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TOTAL DEPOSITS 122,479 106,002
Securities sold under agreements to repurchase 2,945 3,518
Advances from FHLB 12,000 12,000
Note payable 0 124
Accrued interest payable 460 643
Dividend payable 134 134
Other liabilities 756 855
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TOTAL LIABILITIES 138,774 123,276
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Trust Preferred Securities 4,000 4,000
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TOTAL TRUST PREFERRED SECURITIES 4,000 4,000
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Shareholders' equity:
Common stock, no par value. Authorized 10,000,000
shares; issued and outstanding 1,917,323 in 2002
and 1,917,167 in 2001 6,579 6,578
Accumulated other comprehensive income, net 152 33
Retained earnings 3,156 2,568
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TOTAL SHAREHOLDERS' EQUITY 9,887 9,179
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$152,661 136,455
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3
FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Statement of Income and Comprehensive Income
(Unaudited)
September 30, 2002
($ amounts in thousands except earnings per share)
Nine Months Ended September 30, 2002
2002 2001
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INTEREST INCOME:
Loans, including fees $ 6,602 7,272
Securities:
Taxable 411 454
Tax exempt 39 36
Federal funds sold 74 197
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TOTAL INTEREST INCOME 7,126 7,959
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INTEREST EXPENSE:
Deposits 1,949 3,174
Other borrowings 630 607
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TOTAL INTEREST EXPENSE 2,579 3,781
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NET INTEREST INCOME 4,547 4,178
Provision for loan losses 339 414
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,208 3,764
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OTHER INCOME:
Service charges on deposit accounts 663 472
Other service charges, commissions and fees 308 210
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TOTAL OTHER INCOME 971 682
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OTHER EXPENSES:
Salaries, Directors' fees and employee benefits 1,847 1,565
Occupancy expense 563 491
Other operating expenses 1,209 985
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TOTAL OTHER EXPENSES 3,619 3,041
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INCOME BEFORE INCOME TAXES 1,560 1,405
Income taxes 568 509
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NET INCOME $ 992 896
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OTHER COMPREHENSIVE INCOME:
Unrealized gains/losses on securities, net 119 82
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COMPREHENSIVE INCOME $ 1,111 978
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BASIC EARNINGS PER SHARE $ 0.52 0.46
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BASIC AVERAGE SHARES OUTSTANDING 1,917,273 1,962,221
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DILUTED EARNINGS PER SHARE $ 0.51 0.45
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DILUTED AVERAGE SHARES OUTSTANDING 1,945,372 1,990,320
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4
FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Statement of Income and Comprehensive Income
(Unaudited)
September 30, 2002
($ amounts in thousands except earnings per share)
THREE MONTHS ENDED SEPTEMBER 30, 2002
2002 2001
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INTEREST INCOME:
Loans, including fees $ 2,249 2,383
Securities:
Taxable 139 134
Tax exempt 12 13
Federal funds sold 28 88
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TOTAL INTEREST INCOME 2,428 2,618
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INTEREST EXPENSE:
Deposits 677 1,053
Other borrowings 211 135
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TOTAL INTEREST EXPENSE 888 1,188
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NET INTEREST INCOME 1,540 1,430
Provision for loan losses 50 90
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NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,490 1,340
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OTHER INCOME:
Service charges on deposit accounts 255 159
Other service charges, commissions and fees 117 67
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TOTAL OTHER INCOME 372 226
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OTHER EXPENSES:
Salaries, Directors' fees and employee benefits 711 502
Occupancy expense 204 171
Other operating expenses 493 329
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TOTAL OTHER EXPENSES 1,408 1,002
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INCOME BEFORE INCOME TAXES 454 564
Income taxes 165 206
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NET INCOME $ 289 358
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OTHER COMPREHENSIVE INCOME:
Unrealized gains/losses on securities, net 33 32
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COMPREHENSIVE INCOME $ 322 390
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BASIC EARNINGS PER SHARE $ 0.15 0.18
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BASIC AVERAGE SHARES OUTSTANDING 1,917,323 1,963,035
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DILUTED EARNINGS PER SHARE $ 0.15 0.18
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DILUTED AVERAGE SHARES OUTSTANDING 1,945,422 1,991,134
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5
FIRST COMMUNITY CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
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Nine Months Ended
September 30,
-------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 992 898
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 375 358
Provision for loan losses 339 414
Decrease/(Increase) in accrued income receivable 87 133
Other, net (408) (112)
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 1,385 1,691
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CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase)/Decrease in federal funds sold (4,375) (3,704)
Maturities and redemptions of securities
available for sale 3,259 6,640
Purchases of securities available-for-sale (3,463) (7,192)
Purchase of bank owned life insurance (2,676) 0
Net decrease/(increase) in loans (7,617) (4,962)
Purchases of premises and equipment (1,647) (53)
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NET CASH PROVIDED (USED )BY INVESTING ACTIVITIES (16,519) (9,271)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (403) (412)
Issuance of common stock 1 9
Purchase and retirement of common stock -- (5)
Increase in borrowing of Note Payable -- 40
Repayments of Note Payable (124) (155)
Repayments of FHLB advances (1,500) (9,500)
Increase in borrowings from FHLB 1,500 9,000
Increase/(Decrease) in securities sold under agreements
to repurchase (573) 601
Increase in deposits 16,477 9,124
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 15,378 8,702
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NET INCREASE (DECREASE) IN CASH 244 1,122
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 4,866 3,425
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CASH AND DUE FROM BANKS AT END OF PERIOD $ 5,110 4,547
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CASH PAYMENTS FOR INTEREST $ 2,762 4,022
CASH PAYMENTS FOR INCOME TAXES $ 916 496
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6
FIRST COMMUNITY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
GENERAL
First Community Corporation (the "Company"), through its subsidiary, First
Community Bank of East Tennessee (the "Bank"), provides a variety of banking
services to individuals and businesses from its banking offices in Rogersville
and Church Hill, Tennessee. Its primary deposit products are demand and savings
deposits and certificates of deposit, and its primary lending products are
commercial, real estate mortgage and installment loans. During 2002, the Bank
opened a branch in Rogersville at the Super Wal-Mart and is in the process of
opening a branch in Kingsport, Tennessee. The significant policies are
summarized as follows:
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine-month period ended September 30, 2002, are not necessarily
indicative of the results that may be expected for the year ended December 31,
2002.
USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
Cash and cash equivalents as presented in the statements include cash and due
from banks.
CASH AND DUE FROM BANKS
Included in cash and due from banks are legal reserve requirements which must be
maintained on an average basis in the form of cash and balances due from the
Federal Reserve and other banks.
SECURITIES
Securities are classified into three categories: held to maturity, available for
sale, and trading. Securities classified as held to maturity, which are those
the Company has the positive intent and ability to hold to maturity, are
reported at amortized cost. Securities classified as available for sale may be
sold in response to changes in interest rates, liquidity needs, and for other
purposes. These securities are reported at fair value and include securities not
classified as held to maturity or trading. Trading securities are those held
principally for the purpose of selling in the near future and are carried at
fair value. The Company currently has no held to maturity or trading securities.
Unrealized holding gains and losses for available for sale securities are
reported in other comprehensive income. Realized gains (losses) on securities
available for sale are included in other income (expense) and, when applicable,
are reported as a reclassification adjustment, net of tax, in other
comprehensive income. Gains and losses on sales of securities are determined on
the specific-identification method.
LOANS
Loans which management has the intent and ability to hold for the foreseeable
future are reported at their outstanding principal balance. Interest on loans is
computed daily based on the principal amount outstanding.
7
A loan is considered impaired when it is probable that the Company will be
unable to collect the scheduled payments of principal and interest due under the
contractual terms of the loan agreement. Impaired loans are measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or at the fair value of
the collateral if the loan is collateral dependent. If the measure of the
impaired loan is less than the recorded investment in the loan, the Company
recognizes an impairment by creating or adjusting a valuation allowance with a
corresponding charge or credit to the provision for loan losses.
The Company considers all loans on non-accrual status to be impaired. Interest
accrual on loans is discontinued when, in the opinion of management, it is not
reasonable to expect that such interest will be collected, or generally, when
collection of principal or interest becomes 90 days or more past due. Management
may make exceptions to this policy when the estimated net realizable value of
the collateral is sufficient to recover the principal and interest balance. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established by charges to operations based on
management's evaluation of the assets, economic conditions and other factors
considered necessary to maintain the allowance at an adequate level. In
evaluating the adequacy of the allowance, management makes certain estimates and
assumptions that are susceptible to change in the near term. While management
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions.
Uncollectible loans are charged to the allowance account in the period such
determination is made. Recoveries on loans previously charged off are credited
to the allowance account in the period received. Allowances for impaired loans
are generally determined based on collateral values or the present value of
estimated cash flows, as discussed above.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation is computed principally on the
straight-line method over the estimated useful lives of the assets, which range
as follows: building-40 years, equipment-5 to 7 years.
OTHER REAL ESTATE
Other real estate, which consists of properties acquired through foreclosure, is
recorded at the lower of the outstanding loan amount or fair value, determined
by appraisal, at the date of foreclosure. Declines in value resulting from
reappraisals, as well as losses resulting from disposition are charged to
operations.
STOCK-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation", defines a fair
value-based method of measuring employee stock options or similar equity
instruments. Under this method, compensation cost is measured at the option
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. In lieu of recording the value of
such options, the Company has elected to continue to measure compensation cost
using APB Opinion 25 and to provide pro forma disclosures quantifying the
difference between compensation cost included in reported net income and the
related cost measured by such fair value-based method.
PER SHARE AMOUNTS
Earnings per share (EPS) is calculated in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, issued in February 1997. The statement
requires the dual presentation of basic and diluted EPS on the income statement.
Basic EPS excludes dilution, and is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or contracts to issue common stock were exercised or converted into
common stock that then shared in the earnings of the entity.
8
INCOME TAXES
The Company files a consolidated tax return with its subsidiary. Income taxes
are allocated to members of the consolidated group on a separate return basis.
Income taxes have been provided using the liability method as prescribed by SFAS
No. 109, "Accounting for Income Taxes".
EMPLOYEE BENEFITS
The Bank maintains a 401(k) profit-sharing plan, which covers substantially all
employees.
9
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
FINANCIAL CONDITION
First Community Corporation (the "Company") is a registered bank holding
company, which was incorporated under Tennessee law in 1994. The Company's
activities are conducted through its wholly owned subsidiary, First Community
Bank of East Tennessee (the "Bank"), which was acquired by the Company in 1994.
The Bank is a state bank chartered under the laws of Tennessee, which was
organized in late 1992 shortly after the last locally owned bank headquartered
at that time in Hawkins County was acquired by a regional bank holding company.
From the time of its opening in April 1993 until September 30, 2002, the Bank
has grown to total assets of more than $152,000,000.
Operating as a full service commercial bank, the Bank provides a range of
customary services which include checking, NOW accounts, money market and
savings accounts, certificates of deposit, individual retirement accounts, money
transfers, and safe deposit facilities. Lending services include loans for
business, agriculture, real estate, personal use, home improvements, and
automobiles. The Bank is not authorized to provide trust services.
The Bank considers its primary market for loans and deposits to be individuals,
small-to-medium size businesses and professionals in Hawkins County and Sullivan
County, Tennessee. The Bank is actively soliciting business in this target
market and considers the potential growth opportunities to be favorable. No
material portion of the Bank's deposits has been obtained from any single person
or group of persons, with the exception of a $9 million certificate of deposit
from a local government entity.
Loans have increased $7.3 million or 6.6% during the first nine months of 2002.
Commercial real estate loans in the Sullivan County area comprise the majority
of this increase. These loans were obtained primarily through customer contacts
established by loan officers hired to develop this market area in anticipation
of the opening of a new branch in Kingsport, Tennessee. Since 1999, the mix of
loans in the Bank's portfolio has reflected an increasing level of commercial
real estate loans with a flat or declining proportion of loans in the
residential mortgage or consumer loan areas, respectively. The Bank competes
generally with insurance companies, credit unions and other financial
institutions that have expanded into the quasi-financial market and some of
these competitors are much larger than the Bank with greater resources to offer
lower rates on consumer lending.
Deposits have increased $16.5 million or 15.5% as of September 30, 2002 from
December 31, 2002. This increase was attributable in part to the opening of the
Bank's branch in Rogersville's Super Wal-Mart, as well as deposit promotions
held at all Bank locations. Deposits totaled $5.4 million at the Wal-Mart
branch at September 30, 2002.
The Bank is subject to the regulatory authority of the Department of Financial
Institutions of the State of Tennessee and the Federal Deposit Insurance
Corporation (the "FDIC"), which currently insures the deposits of each member
bank to a maximum of $100,000 per depositor. For this protection, the Bank pays
a quarterly statutory assessment and is subject to the rules and regulations of
the FDIC.
The Bank continually reviews its loan portfolio to determine deficiencies and
the corrective actions to be taken. The review process is handled internally
independent of loan origination responsibilities. A minimum of 30% of total
loans is reviewed annually along with 100% of those borrowers with aggregate
indebtedness in excess of $100,000. Past due loans are reviewed by an internal
loan officer committee, and a summary report of such loans is reviewed monthly
by the Board of Directors. A report of loan review findings is presented
quarterly to the Bank's Board of Directors.
10
The result of operations of the Bank and the Company are affected by credit
policies of monetary authorities, particularly the Federal Reserve Board. The
instruments of monetary policy employed by the Federal Reserve Board include
open market operations in U.S. government securities, changes in the discount
rate on bank borrowings and changes in reserve requirements against bank
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effects of actions by monetary and fiscal
authorities, including the Federal Reserve Board, no prediction can be made as
to possible future changes in interest rates, deposit levels, loan demand or the
effect of such matters on the business and earnings of the Company.
During 2002, the Bank invested in $2.6 million of bank owned life insurance.
This insurance, of which the Bank is the sole beneficiary, provides key-man
insurance on the Bank's officers and the proceeds will provide additional
earnings to be used to cover employee benefits.
Costs for premises and equipment increased $1.3 million or 34% from December
31, 2001 to September 30. 2002. The increase in premises and equipment costs
relates primarily to assets purchased to establish the Bank's branches in
Kingsport and the Super Wal-Mart with fixed assets of $1.5 million and $.252
million respectively through September 30, 2002. Upon completion, the fixed
assets for the Kingsport branch are estimated to be $2.6 million.
NONPERFORMING ASSETS AND RISK ELEMENTS
Nonperforming assets consist of (1) nonaccrual loans for which the recognition
of interest was discontinued, (2) loans past due 90 days or more and still
accruing interest, (3) loans which have been restructured to provide for a
reduction or deferral of interest or principal because the borrower's financial
condition deteriorated, and (4) foreclosed and repossessed assets. Nonperforming
loans at September 30, 2002 amounted to $301,000 or .26% of total loans, a
decrease from $318,000 or .28% of total loans at December 31, 2001.
Diversification within the loan portfolio is an important means of reducing
inherent lending risks. At September 30, 2002, the Bank had no concentrations of
10% or more of total loans in any single industry or in any geographical area
outside the immediate market area of the Bank.
The Bank discontinues the accrual of interest on loans for which principal or
interest payments become 90 days past due unless the loans are adequately
secured and are in the process of collection. Other real estate owned is carried
at fair value, determined by an appraisal. A loan is classified as a
restructured loan when the interest rate is materially reduced or the term is
extended beyond the original maturity date because of the inability of the
borrower to service the debt under the original terms. The Bank has $234,000 of
other real estate owned ("OREO") as of September 30, 2002.
On July 23, 2002, the Bank, along with a participating bank, foreclosed on a
motel in Greeneville, Tennessee, and sold the motel on September 25, 2002. The
loss reflected in the financials related to this transaction consists of
$182,000 charged against allowance for loan losses and $91,000 recorded as a
loss on OREO (shown in non-interest expense).
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is adequate with cash and due from banks of $5.1 million. In addition,
loans and securities repricing or maturing within one year or less exceed $ 40.2
million at September 30, 2002. The Bank has approximately $7.4 million in loan
commitments that are expected to be funded within the next six months and other
commitments, primarily standby letters of credit, of approximately $345,000 at
September 30, 2002. In addition to the Federal Home Loan Bank membership from
which the Bank has unused borrowing capacity of $13.6 million, the Bank has
established federal funds lines of credit with three correspondent banks
totaling $13.5 million to meet unexpected liquidity demands. With the exception
of unfunded loan commitments, there are no known trends or any known commitments
or uncertainties that will result in the Bank's liquidity increasing or
decreasing in a material way. In addition, the Company is not aware of any
recommendations by any regulatory authorities, which would have a material
effect on the Company's liquidity, capital resources or results of operations.
Total equity capital of the bank at September 30, 2002, is $13.5 million or
approximately 8.8% of total assets.
11
The Bank's capital position is adequate to meet the minimum capital requirements
for all regulatory agencies. The Bank's capital ratios as of September 30, 2002,
are as follows:
Tier 1 leverage 8.77%
Tier 1 risk-based 11.17%
Total risk-based 12.25%
During 2000, the Company entered into an agreement with the former President of
the Company to purchase 137,604 shares of the Company stock owned by the former
President for $17.50 per share. Two-thirds (91,736) of the shares were
purchased in 2000 and 2001, with the remaining one-third to be purchased in
November 2002.
Effective December 18, 2001, the Company, through a placement agent, sold to
institutional investors $4,000,000 in trust preferred securities. The interest
rate, which varies quarterly with LIBOR, was 5.42% at September 30, 2002. The
proceeds of the issue were used to reduce existing notes payable, purchase and
retire Company stock and contribute capital to the subsidiary Bank.
Capital adequacy in the banking industry is evaluated primarily by the use of
ratios that measure capital against assets that are weighted based on risk
characteristics. The Company and Bank were classified as "well capitalized"
for regulatory purposes as of September 30, 2002.
RESULTS OF OPERATIONS
YEAR TO DATE
The Company had net income of $992,000 for the nine months ending September 30,
2002, compared with $896,000 for the same period last year, resulting in an
increase of 10.7%.
Interest income and interest expense both decreased from 2001 to 2002 resulting
from the reduction in interest rates by the Federal Reserve during 2001 and
2002. Consequently, net interest income increased $369,000 for the nine months
ending September 30, 2002, or an increase of 8.8% due to liabilities repricing
more quickly than earning assets. Earning assets through September 30, 2002
increased $11.9 million while interest-bearing liabilities increased $13.3
million compared to December 31, 2001, reflecting an increase of 9.6% and 12.2%,
respectively.
Noninterest income for the nine months ending September 30, 2002 was $971,000
compared to $682,000 for the same period in 2001 reflecting an increase of
$289,000 or 42.4%. Noninterest income consists mainly of service charges on
deposit accounts, credit life insurance commissions, bank owned life insurance
income and secondary mortgage processing fees. Service charges on deposit
accounts for the nine months ending September 30, 2002 was $663,000 compared
with $472,000 for the same period in 2001 reflecting a increase of $191,000 or
40.5%. This increase resulted primarily from new services related to overdraft
privileges offered by the Company.
The provision for loan losses was $339,000 during the nine months ending
September 30, 2002 compared with $414,000 for the same period in 2001. The
allowance for loan losses of $1,285,000 at September 30, 2002 (approximately
1.09% of loans) is considered by management to be adequate to cover losses
inherent in the loan portfolio. Management evaluates the adequacy of the
allowance for loan losses monthly and makes provisions for loan losses based on
this evaluation.
Non-interest expenses for the nine months ending September 30, 2002 were
$3,619,000 compared to $3,041,000 for the same period in 2001 reflecting an
increase of $578,000. This increase is primarily due to
12
expenses related to the new branches totaling approximately $229,000 for
Wal-Mart and $202,000 for Kingsport. Non-interest expense also was impacted by
a $91,000 loss on OREO as explained above.
THIRD QUARTER
The Company had net income of $289,000 for the three months ending September 30,
2002, compared with $358,000 for the same period last year, resulting in a
decrease of 19.3%. This decrease is primarily a result of expenses related to
the start up of the Kingsport branch, which opened on October 15, 2002. The net
expenses related to the Kingsport branch incurred in the quarter equal $120,000.
Interest income for the three month period ending September 30, 2002, was
$2,428,000 compared to $2,618,000 for the same period in 2001 reflecting a
decrease of $190,000 of 7.3%. Interest expense for the three months ending
September 30, 2002 was $888,000 compared with $1,188,000 for the same period
in 2001 reflecting a decrease of $300,000 or 25.2%. Consequently, net interest
income increased $ 110,000 for the three months ending September 30, 2002, or an
increase of 7.7% due to liabilities repricing more quickly than earning assets.
Non-interest income for the three months ending September 30, 2002, was $372,000
compared with $226,000 for the same period in 2001 reflecting an increase of
$146,000 or 64.6%. Service charges on deposit accounts increased $96,000 or
60.4% for the three-month period ending September 30, 2002. This increase
resulted primarily from new services related to overdraft privileges offered by
the Company.
Non-interest expense for the three months ending September 30, 2002, was
$1,408,000 compared with $1,002,000 for the same period in 2001 reflecting an
increase of $406,000 or 40.5%. Salaries and benefits increased $209,000 or
41.7% for the three-month period ending September 30, 2002. This increase
primarily resulted from employees hired for the Wal-mart and Kingsport branches.
13
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures. The Company's disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company in
its periodic Securities and Exchange Commission ("SEC") filings is recorded,
processed and reported within the time periods specified in the SEC's rules and
forms. Based on that evaluation, the President and Chief Financial Officer
concluded that the Company's 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 Company's periodic
SEC filings.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 99.1 -- Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
signed by Mark A. Gamble, President
Exhibit 99.2 -- Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002,
signed by Elizabeth O. Lollar, Chief Financial Officer
b) The company did not file any reports on Form 8-K during the
quarter ended September 30, 2002.
15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIRST COMMUNITY CORPORATION
(Registrant)
November 14, 2002 /s/ Mark A. Gamble
(Date) -----------------------------------
Mark A. Gamble, President
November 14, 2002 /s/ Elizabeth O. Lollar
(Date) -----------------------------------
Elizabeth O. Lollar
Chief Financial Officer
16
I, Mark A. Gamble, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of First Community
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Mark A. Gamble
- ---------------------------
Mark A. Gamble
President
17
I, Elizabeth O. Lollar, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of First Community
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Elizabeth O. Lollar
- -------------------------
Elizabeth O. Lollar
Chief Financial Officer
18