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FIRST COMMUNITY BANKSHARES INC /VA/ - Quarter Report: 2013 March (Form 10-Q)

Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2013

Commission file number 000-19297

 

 

FIRST COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Nevada   55-0694814

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

P.O. Box 989

Bluefield, Virginia

  24605-0989
(Address of principal executive offices)   (Zip Code)

(276) 326-9000

(Registrant’s telephone number, including area code)

 

 

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.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class – Common Stock, $1.00 Par Value; 19,985,212 shares outstanding as of April 26, 2013

 

 

 


Table of Contents

FIRST COMMUNITY BANCSHARES, INC.

FORM 10-Q

For the quarter ended March 31, 2013

INDEX

 

                Page  
PART I. FINANCIAL INFORMATION   
   Item 1.    Financial Statements   
     

Condensed Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012

     3   
     

Condensed Consolidated Statements of Income for the Three Months Ended March  31, 2013 and 2012 (Unaudited)

     4   
     

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March  31, 2013 and 2012 (Unaudited)

     5   
     

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2013 and 2012 (Unaudited)

     6   
     

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March  31, 2013 and 2012 (Unaudited)

     7   
     

Notes to Condensed Consolidated Financial Statements (Unaudited)

     8   
   Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     38   
   Item 3.   

Quantitative and Qualitative Disclosures about Market Risk

     50   
   Item 4.   

Controls and Procedures

     51   
PART II. OTHER INFORMATION   
   Item 1.    Legal Proceedings      52   
   Item 1A.    Risk Factors      52   
   Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds      52   
   Item 3.    Defaults Upon Senior Securities      52   
   Item 4.    Mine Safety Disclosures      52   
   Item 5.    Other Information      53   
   Item 6.    Exhibits      53   

SIGNATURES

     56   

EXHIBIT INDEX

     57   

 

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Table of Contents
PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

                                             
     March 31,
2013
    December 31,
2012
 
(Amounts in thousands, except share and per share data)    (Unaudited)        

Assets

    

Cash and due from banks

   $ 41,467      $ 50,405   

Federal funds sold

     110,544        66,509   

Interest-bearing deposits in banks

     15,030        27,933   
  

 

 

   

 

 

 

Total cash and cash equivalents

     167,041        144,847   

Securities available-for-sale

     537,507        534,358   

Securities held-to-maturity

     816        816   

Loans held for sale

     2,794        6,672   

Loans held for investment, net of unearned income:

    

Covered under loss share agreements

     195,060        207,106   

Not covered under loss share agreements

     1,494,232        1,517,547   

Less allowance for loan losses

     (24,850     (25,770
  

 

 

   

 

 

 

Loans held for investment, net

     1,664,442        1,698,883   

FDIC indemnification asset

     45,393        48,073   

Property, plant, and equipment, net

     64,812        64,868   

Other real estate owned:

    

Covered under loss share agreements

     6,911        3,255   

Not covered under loss share agreements

     4,439        5,749   

Interest receivable

     8,166        7,842   

Goodwill

     104,689        104,866   

Intangible assets

     3,344        3,522   

Other assets

     109,937        105,116   
  

 

 

   

 

 

 

Total assets

   $ 2,720,291      $ 2,728,867   
  

 

 

   

 

 

 

Liabilities

    

Deposits:

    

Noninterest-bearing

   $ 355,918      $ 343,352   

Interest-bearing

     1,691,579        1,686,823   
  

 

 

   

 

 

 

Total deposits

     2,047,497        2,030,175   

Interest, taxes, and other liabilities

     26,740        28,816   

Securities sold under agreements to repurchase

     121,506        136,118   

FHLB borrowings

     150,000        161,558   

Other borrowings

     15,877        15,877   
  

 

 

   

 

 

 

Total liabilities

     2,361,620        2,372,544   
  

 

 

   

 

 

 

Stockholders’ equity

    

Preferred stock, undesignated par value; 1,000,000 shares authorized: Series A Noncumulative Convertible Preferred Stock, $0.01 par value; 25,000 shares authorized; 17,421 shares outstanding at March 31, 2013, and December 31, 2012

     17,421        17,421   

Common stock, $1 par value; 50,000,000 shares authorized; 20,343,327 shares issued at March 31, 2013, and December 31, 2012, respectively; 358,115 and 289,861 shares in treasury at March 31, 2013, and December 31, 2012, respectively

     20,343        20,343   

Additional paid-in capital

     213,855        213,829   

Retained earnings

     117,489        113,013   

Treasury stock, at cost

     (7,517     (6,458

Accumulated other comprehensive loss

     (2,920     (1,825
  

 

 

   

 

 

 

Total stockholders’ equity

     358,671        356,323   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,720,291      $ 2,728,867   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

     Three Months Ended
March 31,
 
(Amounts in thousands, except share and per share data)    2013     2012  

Interest income

    

Interest and fees on loans held for investment

   $ 24,844      $ 19,368   

Interest on securities — taxable

     1,886        2,079   

Interest on securities — nontaxable

     1,208        1,196   

Interest on deposits in banks

     66        39   
  

 

 

   

 

 

 

Total interest income

     28,004        22,682   
  

 

 

   

 

 

 

Interest expense

    

Interest on deposits

     2,362        2,405   

Interest on short-term borrowings

     590        595   

Interest on long-term borrowings

     1,690        1,705   
  

 

 

   

 

 

 

Total interest expense

     4,642        4,705   
  

 

 

   

 

 

 

Net interest income

     23,362        17,977   

Provision for loan losses

     1,142        922   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     22,220        17,055   
  

 

 

   

 

 

 

Noninterest income

    

Wealth management income

     846        894   

Service charges on deposit accounts

     3,168        3,013   

Other service charges and fees

     1,786        1,585   

Insurance commissions

     1,666        1,576   

Net gain on sale of securities

     117        51   

Change in FDIC indemnification asset

     (1,539     —     

Other operating income

     1,817        872   
  

 

 

   

 

 

 

Total noninterest income

     7,861        7,991   
  

 

 

   

 

 

 

Noninterest expense

    

Salaries and employee benefits

     10,110        8,222   

Occupancy expense of bank premises

     1,855        1,526   

Furniture and equipment

     1,343        811   

Amortization of intangible assets

     179        233   

FDIC premiums and assessments

     472        322   

Merger related expense

     49        163   

Other operating expense

     5,536        4,916   
  

 

 

   

 

 

 

Total noninterest expense

     19,544        16,193   
  

 

 

   

 

 

 

Income before income taxes

     10,537        8,853   

Income tax expense

     3,396        2,852   
  

 

 

   

 

 

 

Net income

     7,141        6,001   

Dividends on preferred stock

     258        283   
  

 

 

   

 

 

 

Net income available to common shareholders

   $ 6,883      $ 5,718   
  

 

 

   

 

 

 

Basic earnings per common share

   $ 0.34      $ 0.32   

Diluted earnings per common share

   $ 0.33      $ 0.31   

Cash dividends per common share

   $ 0.12      $ 0.10   

Weighted average basic shares outstanding

     20,032,694        17,849,376   

Weighted average diluted shares outstanding

     21,394,066        19,189,923   

See Notes to Consolidated Financial Statements.

 

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FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

 

     Three Months Ended  
     March 31,  
     2013     2012  
(Amounts in thousands, except share and per share data)             

Net income

   $ 7,141      $ 6,001   

Other comprehensive (loss) income, before tax

    

Available-for-sale securities:

    

Unrealized (losses) gains on securities available-for-sale with other-than-temporary impairment

     (197     209   

Unrealized (losses) gains on securities available-for-sale without other-than-temporary impairment

     (1,121     495   

Less: reclassification adjustment for gains realized in net income

     (117     (51
  

 

 

   

 

 

 

Unrealized (losses) gains on available-for-sale securities in OCI

     (1,435     653   

Benefit plans:

    

Net actuarial losses on pension and other postretirement benefit plans

     (394     (22

Amortization of prior service cost, transition asset/obligation, and net actuarial losses included in net periodic benefit cost

     81        65   
  

 

 

   

 

 

 

Unrealized (losses) gains on benefit plans

     (313     43   
  

 

 

   

 

 

 

Other comprehensive (loss) income, before tax

     (1,748     696   

Income tax benefit (expense) related to items of OCI

     653        (263
  

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax

     (1,095     433   
  

 

 

   

 

 

 

Total comprehensive income

   $ 6,046      $ 6,434   
  

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

 

                                     Accumulated        
                   Additional                 Other        
     Preferred      Common      Paid-in     Retained     Treasury     Comprehensive        
     Stock      Stock      Capital     Earnings     Stock     Income (Loss)     Total  
(Amounts in thousands, except share and per share data)                                             

Balance January 1, 2012

   $ 18,921       $ 18,083       $ 188,118      $ 93,656      $ (5,721   $ (7,328   $ 305,729   

Net income

     —           —           —          6,001        —          —          6,001   

Other comprehensive income

     —           —           —          —          —          433        433   

Common dividends declared — $0.10 per share

     —           —           —          (1,786     —          —          (1,786

Preferred dividends declared — $15.00 per share

     —           —           —          (283     —          —          (283

Equity-based compensation expense

     —           —           31        —          —          —          31   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2012

   $ 18,921       $ 18,083       $ 188,149      $ 97,588      $ (5,721   $ (6,895   $ 310,125   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance January 1, 2013

   $ 17,421       $ 20,343       $ 213,829      $ 113,013      $ (6,458   $ (1,825   $ 356,323   

Net income

     —           —           —          7,141        —          —          7,141   

Other comprehensive loss

     —           —           —          —          —          (1,095     (1,095

Common dividends declared — $0.12 per share

     —           —           —          (2,407     —          —          (2,407

Preferred dividends declared — $15.00 per share

     —           —           —          (258     —          —          (258

Equity-based compensation expense

     —           —           32        —          —          —          32   

Common stock options exercised — 800 shares

     —           —           (6     —          18        —          12   

Purchase of treasury shares — 69,054 shares at $15.55 per share

     —           —           —          —          (1,077     —          (1,077
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance March 31, 2013

   $ 17,421       $ 20,343       $ 213,855      $ 117,489      $ (7,517   $ (2,920   $ 358,671   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements.

 

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Table of Contents

FIRST COMMUNITY BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

     Three Months Ended  
     March 31,  
(Amounts in thousands)    2013     2012  

Operating activities

    

Net income

   $ 7,141      $ 6,001   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan losses

     1,142        922   

Depreciation and amortization of property, plant, and equipment

     1,227        937   

Accretion of discounts and amortization of premiums on investments

     (330     467   

Accretion of FDIC receivable for loss share agreements

     1,539        —     

Amortization of intangible assets

     179        233   

Gain on sale of loans

     (454     (239

Equity-based compensation expense

     32        31   

Gain on sale of property, plant, and equipment

     (48     (1

Loss on sales of other real estate

     613        649   

Gain on sale of securities

     (117     (51

Gain on prepayment of debt

     (296     —     

Proceeds from sale of mortgage loans

     28,226        19,163   

Origination of mortgage loans

     (23,894     (16,626

(Increase) decrease in accrued interest receivable

     (324     307   

(Increase) decrease in other operating activities

     (9,112     8,318   
  

 

 

   

 

 

 

Net cash provided by operating activities

     5,524        20,111   
  

 

 

   

 

 

 

Investing activities

    

Proceeds from sale of securities available-for-sale

     75,506        10,051   

Proceeds from maturities, prepayments, and calls of securities available-for-sale

     19,757        21,232   

Proceeds from maturities, prepayments, and calls of securities held-to-maturity

     —          620   

Payments to acquire securities available-for-sale

     (99,532     (27,059

Collections of loans

     31,277        8,028   

Proceeds from the redemption of (payments to acquire) FHLB stock, net

     1,184        (720

Proceeds from the FDIC

     1,141        —     

Payments to acquire property, plant, and equipment

     (1,219     (833

Proceeds from sale of property, plant, and equipment

     96        2   

Proceeds from sale of other real estate

     1,041        1,623   
  

 

 

   

 

 

 

Net cash provided by investing activities

     29,251        12,944   
  

 

 

   

 

 

 

Financing activities

    

Net increase in noninterest-bearing deposits

     12,566        13,084   

Net increase in interest-bearing deposits

     4,756        23,199   

Repayments of securities sold under agreements to repurchase

     (14,612     (4,942

Repayments of long-term debt

     (11,558     (8

Proceeds from stock options exercised

     12        —     

Payments for repurchase of treasury stock

     (1,077     —     

Excess tax benefit from share-based compensation

     —          —     

Payments of common dividends

     (2,407     (1,786

Payments of preferred dividends

     (261     (284
  

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (12,581     29,263   
  

 

 

   

 

 

 

Increase in cash and cash equivalents

     22,194        62,318   

Cash and cash equivalents at beginning of period

     144,847        47,294   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 167,041      $ 109,612   
  

 

 

   

 

 

 

Supplemental information — noncash items

    

Transfer of other real estate

   $ 6,865      $ 1,027   

Loans originated to finance other real estate

   $ 2,864      $ 840   

See Notes to Consolidated Financial Statements.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1. General

The accompanying unaudited condensed consolidated financial statements of First Community Bancshares, Inc. and subsidiaries (“First Community” or the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, all adjustments, including normal recurring accruals, necessary for a fair presentation have been made. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full calendar year. The Company has made certain reclassifications of prior period information necessary to conform to the current period presentation. These reclassifications had no effect on the Company’s financial position, results of operations, or stockholders’ equity.

The condensed consolidated balance sheet as of December 31, 2012, has been derived from the audited consolidated financial statements included in the Company’s 2012 Annual Report on Form 10-K (the “2012 Form 10-K”), as filed with the Securities and Exchange Commission (the “SEC”) on March 15, 2013. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted in accordance with standards for the preparation of interim consolidated financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2012 Form 10-K.

The Company operates in one business segment, Community Banking. The Community Banking segment consists of all operations, including commercial and consumer banking, lending activities, wealth management, and insurance services.

Significant Accounting Policies

A complete and detailed description of the Company’s significant accounting policies is included in Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8, “Financial and Supplementary Data,” of the Company’s 2012 Form 10-K and Note 1, “General,” of the Notes to Condensed Consolidated Financial Statements (Unaudited) in Part I, Item 1, “Financial Statements,” of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2013. Additional discussion of the Company’s application of critical accounting estimates is included within “Application of Critical Accounting Estimates” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” herein.

Reclassifications and Corrections

The Company has made certain reclassifications of prior years’ amounts necessary to conform to the current year’s presentation. These reclassifications had no effect on the Company’s financial position, stockholders’ equity, or results of operations.

Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” which amends Accounting Standards Codification (“ASC”) 220, “Comprehensive Income.” The amended guidance requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. Additionally, entities are required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amended guidance does not change the current requirements for reporting net income or other comprehensive income. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. The Company adopted this update in the first quarter of 2013. The adoption of the guidance had no significant impact on the Company’s consolidated financial statements other than supplemental disclosure. See Note 11, “Accumulated Other Comprehensive Income,” for additional information.

 

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In October 2012, the FASB issued ASU 2012-06, “Business Combinations (Topic 805) – Subsequent Accounting for an Indemnification Asset Recognized at the Acquisition Date as a Result of a Government-Assisted Acquisition of a Financial Institution (a consensus of the FASB Emerging Issues Task Force),” to address the diversity in practice about how to subsequently measure an indemnification asset recognized as a result of a government-assisted acquisition of a financial institution. The amendments in ASU 2012-06 require a reporting entity to subsequently account for a change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. ASU 2012-06 further requires that any amortization of changes in value be limited to the lesser of the term of the indemnification agreement and the remaining life of the indemnified assets. The amendments in ASU 2012-06 are effective prospectively for fiscal years beginning on or after December 15, 2012, and early adoption is permitted. The Company adopted this update in the first quarter of 2013. The adoption of the guidance resulted in the recognition of amortization in noninterest income in the Company’s Condensed Consolidated Statements of Income. See Part I, Item 1, “Financial Statements,” and Note 5, “FDIC Indemnification Asset,” for additional information.

Earnings per Common Share

Basic earnings per common share is determined by dividing net income available to common shareholders by the weighted average common shares outstanding. Diluted earnings per common share is determined by dividing net income by the weighted average common shares outstanding, including diluted shares for stock options, warrants, contingently issuable shares, and convertible preferred shares. The calculation for basic and diluted earnings per common share follows:

 

     Three Months Ended  
     March 31,  
     2013      2012  
(Amounts in thousands, except share and per share data)              

Net income

   $ 7,141       $ 6,001   

Dividends on preferred stock

     258         283   
  

 

 

    

 

 

 

Net income available to common shareholders

   $ 6,883       $ 5,718   

Weighted average common shares outstanding, basic

     20,032,694         17,849,376   

Diluted shares for stock options

     159,323         34,998   

Weighted average convertible preferred shares

     1,202,049         1,305,549   
  

 

 

    

 

 

 

Weighted average common shares outstanding, diluted

     21,394,066         19,189,923   
  

 

 

    

 

 

 

Basic earnings per common share

   $ 0.34       $ 0.32   

Diluted earnings per common share

   $ 0.33       $ 0.31   

The Company’s Series A Noncumulative Convertible Preferred Stock (“Series A Preferred Stock”) carries a 6% dividend rate. Each share is convertible into 69 shares of the Company’s Common Stock (“Common Stock”) at any time and mandatorily converts after five years. The Company may redeem the shares at face value after May 20, 2014. There were 17,421 shares of Series A Preferred Stock outstanding at March 31, 2013, 17,421 shares outstanding at December 31, 2012, and 18,921 shares outstanding at March 31, 2012.

The following outstanding options to purchase Common Stock were excluded from the calculation of diluted earnings per share because the exercise price was greater than the market value of the Common Stock, which would result in an antidilutive effect on diluted earnings per share:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Options

     337,693         451,915   

 

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Note 2. Investment Securities

The amortized cost and estimated fair value of available-for-sale securities, including gross unrealized gains and losses, at March 31, 2013, and December 31, 2012, were as follows:

 

                                                                          
     March 31, 2013  
     Amortized      Unrealized      Unrealized     Fair      OTTI in  
     Cost      Gains      Losses     Value      AOCI(1)  
(Amounts in thousands)                                  

Municipal securities

   $ 150,706       $ 6,933       $ (411   $ 157,228       $ —     

Single issue trust preferred securities

     55,721         —           (9,970     45,751         —     

Mortgage-backed securities:

             

Agency

     317,713         5,655         (1,084     322,284         —     

Non-Agency Alt-A residential

     14,009         —           (3,140     10,869         (3,140
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage-backed securities

     331,722         5,655         (4,224     333,153         (3,140

Equity securities

     1,249         193         (67     1,375         —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 539,398       $ 12,781       $ (14,672   $ 537,507       $ (3,140
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 
     December 31, 2012  
     Amortized      Unrealized      Unrealized     Fair      OTTI in  
     Cost      Gains      Losses     Value      AOCI(1)  
(Amounts in thousands)                                  

Municipal securities

   $ 151,119       $ 8,195       $ (97   $ 159,217       $ —     

Single issue trust preferred securities

     55,707         —           (11,061     44,646         —     

Mortgage-backed securities:

             

Agency

     310,323         6,023         (449     315,897         —     

Non-Agency Alt-A residential

     14,215         —           (3,148     11,067         (3,148
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage-backed securities

     324,538         6,023         (3,597     326,964         (3,148

Equity securities

     3,446         190         (105     3,531         —     
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 534,810       $ 14,408       $ (14,860   $ 534,358       $ (3,148
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Other-than-temporary impairment in accumulated other comprehensive income

The amortized cost and estimated fair value of held-to-maturity securities, including gross unrealized gains and losses, at March 31, 2013, and December 31, 2012, were as follows:

 

                                                                                       
    March 31, 2013  
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gains     Losses     Value  
(Amounts in thousands)                        

Municipal securities

  $ 816      $ 8      $ —        $ 824   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 816      $ 8      $ —        $ 824   
 

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2012  
    Amortized     Unrealized     Unrealized     Fair  
    Cost     Gains     Losses     Value  
(Amounts in thousands)                        

Municipal securities

  $ 816      $ 16      $ —        $ 832   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 816      $ 16      $ —        $ 832   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

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The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities by contractual maturity at March 31, 2013, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Amortized         
(Amounts in thousands)    Cost      Fair Value  

Available-for-sale securities

     

Due within one year

   $ 393       $ 399   

Due after one year but within five years

     19,005         19,634   

Due after five years but within ten years

     18,071         19,027   

Due after ten years

     168,958         163,919   
  

 

 

    

 

 

 
     206,427         202,979   

Mortgage-backed securities

     331,722         333,153   

Equity securities

     1,249         1,375   
  

 

 

    

 

 

 

Total

   $ 539,398       $ 537,507   
  

 

 

    

 

 

 

Held-to-maturity securities

     

Due within one year

   $ 60       $ 61   

Due after one year but within five years

     756         763   

Due after five years but within ten years

     —           —     

Due after ten years

     —           —     
  

 

 

    

 

 

 

Total

   $ 816       $ 824   
  

 

 

    

 

 

 

Available-for-sale securities in a continuous unrealized loss position for less than 12 months and for 12 months or longer at March 31, 2013, and December 31, 2012, were as follows:

 

     March 31, 2013  
     Less than 12 Months     12 Months or longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  
(Amounts in thousands)                                        

Municipal securities

   $ 17,126       $ (411   $ —         $ —        $ 17,126       $ (411

Single issue trust preferred securities

     —           —          45,751         (9,970     45,751         (9,970

Mortgage-backed securities:

               

Agency

     112,922         (1,084     15         —          112,937         (1,084

Non-Agency Alt-A residential

     —           —          10,870         (3,140     10,870         (3,140
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage-backed securities

     112,922         (1,084     10,885         (3,140     123,807         (4,224

Equity securities

     930         (5     126         (62     1,056         (67
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 130,978       $ (1,500   $ 56,762       $ (13,172   $ 187,740       $ (14,672
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
     December 31, 2012  
     Less than 12 Months     12 Months or longer     Total  
     Fair      Unrealized     Fair      Unrealized     Fair      Unrealized  
     Value      Losses     Value      Losses     Value      Losses  
(Amounts in thousands)                                        

Municipal securities

   $ 6,436       $ (97   $ —         $ —        $ 6,436       $ (97

Single issue trust preferred securities

     —           —          44,646         (11,061     44,646         (11,061

Mortgage-backed securities:

               

Agency

     74,197         (449     15         —          74,212         (449

Non-Agency Alt-A residential

             —          11,066         (3,148     11,066         (3,148
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total mortgage-backed securities

     74,197         (449     11,081         (3,148     85,278         (3,597

Equity securities

     3,106         (25     108         (80     3,214         (105
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 83,739       $ (571   $ 55,835       $ (14,289   $ 139,574       $ (14,860
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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Table of Contents

There were no held-to-maturity securities in a continuous unrealized loss position at March 31, 2013, or December 31, 2012. At March 31, 2013, the combined depreciation in value of the 78 individual securities in an unrealized loss position was 2.73% of the combined reported value of the aggregate securities portfolio. At December 31, 2012, the combined depreciation in value of the 57 individual securities in an unrealized loss position was 2.78% of the combined reported value of the aggregate securities portfolio.

The following table details the Company’s gross gains and gross losses realized from the sale of securities for the periods indicated:

 

     Three Months Ended  
     March 31,  
     2013     2012  
(Amounts in thousands)             

Gross realized gains

   $ 155      $ 89   

Gross realized losses

     (38     (38
  

 

 

   

 

 

 

Net gain on sale of securities

   $ 117      $ 51   
  

 

 

   

 

 

 

The carrying value of securities pledged to secure public deposits and for other purposes was $280.88 million at March 31, 2013, and $292.88 million at December 31, 2012.

The Company reviews its investment portfolio on a quarterly basis for indications of other-than-temporary impairment (“OTTI”). The analysis differs depending upon the type of investment security being analyzed. For debt securities, the Company has determined that it does not intend to sell securities that are impaired and has asserted that it is not more likely than not that the Company will have to sell impaired securities before recovery of the impairment occurs. This determination is based upon the Company’s investment strategy for the particular type of debt security and its cash flow needs, liquidity position, capital adequacy, and interest rate risk position.

For nonbeneficial interest debt securities, the Company analyzes several qualitative factors such as the severity and duration of the impairment, adverse conditions within the issuing industry, prospects for the issuer, performance of the security, changes in rating by rating agencies, and other qualitative factors to determine if the impairment will be recovered. Nonbeneficial interest debt securities consist of U.S. Treasury securities, municipal securities, and single issue trust preferred securities. If it is determined that there is evidence that the impairment will not be recovered, the Company performs a present value calculation to determine the amount of impairment and records any credit-related OTTI through earnings and noncredit-related OTTI through OCI. During the three months ended March 31, 2013 and 2012, the Company incurred no OTTI charges related to nonbeneficial interest debt securities. Temporary impairment on these securities is primarily related to changes in interest rates, certain disruptions in the credit markets, destabilization in the Eurozone, and other current economic factors.

For beneficial interest debt securities, the Company reviews cash flow analyses on each applicable security to determine if an adverse change in cash flows expected to be collected has occurred. Beneficial interest debt securities consist of corporate FDIC insured securities and mortgage-backed securities (“MBS”). An adverse change in cash flows expected to be collected has occurred if the present value of cash flows previously projected is greater than the present value of cash flows projected at the current reporting date and less than the current book value. If an adverse change in cash flows is deemed to have occurred, then an OTTI has occurred. The Company then compares the present value of cash flows using the current yield for the current reporting period to the reference amount, or current net book value, to determine the credit-related OTTI. The credit-related OTTI is then recorded through earnings and the noncredit-related OTTI is accounted for in OCI. During the three months ended March 31, 2013 and 2012, the Company incurred no credit-related OTTI charges associated with beneficial interest debt securities.

For the non-Agency Alt-A residential MBS, the Company uses a discounted cash flow model with the following assumptions: voluntary constant prepayment rate of 5%, a customized constant default rate scenario that assumes approximately 20% of the remaining underlying mortgages will default within three years, and a customized loss severity rate scenario that ramps the loss rate down from 71% to 15% over the course of approximately seven years.

 

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Table of Contents

The following table provides a cumulative roll forward of credit losses recognized in earnings for debt securities for which a portion of the OTTI is recognized in OCI:

 

     Three Months Ended  
     March 31,  
     2013      2012  
(Amounts in thousands)              

Beginning balance (1)

   $ 7,478       $ 6,536   

Additions for credit losses on securities not previously recognized

     —           —     

Additions for credit losses on securities previously recognized

     —           —     

Reduction for increases in cash flows

     —           —     

Reduction for securities management no longer intends to hold to recovery

     —           —     

Reduction for securities sold/realized losses

     —           —     
  

 

 

    

 

 

 

Ending balance

   $ 7,478       $ 6,536   
  

 

 

    

 

 

 

 

(1) The beginning balance includes credit related losses included in OTTI charges recognized on debt securities in prior periods.

For equity securities, the Company reviews for OTTI based upon the prospects of the underlying companies, analysts’ expectations, and certain other qualitative factors to determine if impairment is recoverable over a foreseeable period of time. During the three months ended March 31, 2013 and 2012, the Company recognized no OTTI charges on equity securities.

As a condition to membership in the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) systems, the Company is required to subscribe to a minimum level of stock in the FHLB of Atlanta (“FHLBA”) and FRB of Richmond (“FRB Richmond”). The Company feels the FHLBA ownership position provides access to relatively inexpensive wholesale and overnight funding. FHLBA and FRB Richmond stock are reported as long-term investments in “Other assets” on the Company’s “Condensed Consolidated Balance Sheets.” At March 31, 2013, and December 31, 2012, the Company owned $10.00 million and $11.30 million, respectively, of FHLBA stock. The Company’s policy is to review the stock for impairment at each reporting period. Based on the Company’s review and publicly available information concerning the FHLBA, it believes that as of March 31, 2013, its FHLBA stock was not impaired. At March 31, 2013, and December 31, 2012, the Company owned $5.58 million of FRB Richmond stock.

 

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Note 3. Loans

Loan Portfolio

The Company’s loan portfolio is grouped into three segments (commercial loans, consumer real estate loans, and consumer and other loans) and each segment is divided further into various classes. Loans, net of unearned income, consisted of the following at March 31, 2013, and December 31, 2012:

 

     March 31, 2013     December 31, 2012  
(Amounts in thousands)    Amount      Percent     Amount      Percent  

Covered loans

   $ 195,060         11.55   $ 207,106         12.01

Non-covered loans

          

Commercial loans

          

Construction, development, and other land

     55,220         3.27     57,434         3.33

Commercial and industrial

     91,666         5.43     88,738         5.15

Multi-family residential

     63,929         3.78     65,694         3.81

Single family non-owner occupied

     136,334         8.07     135,912         7.88

Non-farm, non-residential

     440,226         26.06     448,810         26.02

Agricultural

     2,117         0.12     1,709         0.10

Farmland

     33,930         2.01     34,570         2.00
  

 

 

    

 

 

   

 

 

    

 

 

 

Total commercial loans

     823,422         48.74     832,867         48.29

Consumer real estate loans

          

Home equity lines

     108,385         6.42     111,081         6.44

Single family owner occupied

     470,437         27.85     473,547         27.46

Owner occupied construction

     19,760         1.17     16,223         0.94
  

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer real estate loans

     598,582         35.44     600,851         34.84

Consumer and other loans

          

Consumer loans

     68,625         4.06     78,163         4.53

Other

     3,603         0.21     5,666         0.33
  

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer and other loans

     72,228         4.27     83,829         4.86
  

 

 

    

 

 

   

 

 

    

 

 

 

Total non-covered loans

     1,494,232         88.45     1,517,547         87.99
  

 

 

    

 

 

   

 

 

    

 

 

 

Total loans held for investment, net of unearned income

   $ 1,689,292         100.00   $ 1,724,653         100.00
  

 

 

    

 

 

   

 

 

    

 

 

 

Loans held for sale

   $ 2,794         $ 6,672      
  

 

 

      

 

 

    

 

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Table of Contents

Covered loans held for investment consisted of the following at March 31, 2013, and December 31, 2012:

 

(Amounts in thousands)    March 31, 2013      December 31, 2012  

Covered loans

     

Commercial loans

     

Construction, development, and other land

   $ 24,495       $ 26,595   

Commercial and industrial

     5,205         6,948   

Multi-family residential

     2,549         2,611   

Single family non-owner occupied

     10,672         11,428   

Non-farm, non-residential

     42,857         48,565   

Agricultural

     128         144   

Farmland

     1,222         1,091   
  

 

 

    

 

 

 

Total commercial loans

     87,128         97,382   

Consumer real estate loans

     

Home equity lines

     80,463         81,445   

Single family owner occupied

     23,042         22,961   

Owner occupied construction

     1,628         1,644   
  

 

 

    

 

 

 

Total consumer real estate loans

     105,133         106,050   

Consumer and other loans

     

Consumer loans

     2,799         3,674   
  

 

 

    

 

 

 

Total covered loans

   $ 195,060       $ 207,106   
  

 

 

    

 

 

 

See Note 12, “Litigation, Commitments and Contingencies,” for information concerning the Company’s off-balance sheet credit risk related to lending activities.

Acquired Impaired Loans

When the fair values of acquired loans are established, certain loans are identified as impaired. The Company has estimated the cash flows to be collected on the acquired impaired loans and discounted those cash flows at a market rate of interest. The outstanding principal balance of acquired impaired loans was $168.87 million at March 31, 2013, $198.34 million at December 31, 2012, and $6.28 million at March 31, 2012. The following tables present the carrying balance of acquired impaired loans during the periods indicated:

 

                                                                       
    Three Months Ended March 31, 2013  
    Peoples     Waccamaw     Other     Total  
(Amounts in thousands)                        

Balance, January 1

  $ 26,907      $ 110,115      $ 2,340      $ 139,362   

Balance, March 31

    21,715        96,537        2,364        120,616   
    Three Months Ended March 31, 2012  
    Peoples     Waccamaw     Other     Total  
(Amounts in thousands)                        

Balance, January 1

  $ —        $ —        $ 2,886      $ 2,886   

Balance, March 31

    —          —          2,388        2,388   

 

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Table of Contents

The following tables present changes in the accretable yield on acquired impaired loans during the periods indicated:

 

                                                                       
    Three Months Ended March 31, 2013  
    Peoples     Waccamaw     Other     Total  
(Amounts in thousands)                        

Balance, January 1, 2013

  $ 2,342      $ 21,886      $ 15      $ 24,243   

Additions

    7        66        —          73   

Accretion

    (376     (1,385     (51     (1,812

Transfers to accretable difference (exit events), net

    2,302        (12,482     46        (10,134

Disposals

    (537     (585     —          (1,122
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2013

  $ 3,738      $ 7,500      $ 10      $ 11,248   
 

 

 

   

 

 

   

 

 

   

 

 

 
    Three Months Ended March 31, 2012  
    Peoples     Waccamaw     Other     Total  
(Amounts in thousands)                        

Balance, January 1, 2012

  $ —        $ —        $ 919      $ 919   

Additions

    —          —          —          —     

Accretion

    —          —          (934     (934

Transfers to accretable difference, net

    —          —          46        46   

Disposals

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Balance, March 31, 2012

  $ —        $ —        $ 31      $ 31   
 

 

 

   

 

 

   

 

 

   

 

 

 

Note 4. Allowance for Loan Losses and Credit Quality Indicators

Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems sufficient to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by charges to earnings in the form of provision for loan losses and recoveries of prior loan charge-offs, and decreased by loans charged off. The provision is calculated to bring the allowance to a level which, according to a systematic process of measurement, reflects the amount management estimates is needed to absorb probable losses within the portfolio. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates, and the view of the regulatory authorities toward loan classifications. Purchased credit impaired loan pools are evaluated separately from the non-purchased credit impaired portfolio for impairment.

Management performs quarterly assessments to determine the appropriate level of allowance for loan losses. Differences between actual loan loss experience and estimates are reflected through adjustments that are made by increasing or decreasing the allowance based upon current measurement criteria. Commercial, consumer real estate, and non-real estate consumer loan portfolios are evaluated separately for purposes of determining the allowance. The specific components of the allowance include allocations to individual commercial loans and credit relationships and allocations to the remaining nonhomogeneous and homogeneous pools of loans that have been deemed impaired. Additionally, a loan that becomes adversely classified or graded is removed from a group of loans with similar risk characteristics that are not classified or graded to evaluate the removed loan collectively in a group of adversely classified or graded loans with similar risk characteristics. Management’s general reserve allocations are based on judgment of qualitative and quantitative factors about macro and micro economic conditions reflected within the portfolio of loans and the economy as a whole. Factors considered in this evaluation include, but are not necessarily limited to, probable losses from loan and other credit arrangements, general economic conditions, changes in credit concentrations or pledged collateral, historical loan loss experience, and trends in portfolio volume, maturities, composition, delinquencies, and nonaccruals. Historical loss rates for each risk grade of commercial loans are adjusted by environmental factors to estimate the amount of reserve needed by segment. While management has allocated the allowance for loan losses to various portfolio segments, the entire allowance is available for use against any type of loan loss deemed appropriate by management.

Purchased performing loans are recorded at fair value and include credit and interest rate marks associated with acquisition accounting adjustments, as accounted for under the contractual cash flow method of accounting. The fair value adjustment is accreted as an adjustment to yield over the estimated contractual lives of the loans. There is no allowance for loan losses established at the acquisition date for acquired performing loans. A provision for loan losses is recorded for any credit deterioration in these loans subsequent to the acquisition. In accordance with GAAP, there was no carryover of previously established allowance for loan losses on acquired portfolios.

 

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Table of Contents

The following tables detail activity within the allowance for loan losses, by portfolio segment, for the dates indicated:

 

     Three Months Ended March 31,  
     2013     2012  
           Consumer     Consumer                 Consumer     Consumer        
     Commercial     Real Estate     and Other     Total     Commercial     Real Estate     and Other     Total  
(Amounts in thousands)                                                 

Beginning balance

   $ 17,267      $ 7,906      $ 597      $ 25,770      $ 17,752      $ 7,711      $ 742      $ 26,205   

Provision for loan losses

     483        480        179        1,142        262        618        42        922   

Loans charged off

     (783     (1,396     (580     (2,759     (253     (1,105     (204     (1,562

Recoveries credited to allowance

     283        13        401        697        104        35        96        235   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net charge-offs

     (500     (1,383     (179     (2,062     (149     (1,070     (108     (1,327
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 17,250      $ 7,003      $ 597      $ 24,850      $ 17,865      $ 7,259      $ 676      $ 25,800   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Credit Quality Indicators

The Company identifies loans for potential impairment through a variety of means including, but not limited to, ongoing loan review, renewal processes, delinquency data, market communications, and public information. If it is determined that it is probable that the Company will not collect all principal and interest amounts contractually due, the loan is generally deemed to be impaired.

During the quarterly cash flow analysis, three of the Company’s seven purchased credit impaired loan pools were deemed impaired. These pools had a combined recorded investment of $20.08 million, a current unpaid principal balance of $26.61 million, and impairment of $276 thousand at March 31, 2013. For the three months ended March 31, 2013, the Company had an average recorded investment of $20.23 million and recognized interest income of $84 thousand in connection with the impaired loan pools. These amounts are not included in the tables below.

 

                                                                                                                                   
    March 31, 2013     December 31, 2012  
          Unpaid                 Unpaid        
    Recorded     Principal     Related     Recorded     Principal     Related  
(Amounts in thousands)   Investment     Balance     Allowance     Investment     Balance     Allowance  

Impaired loans with no related allowance:

           

Commercial loans

           

Construction, development, and other land

  $ 1,473      $ 1,675      $ —        $ 2,916      $ 2,916      $ —     

Commercial and industrial

    913        912        —          284        284        —     

Multi-family residential

    70        87        —          —          —          —     

Single family non-owner occupied

    1,299        2,301        —          383        684        —     

Non-farm, non-residential

    6,628        7,227        —          5,282        5,362        —     

Agricultural

    —          —          —          —          —          —     

Farmland

    177        197        —          —          —          —     

Consumer real estate loans

           

Home equity lines

    321        444        —          276        277        —     

Single family owner occupied

    816        1,449        —          277        383        —     

Owner occupied construction

    —          —          —          —          —          —     

Consumer and other loans

           

Consumer loans

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with no allowance

    11,697        14,292        —          9,418        9,906        —     

Impaired loans with a related allowance:

           

Commercial loans

           

Construction, development, and other land

    5,339        5,356        1,822        —          —          —     

Commercial and industrial

    3,108        8,236        3,100        3,318        8,502        3,192   

Multi-family residential

    375        396        15        378        397        18   

Single family non-owner occupied

    1,046        1,107        204        2,411        2,460        996   

Non-farm, non-residential

    2,730        2,926        430        2,781        2,958        358   

Agricultural

    —          —          —          —          —          —     

Farmland

    —          —          —          —          —          —     

Consumer real estate loans

           

Home equity lines

    222        230        222        223        230        223   

Single family owner occupied

    4,296        4,550        608        4,673        4,903        806   

Owner occupied construction

    —          —          —          —          —          —     

Consumer and other loans

           

Consumer loans

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans with an allowance

    17,116        22,801        6,401        13,784        19,450        5,593   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impaired loans

  $ 28,813      $ 37,093      $ 6,401      $ 23,202      $ 29,356      $ 5,593   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents
     For the Three Months Ended      For the Three Months Ended  
     March 31, 2013      March 31, 2012  
     Average      Interest      Average      Interest  
     Recorded      Income      Recorded      Income  
(Amounts in thousands)    Investment      Recognized      Investment      Recognized  

Impaired loans with no related allowance:

           

Commercial loans

           

Construction, development, and other land

   $ 2,195       $ 43       $ 30       $ —     

Commercial and industrial

     599         11         483         —     

Multi-family residential

     35         2         596         —     

Single family non-owner occupied

     841         79         1,514         9   

Non-farm, non-residential

     5,955         212         2,684         10   

Agricultural

     —           —           —           —     

Farmland

     88         9         —           —     

Consumer real estate loans

           

Home equity lines

     298         25         502         6   

Single family owner occupied

     547         70         7,185         21   

Owner occupied construction

     —           —           —           —     

Consumer and other loans

           

Consumer loans

     —           —           2         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with no allowance

     10,558         451         12,996         46   

Impaired loans with a related allowance:

           

Commercial loans

           

Construction, development, and other land

     2,670         117         111         1   

Commercial and industrial

     3,217         —           2,210         —     

Multi-family residential

     376         7         —           —     

Single family non-owner occupied

     1,728         3         2,541         31   

Non-farm, non-residential

     2,756         26         7,310         91   

Agricultural

     —           —           —           —     

Farmland

     —           —           —           —     

Consumer real estate loans

           

Home equity lines

     222         3         —           —     

Single family owner occupied

     4,485         37         3,372         25   

Owner occupied construction

     —           —           —           —     

Consumer and other loans

           

Consumer loans

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans with an allowance

     15,454         193         15,544         148   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

   $ 26,012       $ 644       $ 28,540       $ 194   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

19


Table of Contents

The following tables detail the Company’s recorded investment in loans related to each segment in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology at March 31, 2013, and December 31, 2012.

 

    March 31, 2013  
    Non-acquired     Allowance     Loans     Allowance     Acquired     Allowance  
    Loans Individually     for Loans     Collectively     for Loans     Impaired Loans     for Acquired  
    Evaluated for     Individually     Evaluated for     Collectively     Evaluated for     Impaired Loans  
(Amounts in thousands)   Impairment     Evaluated     Impairment     Evaluated     Impairment     Evaluated  

Commercial loans

           

Construction, development, and other land

  $ 6,812      $ 1,822      $ 58,022      $ 885      $ 14,881      $ —     

Commercial and industrial

    4,013        3,100        89,818        1,002        3,040        8   

Multi-family residential

    445        15        65,407        1,486        626        —     

Single family non-owner occupied

    2,345        204        135,636        3,303        9,025        —     

Non-farm, non-residential

    9,358        430        441,359        4,595        32,366        —     

Agricultural

    —          —          2,244        24        1        —     

Farmland

    177        —          34,099        372        876        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial loans

    23,150        5,571        826,585        11,672        60,815        8   

Consumer real estate loans

           

Home equity lines

    543        222        137,680        1,265        50,625        —     

Single family owner occupied

    5,112        608        481,047        4,586        7,320        —     

Owner occupied construction

    —          —          20,292        321        1,096        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate loans

    5,655        830        639,019        6,172        59,041        —     

Consumer and other loans

           

Consumer loans

    —          —          70,664        516        760        —     

Other

    —          —          3,603        81        —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer and other loans

    —          —          74,267        597        760        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 28,805      $ 6,401      $ 1,539,871      $ 18,441      $ 120,616      $ 8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2012  
    Non-acquired     Allowance     Loans     Allowance     Acquired     Allowance  
    Loans Individually     for Loans     Collectively     for Loans     Impaired Loans     for Acquired  
    Evaluated for     Individually     Evaluated for     Collectively     Evaluated for     Impaired Loans  
(Amounts in thousands)   Impairment     Evaluated     Impairment     Evaluated     Impairment     Evaluated  

Commercial loans

           

Construction, development, and other land

  $ 2,916      $ —        $ 55,369      $ 1,214      $ 25,744      $ —     

Commercial and industrial

    3,602        3,192        88,540        1,159        3,544        8   

Multi-family residential

    378        18        67,278        1,612        649        —     

Single family non-owner occupied

    2,794        858        134,323        3,509        10,223        —     

Non-farm, non-residential

    8,063        358        451,240        4,901        38,072        —     

Agricultural

    —          —          1,852        22        1        —     

Farmland

    —          —          34,779        416        882        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total commercial loans

    17,753        4,426        833,381        12,833        79,115        8   

Consumer real estate loans

           

Home equity lines

    499        223        139,706        1,351        50,343        —     

Single family owner occupied

    4,950        944        483,559        5,051        8,005        —     

Owner occupied construction

    —          —          16,768        337        1,099        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer real estate loans

    5,449        1,167        640,027        6,739        59,447        —     

Consumer and other loans

           

Consumer loans

    —          —          81,037        597        800        —     

Other

    —          —          5,666        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total consumer and other loans

    —          —          86,703        597        800        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 23,202      $ 5,593      $ 1,560,111      $ 20,169      $ 139,362      $ 8   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

As part of the ongoing monitoring of the credit quality of the Company’s loan portfolio, management tracks certain credit quality indicators including trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’s loan review function generally reviews all commercial loan relationships greater than $3.0 million on an annual basis and at various times through the year. Smaller commercial and retail loans are sampled for review throughout the year by our internal loan review department. Through the loan review process, loans are identified for upgrade or downgrade in risk rating and changed to reflect current information as part of the process.

The Company aggregates purchase credit impaired loans with common risk characteristics into the following loan pools: construction and development, commercial and industrial, commercial real estate, consumer, home equity lines of credit, residential real estate – 1st lien, residential real estate – 2nd lien, and lines of credit. However, these loan pools are disaggregated in the following tables for disclosure purposes.

 

20


Table of Contents

The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. A description of the general characteristics of the risk grades is as follows:

 

   

Pass – This grade includes loans to borrowers of acceptable credit quality and risk. The Company further differentiates within this grade based upon borrower characteristics which include: capital strength, earnings stability, liquidity leverage, and industry.

 

   

Special Mention – This grade includes loans that require more than a normal degree of supervision and attention. These loans have all the characteristics of an adequate asset, but due to being adversely affected by economic or financial conditions have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan.

 

   

Substandard – This grade includes loans that have well defined weaknesses which make payment default or principal exposure possible, but not yet certain. Such loans are apt to be dependent upon collateral liquidation, a secondary source of repayment, or an event outside of the normal course of business to meet the repayment terms.

 

   

Doubtful – This grade includes loans that are placed on nonaccrual status. These loans have all the weaknesses inherent in a substandard loan with the added factor that the weaknesses are so severe that collection or liquidation in full, on the basis of current existing facts, conditions and values, is extremely unlikely, but because of certain specific pending factors, the amount of loss cannot yet be determined.

 

   

Loss – This grade includes loans that are to be charged off or charged down when payment is acknowledged to be uncertain or when the timing or value of payments cannot be determined. “Loss” is not intended to imply that the asset has no recovery or salvage value, but simply that it is not practical or desirable to defer writing off all or some portion of the loan, even though partial recovery may be realized in the future.

The following tables present the Company’s investment in loans held for investment by internal credit grade indicator at March 31, 2013, and December 31, 2012.

 

                                                                                                                                               
    March 31, 2013  
          Special                          
(Amounts in thousands)   Pass     Mention     Substandard     Doubtful     Loss     Total  

Non-covered loans

           

Commercial loans

           

Construction, development, and other land

  $ 38,976      $ 1,279      $ 13,968      $ 997      $ —        $ 55,220   

Commercial and industrial

    80,683        1,576        5,792        3,615        —          91,666   

Multi-family residential

    58,241        4,141        1,547        —          —          63,929   

Single family non-owner occupied

    119,349        4,835        11,180        970        —          136,334   

Non-farm, non-residential

    401,887        10,983        27,196        160        —          440,226   

Agricultural

    2,071        17        29        —          —          2,117   

Farmland

    28,411        1,413        4,106        —          —          33,930   

Consumer real estate loans

           

Home equity lines

    101,881        2,992        3,476        36        —          108,385   

Single family owner occupied

    433,486        9,270        27,252        429        —          470,437   

Owner occupied construction

    19,343        417        —          —          —          19,760   

Consumer and other loans

           

Consumer loans

    66,166        1,989        466        4        —          68,625   

Other

    3,585        5        13        —          —          3,603   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-covered loans

  $ 1,354,079      $ 38,917      $ 95,025      $ 6,211      $ —        $ 1,494,232   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


Table of Contents
                                                                             
     March 31, 2013  
(Amounts in thousands)    Pass      Special
Mention
     Substandard      Doubtful      Loss      Total  

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 12,747       $ 963       $ 10,751       $ 34       $ —         $ 24,495   

Commercial and industrial

     4,320         179         658         48         —           5,205   

Multi-family residential

     1,928         —           621         —           —           2,549   

Single family non-owner occupied

     5,050         —           5,536         86         —           10,672   

Non-farm, non-residential

     19,973         1,939         20,900         45         —           42,857   

Agricultural

     127         —           1         —           —           128   

Farmland

     1,125         —           97         —           —           1,222   

Consumer real estate loans

                 

Home equity lines

     16,989         11,762         51,687         25         —           80,463   

Single family owner occupied

     16,668         200         5,943         231         —           23,042   

Owner occupied construction

     473         —           1,155         —           —           1,628   

Consumer and other loans

                 

Consumer loans

     2,133         —           666         —           —           2,799   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 81,533       $ 15,043       $ 98,015       $ 469       $ —         $ 195,060   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2012  
(Amounts in thousands)    Pass      Special
Mention
     Substandard      Doubtful      Loss      Total  

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 41,850       $ 1,497       $ 13,546       $ 541       $ —         $ 57,434   

Commercial and industrial

     77,573         2,506         4,821         3,838         —           88,738   

Multi-family residential

     60,161         4,043         1,490         —           —           65,694   

Single family non-owner occupied

     112,562         5,938         16,092         1,320         —           135,912   

Non-farm, non-residential

     399,907         15,975         32,808         120         —           448,810   

Agricultural

     1,657         19         33         —           —           1,709   

Farmland

     28,887         2,262         3,421         —           —           34,570   

Consumer real estate loans

                 

Home equity lines

     104,750         2,739         3,592         —           —           111,081   

Single family owner occupied

     436,587         9,599         27,319         —           42         473,547   

Owner occupied construction

     15,841         382         —           —           —           16,223   

Consumer and other loans

                 

Consumer loans

     76,787         867         501         8         —           78,163   

Other

     5,657         8         1         —           —           5,666   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

   $ 1,362,219       $ 45,835       $ 103,624       $ 5,827       $ 42       $ 1,517,547   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents
     December 31, 2012  
(Amounts in thousands)    Pass      Special
Mention
     Substandard      Doubtful      Loss      Total  

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 6,463       $ 2,120       $ 17,834       $ 178       $ —         $ 26,595   

Commercial and industrial

     6,225         445         197         81         —           6,948   

Multi-family residential

     1,962         —           649         —           —           2,611   

Single family non-owner occupied

     6,065         2,223         3,015         125         —           11,428   

Non-farm, non-residential

     23,855         5,477         19,189         44         —           48,565   

Agricultural

     143         —           1         —           —           144   

Farmland

     935         —           156         —           —           1,091   

Consumer real estate loans

                 

Home equity lines

     16,323         11,981         53,116         25         —           81,445   

Single family owner occupied

     16,011         927         5,786         237         —           22,961   

Owner occupied construction

     484         —           1,160         —           —           1,644   

Consumer and other loans

                 

Consumer loans

     2,987         562         125         —           —           3,674   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 81,453       $ 23,735       $ 101,228       $ 690       $ —         $ 207,106   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Nonaccrual loans, presented by loan class, consisted of the following at March 31, 2013, and December 31, 2012. Loans acquired with credit deterioration through business combinations, for which a discount exists, are generally not considered to be nonaccrual as a result of the accretion of the discount which is based on the expected cash flows of the loans.

 

(Amounts in thousands)    March 31, 2013      December 31, 2012  
     Non-covered      Covered      Total      Non-covered      Covered      Total  

Commercial loans

                 

Construction, development, and other land

   $ 6,842       $ 2,113       $ 8,955       $ 405       $ 1,990       $ 2,395   

Commercial and industrial

     5,375         48         5,423         3,912         35         3,947   

Multi-family residential

     445         —           445         378         —           378   

Single family non-owner occupied

     4,600         29         4,629         7,071         21         7,092   

Non-farm, non-residential

     5,644         562         6,206         5,938         951         6,889   

Agricultural

     17         —           17         2         —           2   

Farmland

     177         —           177         —           —           —     

Consumer real estate loans

                 

Home equity lines

     925         538         1,463         872         436         1,308   

Single family owner occupied

     5,874         1,218         7,092         5,219         831         6,050   

Owner occupied construction

     —           59         59         —           59         59   

Consumer and other loans

                 

Consumer loans

     169         —           169         126         —           126   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     30,068         4,567         34,635         23,923         4,323         28,246   

Acquired impaired loans

     8         —           8         8         —           8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total nonaccrual loans

   $ 30,076       $ 4,567       $ 34,643       $ 23,931       $ 4,323       $ 28,254   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The following tables present the aging of past due loans, by loan class, at March 31, 2013, and December 31, 2012. Nonaccrual loans, excluding those 0 to 29 days past due, are included in the applicable delinquency category. There were no accruing loans contractually past due 90 days or more at March 31, 2013, and December 31, 2012. Acquired loans that are past due continue to accrue interest through the accretable yield under the accretion method of accounting and therefore are not considered to be nonaccrual.

 

     March 31, 2013  
(Amounts in thousands)    30 - 59 Days
Past Due
     60 - 89 Days
Past Due
     90+ Days
Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 301       $ 1,413       $ 5,275       $ 6,989       $ 48,231       $ 55,220   

Commercial and industrial

     258         55         1,549         1,862         89,804         91,666   

Multi-family residential

     37         —           70         107         63,822         63,929   

Single family non-owner occupied

     258         107         2,332         2,697         133,637         136,334   

Non-farm, non-residential

     2,394         1,245         3,540         7,179         433,047         440,226   

Agricultural

     —           —           17         17         2,100         2,117   

Farmland

     42         —           177         219         33,711         33,930   

Consumer real estate loans

                 

Home equity lines

     968         745         623         2,336         106,049         108,385   

Single family owner occupied

     6,837         1,113         1,654         9,604         460,833         470,437   

Owner occupied construction

     —           —           —           —           19,760         19,760   

Consumer and other loans

                 

Consumer loans

     181         1,213         58         1,452         67,173         68,625   

Other

     —           —           —           —           3,603         3,603   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

   $ 11,276       $ 5,891       $ 15,295       $ 32,462       $ 1,461,770       $ 1,494,232   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                                 
     March 31, 2013  
(Amounts in thousands)    30 - 59 Days
Past Due
     60 - 89 Days
Past Due
     90+ Days
Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 152       $ 155       $ 1,121       $ 1,428       $ 23,067       $ 24,495   

Commercial and industrial

     147         —           33         180         5,025         5,205   

Multi-family residential

     —           —           —           —           2,549         2,549   

Single family non-owner occupied

     —           —           29         29         10,643         10,672   

Non-farm, non-residential

     22         38         562         622         42,235         42,857   

Agricultural

     —           —           —           —           128         128   

Farmland

     22         —           —           22         1,200         1,222   

Consumer real estate loans

                 

Home equity lines

     194         165         180         539         79,924         80,463   

Single family owner occupied

     437         264         577         1,278         21,764         23,042   

Owner occupied construction

     119         —           59         178         1,450         1,628   

Consumer and other loans

                 

Consumer loans

     —           —           —           —           2,799         2,799   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 1,093       $ 622       $ 2,561       $ 4,276       $ 190,784       $ 195,060   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     December 31, 2012  
(Amounts in thousands)    30 - 59 Days
Past Due
     60 - 89 Days
Past Due
     90+ Days
Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Non-covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 344       $ —         $ 188       $ 532       $ 56,902       $ 57,434   

Commercial and industrial

     387         84         1,432         1,903         86,835         88,738   

Multi-family residential

     624         —           —           624         65,070         65,694   

Single family non-owner occupied

     1,841         1,348         3,715         6,904         129,008         135,912   

Non-farm, non-residential

     2,702         936         3,621         7,259         441,551         448,810   

Agricultural

     —           —           —           —           1,709         1,709   

Farmland

     216         196         —           412         34,158         34,570   

Consumer real estate loans

                 

Home equity lines

     315         93         495         903         110,178         111,081   

Single family owner occupied

     6,564         1,176         1,644         9,384         464,163         473,547   

Owner occupied construction

     382         —           —           382         15,841         16,223   

Consumer and other loans

                 

Consumer loans

     715         73         47         835         77,328         78,163   

Other

     —           —           —           —           5,666         5,666   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-covered loans

   $ 14,090       $ 3,906       $ 11,142       $ 29,138       $ 1,488,409       $ 1,517,547   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

                                                                                                                 
     December 31, 2012  
(Amounts in thousands)    30 - 59 Days
Past Due
     60 - 89 Days
Past Due
     90+ Days
Past Due
     Total
Past Due
     Current
Loans
     Total
Loans
 

Covered loans

                 

Commercial loans

                 

Construction, development, and other land

   $ 252       $ 161       $ 1,121       $ 1,534       $ 25,061       $ 26,595   

Commercial and industrial

     45         —           —           45         6,903         6,948   

Multi-family residential

     —           —           —           —           2,611         2,611   

Single family non-owner occupied

     8         —           21         29         11,399         11,428   

Non-farm, non-residential

     501         —           927         1,428         47,137         48,565   

Agricultural

     —           —           —           —           144         144   

Farmland

     6         —           —           6         1,085         1,091   

Consumer real estate loans

                 

Home equity lines

     217         112         204         533         80,912         81,445   

Single family owner occupied

     413         135         475         1,023         21,938         22,961   

Owner occupied construction

     —           —           59         59         1,585         1,644   

Consumer and other loans

                 

Consumer loans

     —           —           —           —           3,674         3,674   

Other

     —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total covered loans

   $ 1,442       $ 408       $ 2,807       $ 4,657       $ 202,449       $ 207,106   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s troubled debt restructurings (“TDRs”) totaled $11.87 million at March 31, 2013, and $12.05 million at December 31, 2012, which are reported net of those on nonaccrual status of $2.34 million and $3.83 million, respectively. Accruing nonperforming TDRs amounted to $1.60 million, or 13.45% of total accruing TDRs at March 31, 2013, and $6.01 million, or 49.88% of total TDRs at December 31, 2012. The allowance for loan losses included reserves related to TDRs of $1.65 million and $1.87 million at March 31, 2013, and December 31, 2012, respectively. Interest income recognized on TDRs for the three months ended March 31, 2013 and 2012 totaled $246 thousand and $94 thousand, respectively. There were no covered loans recorded as TDRs at September 30, 2012. Loans acquired with credit deterioration through business combinations, for which a discount exists, are generally not considered a TDR as long as the loan remains in the loan pool.

When restructuring loans for borrowers experiencing financial difficulty, the Company generally makes concessions in interest rates, loan terms and/or amortization terms. All restructured loans to borrowers experiencing financial difficulty in excess of $250 thousand are evaluated for a specific reserve based on either the collateral or net present value method, whichever is most applicable. Restructured loans under $250 thousand are subject to the reserve calculation at the historical loss rate for classified loans. Certain TDRs are classified as nonperforming at time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs.

 

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Table of Contents

The following table presents information for loans modified as TDRs that were restructured during the three months ended March 31, 2013 and 2012 by type of concession made and loan class. The post-modification recorded investment represents the loan balance immediately following modification.

 

    Three Months Ended March 31,  
    2013     2012  
    Total     Pre-Modification     Post-Modification     Total     Pre-Modification     Post-Modification  
(Amounts in thousands)   Contracts     Recorded Investment     Recorded Investment     Contracts     Recorded Investment     Recorded Investment  

Extended payment term

           

Single family owner occupied

    —          —          —          1      $ 351      $ 319   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    —        $ —        $ —          1      $ 351      $ 319   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

There were no payment defaults on loans modified as TDRs during the three months ended March 31, 2013 or 2012 that were restructured within the previous 12 months.

Note 5. FDIC Indemnification Asset

On June 8, 2012, the Company entered into a purchase and assumption agreement with loss share arrangements with the FDIC to purchase certain assets and assume substantially all of the customer deposits and certain liabilities of Waccamaw Bank. The FDIC indemnification asset is measured separately from the related covered asset as it is not contractually embedded in the assets and is not transferable with the assets should the Company choose to dispose of them. Fair value was estimated at the acquisition date using projected cash flows related to the loss share agreements based on the expected reimbursements for losses and the applicable loss share percentages. Under the loss share agreements, the FDIC has agreed to cover 80% of most loan and foreclosed real estate losses. These expected reimbursements do not include reimbursable amounts related to future covered expenditures. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC. The Company will offset any recorded provision for loan losses related to acquired covered loans by recording an increase in the FDIC indemnification asset by the increase in expected cash flow, which is the result of a decrease in expected cash flow of acquired loans. An increase in cash flows on acquired loans results in a decrease in cash flows on the FDIC indemnification asset, which is recognized in the future as negative accretion through noninterest income over the shorter of the remaining life of the FDIC indemnification asset or the underlying loans. The Company incurs expenses related to the assets indemnified by the FDIC and pursuant to the loss share agreements certain costs are reimbursable by the FDIC and are included in monthly and quarterly claims made by the Company. The estimates of reimbursements are netted against these covered expenses in the income statement. The following table presents changes in the receivable from the FDIC for the periods indicated:

 

(Amounts in thousands)       

Beginning balance, January 1, 2013

   $ 48,073   

Increase in expected losses on loans

     —     

Additional losses on OREO

     —     

Reimbursable expenses

     —     

Amortization of discounts and premiums, net

     (1,539

Reimbursements from the FDIC

     (1,141
  

 

 

 

Ending balance, March 31, 2013

   $ 45,393   
  

 

 

 

Note 6. Deposits

The following table summarizes interest-bearing deposits by type for the periods indicated:

 

     March 31, 2013     December 31, 2012  
(Amounts in thousands)             

Interest-bearing demand deposits

   $ 377,445      $ 353,321   

Money market deposits

     240,101        237,257   

Savings deposits

     273,221        263,019   

Individual retirement accounts

     125,552        126,658   

Certificates of deposit

     675,260        706,568   
  

 

 

   

 

 

 

Total

   $ 1,691,579      $ 1,686,823   
  

 

 

   

 

 

 

Note 7. Borrowings

The following table summarizes borrowings by type for the periods indicated:

 

     March 31, 2013     December 31, 2012  
(Amounts in thousands)             

Securities sold under agreements to repurchase

   $ 121,506      $ 136,118   

FHLB borrowings

     150,000        161,558   

Subordinated debt

     15,464        15,464   

Other debt

     413        413   
  

 

 

   

 

 

 

Total

   $ 287,383      $ 313,553   
  

 

 

   

 

 

 

 

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Table of Contents

Securities sold under agreements to repurchase consisted of retail overnight and term repurchase agreements of $71.51 million at March 31, 2013, and $77.92 million at December 31, 2012, and wholesale repurchase agreements of $50.00 million at March 31, 2013, and $58.20 million at December 31, 2012. During the first quarter of 2013, the Company prepaid wholesale repurchase agreements totaling $8.15 million that resulted in a $79 thousand gain. The weighted average rate of wholesale repurchase agreements was 3.71% at March 31, 2013, and 3.34% at December 31, 2012. Securities sold under agreements to repurchase are collateralized with agency MBS and municipal securities.

FHLB borrowings included convertible and callable advances totaling $150.00 million at March 31, 2013, and $155.28 million at December 31, 2012, and fixed rate credit of $6.27 million at December 31, 2012. During the first quarter of 2013, the Company prepaid FHLB borrowings totaling $11.47 million that resulted in a $217 thousand gain. The callable advances may be redeemed at quarterly intervals after various lockout periods. These call options may substantially shorten the lives of these instruments. If these advances are called, the debt may be paid in full or converted to another FHLB credit product. Prepayment of the advances may result in substantial penalties based upon the differential between contractual note rates and current advance rates for similar maturities. The weighted average rate of FHLB borrowings was 4.12% at March 31, 2013, and 3.86% at December 31, 2012. Advances from the FHLB were secured by qualifying loans of $1.13 billion at March 31, 2013, and $998.14 million at December 31, 2012. At March 31, 2013, unused borrowing capacity with the FHLB totaled $331.57 million.

At March 31, 2013, the FHLB borrowings had approximate contractual maturities between four and eight years. The scheduled maturities of the advances are as follows:

 

     Amount  
(Amounts in thousands)       

2013

   $ —     

2014

     —     

2015

     —     

2016

     —     

2017

     100,000   

2018 and thereafter

     50,000   
  

 

 

 
   $ 150,000   
  

 

 

 

Also included in borrowings is $15.46 million of junior subordinated debentures (the “Debentures”) issued by the Company in October 2003 to an unconsolidated trust subsidiary, FCBI Capital Trust (the “Trust”), with an interest rate of three-month LIBOR plus 2.95%. The Trust was able to purchase the Debentures through the issuance of trust preferred securities which had substantially identical terms as the Debentures. The Debentures mature on October 8, 2033, and are currently callable. The net proceeds from the offering were contributed as capital to the Bank to support further growth. The Company’s obligations under the Debentures and other relevant Trust agreements, in aggregate, constitute a full and unconditional guarantee by the Company of the Trust’s obligations.

Note 8. Defined Benefit Plans

The Company maintains a Supplemental Executive Retention Plan (the “SERP”) for key members of senior management. The following sets forth the components of the net periodic pension cost of the Company’s domestic non-contributory, non-qualified defined SERP for the periods indicated:

 

     Three Months Ended  
     March 31,  
     2013      2012  
(Amounts in thousands)              

Service cost

   $ 34       $ 39   

Interest cost

     61         51   

Amortization of losses

     12         11   

Amortization of prior service cost

     47         34   
  

 

 

    

 

 

 

Net periodic cost

   $ 154       $ 135   
  

 

 

    

 

 

 

 

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Table of Contents

The Company maintains a Directors’ Supplemental Retirement Plan (the “Directors’ Plan”) for its non-management directors. The following sets forth the components of the net periodic pension cost of the Company’s domestic non-contributory, non-qualified Directors’ Plan for the periods indicated:

 

     Three Months Ended  
     March 31,  
     2013      2012  
(Amounts in thousands)              

Service cost

   $ 7       $ 7   

Interest cost

     10         10   

Amortization of prior service cost

     22         22   
  

 

 

    

 

 

 

Net periodic cost

   $ 39       $ 39   
  

 

 

    

 

 

 

Note 9. Derivative Instruments and Hedging Activities

The Company uses derivative instruments primarily to protect against the risk of adverse price or interest rate movements on the value of certain assets and liabilities and on future cash flows. These derivatives may consist of interest rate swaps, floors, caps, collars, futures, forward contracts, and written and purchased options. Derivative instruments represent contracts between parties that usually require little or no initial net investment and result in one party delivering cash or another asset to the other party based on a notional amount and an underlying asset as specified in the contract. Derivative assets and liabilities are recorded at fair value on the balance sheet.

Like other financial instruments, derivatives contain an element of credit risk due to the possibility the Company may incur a loss if a counterparty fails to meet its contractual obligations. This risk is measured as the expected positive replacement value of contracts. All derivative contracts may be executed only with exchanges or counterparties approved by the Company’s Asset/Liability Management Committee.

The primary derivative instrument the Company uses is interest rate lock commitments (“IRLCs”). Generally, this instrument helps the Company meet customer financing needs. Market risk represents the possibility that economic value or net interest income will be adversely affected by fluctuations in external factors such as interest rates, market-driven loan rates, prices, or other economic factors.

In the normal course of business, the Company sells originated mortgage loans into the secondary mortgage loan market. The Company enters into IRLCs to provide potential borrowers an interest rate guarantee. Once a mortgage loan is closed and funded, it is included within loans held for sale and awaits sale and delivery into the secondary market. From the loan closing date through the date of sale into the secondary market, the Company has exposure to interest rate movement resulting from the risk that interest rates will change from the rate quoted to the borrower. Due to these interest rate fluctuations, the Company’s balance of mortgage loans held for sale is subject to changes in fair value. Typically, the fair value of these loans decline when interest rates increase and rise when interest rates decrease.

The following table presents the aggregate contractual or notional amounts of derivative financial instruments as of the dates indicated:

 

    March 31, 2013     December 31, 2012     March 31, 2012  
(Amounts in thousands)                  

Derivatives not designated as hedges IRLCs

  $ 14,097      $ 14,841      $ 11,118   

 

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Table of Contents

The following table presents the fair value of derivative financial instruments as of the dates indicated:

 

    

March 31, 2013

    

December 31, 2012

    

March 31, 2012

 
    

Balance Sheet
Location

   Fair
Value
    

Balance Sheet
Location

   Fair
Value
    

Balance Sheet
Location

   Fair
Value
 
(Amounts in thousands)                                    

Asset derivatives

                 

Derivatives not designated as hedges IRLCs

   Other assets    $ 142       Other assets    $ 144       Other assets    $ 100   
     

 

 

       

 

 

       

 

 

 

Total

      $ 142          $ 144          $ 100   
     

 

 

       

 

 

       

 

 

 

Liability derivatives

                 

Derivatives not designated as hedges IRLCs

   Other liabilities    $ 10       Other liabilities    $ 16       Other liabilities    $ 56   
     

 

 

       

 

 

       

 

 

 

Total

      $ 10          $ 16          $ 56   
     

 

 

       

 

 

       

 

 

 

Effect of Derivatives and Hedging Activities on the Income Statement. For the quarters ended March 31, 2013 and 2012, the Company determined there was no amount of ineffectiveness on cash flow hedges. The following table details gains and losses recognized in income on derivatives for the dates indicated:

 

        Three Months Ended  
        March 31,  
   

Income Statement Location

  2013      2012  
(Amounts in thousands)                 

Derivatives not designated as hedges IRLCs

  Other income   $ 4       $ (85
   

 

 

    

 

 

 

Total

    $ 4       $ (85
   

 

 

    

 

 

 

Note 10. Fair Value

Financial Instruments Measured at Fair Value

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market for the asset or liability. The price in the principal, or most advantageous, market used to measure the fair value of the asset or liability shall not be adjusted for transaction costs. An orderly transaction is a transaction that assumes exposure to the market for a period prior to the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets and liabilities; it is not a forced transaction. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact.

The fair value hierarchy is as follows:

 

Level 1 Inputs –    Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 Inputs –    Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and provide a reasonable basis for fair value determination, such as interest rates, yield curves, volatilities, prepayment speeds, default rates, and credit risks, or inputs that are derived principally from observable market data.
Level 3 Inputs –    Unobservable inputs for determining the fair values of assets or liabilities for which there is little, if any, market activity at the measurement date, using reasonable inputs and assumptions based on the best information at the time, to the extent that inputs are available without undue cost and effort. These inputs and assumptions may include model-derived inputs that are not corroborated by observable market data and an entity’s own assumptions.

 

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A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s assets and liabilities carried at fair value. In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon third party models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available-for-Sale. Securities classified as available-for-sale are reported at fair value utilizing Level 1, Level 2, and Level 3 inputs. Securities are classified as Level 1 within the valuation hierarchy when quoted prices are available in an active market. This includes securities whose value is based on quoted market prices in active markets for identical assets. The Company also uses Level 1 inputs for the valuation of equity securities traded in active markets.

Securities are classified as Level 2 within the valuation hierarchy when the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the bond’s terms and conditions, among other things. Level 2 inputs are used to value U.S. government agency securities, single issue and pooled trust preferred securities, corporate FDIC insured securities, MBS, and certain equity securities that are not actively traded.

Securities are classified as Level 3 within the valuation hierarchy in certain cases when there is limited activity or less transparency to the valuation inputs. In the absence of observable or corroborated market data, internally developed estimates that incorporate market-based assumptions are used when such information is available.

Fair value models may be required when trading activity has declined significantly or does not exist, prices are not current or pricing variations are significant. The Company’s fair value from third party models utilizes modeling software that uses market participant data and knowledge of the structures of each individual security to develop cash flows specific to each security. The fair values of the securities are determined by using the cash flows developed by the fair value model and applying appropriate market observable discount rates. The discount rates are developed by determining credit spreads above a benchmark rate, such as LIBOR, and adding premiums for illiquidity developed based on a comparison of initial issuance spread to LIBOR versus a financial sector curve for recently issued debt to LIBOR. Specific securities that have increased uncertainty regarding the receipt of cash flows are discounted at higher rates due to the addition of a deal specific credit premium based on assumptions about the performance of the underlying collateral. Finally, internal fair value model pricing and external pricing observations are combined by assigning weights to each pricing observation. Pricing is reviewed for reasonableness based on the direction of the specific markets and the general economic indicators.

Other Assets and Associated Liabilities. Securities held for trading purposes are recorded at fair value and included in “other assets” on the consolidated balance sheets. Securities held for trading purposes include assets related to employee deferred compensation plans. The assets associated with these plans are generally invested in equities and classified as Level 1. Deferred compensation liabilities, also classified as Level 1, are carried at the fair value of the obligation to the employee, which corresponds to the fair value of the invested assets.

Derivatives. Derivatives are reported at fair value utilizing Level 2 inputs. The Company obtains dealer quotations based on observable data to value its derivatives.

Impaired Loans. Certain impaired loans are reported on a nonrecurring basis at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 3 inputs based on appraisals adjusted for customized discounting criteria.

The Company maintains an active and robust problem credit identification system. When a credit is identified as exhibiting characteristics of weakening, the Company will assess the credit for potential impairment. Examples of weakening include delinquency and deterioration of the borrower’s capacity to repay as determined by the Company’s regular credit review function. As part of the impairment review, the Company will evaluate the current collateral value. It is the Company’s standard practice to obtain updated third party collateral valuations to assist management in measuring potential impairment of a credit and the amount of the impairment to be recorded.

 

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Internal collateral valuations are generally performed within two to four weeks of the original identification of potential impairment and receipt of the third party valuation. The internal valuation is performed by comparing the original appraisal to current local real estate market conditions and experience and considers liquidation costs. The result of the internal valuation is compared with the outstanding loan balance, and, if warranted, a specific impairment reserve will be established at the completion of the internal evaluation.

A third party evaluation is typically received within thirty to forty-five days of the completion of the internal evaluation. Once received, the third party evaluation is reviewed for reasonableness. Once the evaluation is reviewed and accepted, discounts to fair market value are applied based upon such factors as the bank’s historical liquidation experience of like collateral, and an estimated net realizable value is established. That estimated net realizable value is then compared with the outstanding loan balance to determine the amount of specific impairment reserve. The specific impairment reserve, if necessary, is adjusted to reflect the results of the updated evaluation. A specific impairment reserve is generally maintained on impaired loans during the time period while awaiting receipt of the third party evaluation as well as on impaired loans that continue to make some form of payment and liquidation is not imminent. Impaired loans not meeting the aforementioned criteria and that do not have a specific impairment reserve have usually been previously written down through a partial charge-off, to their net realizable value.

The Company’s Special Assets staff assumes the management and monitoring of all loans determined to be impaired. While awaiting the completion of the third party appraisal, the Company generally begins to complete the tasks necessary to gain control of the collateral and prepare for liquidation, including, but not limited to engagement of counsel, inspection of collateral, and continued communication with the borrower, if appropriate. Special Assets staff also regularly reviews the relationship to identify any potential adverse developments during this time.

Generally, the only difference between current appraised value, adjusted for liquidation costs, and the carrying amount of the loan less the specific reserve is any downward adjustment to the appraised value that the Company determines appropriate. These differences generally consist of costs to sell the property, as well as a deflator for the devaluation of property seen when banks are the sellers, and the Company deemed these adjustments as fair value adjustments.

In the Company’s experience, it rarely returns loans to performing status after they have been partially charged off. Generally, credits identified as impaired move quickly through the process towards ultimate resolution.

Other Real Estate Owned. The fair value of the Company’s other real estate owned is determined on a nonrecurring basis using Level 3 inputs based on current and prior appraisals, estimates of costs to sell, and proprietary qualitative adjustments.

Goodwill. The fair value of the Company’s goodwill is reported on a nonrecurring basis when it has been adjusted to fair value. The values of the Company’s reporting units are determined using Level 3 inputs based on discounted cash flow and market multiple models.

 

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Recurring and Nonrecurring Fair Value

The following tables summarize financial assets and financial liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy for the periods indicated:

 

                                   
     March 31, 2013  
     Total      Fair Value Measurements Using  
(Amounts in thousands)    Fair Value      Level 1      Level 2      Level 3  

Available-for-sale securities:

           

Municipal securities

   $ 157,228       $ —         $ 157,228       $ —     

Single issue trust preferred securities

     45,751         —           45,751         —     

Agency MBS

     322,284         —           322,284         —     

Non-Agency Alt-A residential MBS

     10,869         —           10,869         —     

Equity securities

     1,375         1,353         22         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 537,507       $ 1,353       $ 536,154       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Deferred compensation assets

   $ 3,786       $ 3,786       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives

           

Interest rate lock commitments

   $ 142       $ —         $ 142       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Deferred compensation liabilities

   $ 3,786       $ 3,786       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative liabilities

           

Interest rate lock commitments

   $ 10       $ —         $ 10       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2012  
     Total      Fair Value Measurements Using  
(Amounts in thousands)    Fair Value      Level 1      Level 2      Level 3  

Available-for-sale securities:

           

Municipal securities

   $ 159,217       $ —         $ 159,217       $ —     

Single issue trust preferred securities

     44,646         —           44,646         —     

Agency MBS

     315,897         —           315,897         —     

Non-Agency Alt-A residential MBS

     11,067         —           11,067         —     

Equity securities

     3,531         3,511         20         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 534,358       $ 3,511       $ 530,847       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Deferred compensation assets

   $ 3,625       $ 3,625       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivatives

           

Interest rate lock commitments

   $ 144       $ —         $ 144       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Deferred compensation liabilities

   $ 3,625       $ 3,625       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Derivative liabilities

           

Interest rate lock commitments

   $ 16       $ —         $ 16       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in certain circumstances such as evidence of impairment. The following tables summarize financial and nonfinancial assets measured at fair value on a nonrecurring basis segregated by the level of the valuation inputs within the fair value hierarchy that were held for the periods indicated.

 

     March 31, 2013  
     Total      Fair Value Measurements Using  
     Fair Value      Level 1      Level 2      Level 3  
(Amounts in thousands)                            

Impaired loans not covered by loss share agreements

   $ 7,743         —           —         $ 7,743   

OREO not covered by loss share agreements

     2,870         —           —           2,870   

OREO covered by loss share agreements

     3,938         —           —           3,938   

There were no transfers between valuation levels for any asset during the three months ended March 31, 2013 or 2012. If valuation techniques are deemed necessary, the Company considers those transfers to occur at the end of the period when the assets are valued.

The following table presents quantitative information about financial and nonfinancial assets measured at fair value on a nonrecurring basis using Level 3 valuation inputs:

 

    Fair Value at     Valuation   Unobservable   Range
    March 31, 2013     Technique   Input  

(Weighted Average)

(Amounts in thousands)                  

Impaired loans

  $ 7,743      Discounted appraisals (1)   Appraisal adjustments (2)   2% to 100% (42%)

OREO not covered by loss share agreements

    2,870      Discounted appraisals (1)   Appraisal adjustments (2)   0% to 96% (61%)

OREO covered by loss share agreements

    3,938      Discounted appraisals (1)   Appraisal adjustments (2)   0% to 39% (26%)

 

(1) Fair value is generally based on appraisals of the underlying collateral.
(2) Appraisals may be adjusted by management for customized discounting criteria, estimated sales costs, and proprietary qualitative adjustments.

Fair Value of Financial Instruments

Information used to determine fair value is highly subjective and judgmental in nature; therefore, the results may not be precise. Subjective factors may include estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different. The following summary describes the methodologies and assumptions used by the Company to estimate the fair value of certain financial instruments:

Cash and Cash Equivalents: The carrying amount of cash and due from banks and federal funds sold/purchased is considered equal to the fair value as a result of the short-term nature of these instruments.

Investment Securities: The determination of the fair value of available-for-sale securities is described within “Fair Value Measurements” presented above. The determination of the fair value of held-to-maturity securities is based on quoted market prices or dealer quotes.

Loans Held for Sale: Loans held for sale are recorded at the lower of cost or estimated fair value. The determination of the fair value of loans held for sale is based on the market price of similar loans.

Loans Held for Investment: The determination of the fair value of loans held for investment is based on discounted future cash flows using current rates for similar loans.

FDIC Receivable under Loss Share Agreements: The determination of the fair value is based on discounted future cash flows using current discount rates.

Accrued Interest Receivable/Payable: The carrying amount of accrued interest receivable/payable is considered equal to the fair value as a result of the short-term nature of these instruments.

 

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Derivative Financial Instruments: The determination of the fair value of derivative financial instruments is described within “Fair Value Measurements” presented above.

Deferred Compensation Instruments: The determination of the fair value of deferred compensation instruments is described within “Fair Value Measurements” presented above.

Deposits and Securities Sold Under Agreements to Repurchase: The fair value of deposits without a stated maturity, including demand, interest-bearing demand, and savings, is considered equal to the carrying amount which is the amount payable on demand at the reporting date. The fair value of deposits and repurchase agreements with fixed maturities and rates is estimated using discounted future cash flows that apply interest rates currently being offered on instruments with similar characteristics and maturities.

FHLB and Other Indebtedness: The determination of the fair value of FHLB and other indebtedness is based on interest rates currently available to the Company for borrowings with similar characteristics and maturities. The determination of fair value for trust preferred obligations is based on credit spreads seen in the marketplace for similar issues.

Off-Balance Sheet Instruments: The value of off-balance sheet instruments, including commitments to extend credit, standby letters of credit, and financial guarantees, is considered equal to fair value. Due to the uncertainty involved in assessing the likelihood and timing of commitments being drawn upon, coupled with the lack of an established market and the wide diversity of fee structures, the Company does not believe it is meaningful to provide an estimate of fair value that differs from the given value of the commitment.

 

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The following tables summarize the carrying amount and fair value of the Company’s financial instruments for the dates indicated:

 

                                                                                    
     March 31, 2013  
     Carrying             Fair Value Measurements Using  
(Amounts in thousands)    Amount      Fair Value      Level 1      Level 2      Level 3  

Assets

              

Cash and cash equivalents

   $ 167,041       $ 167,041       $ 167,041       $ —         $ —     

Available-for-sale securities

     537,507         537,507         1,353         536,154         —     

Held-to-maturity securities

     816         824         —           824         —     

Loans held for sale

     2,794         2,820         —           2,820         —     

Loans held for investment less allowance

     1,664,442         1,661,139         —           —           1,661,139   

FDIC indemnification asset

     45,393         45,393         —           —           45,393   

Accrued interest receivable

     8,166         8,166         —           8,166         —     

Derivative financial assets

     142         142         —           142         —     

Deferred compensation assets

     3,786         3,786         3,786         —           —     

Liabilities

              

Demand deposits

   $ 355,918       $ 355,918       $ —         $ 355,918       $ —     

Interest-bearing demand deposits

     377,445         377,445         —           377,445         —     

Savings deposits

     513,322         513,322         —           513,322         —     

Time deposits

     800,812         807,107         —           807,107         —     

Securities sold under agreements to repurchase

     121,506         125,972         —           125,972         —     

Accrued interest payable

     2,351         2,351         —           2,351         —     

FHLB and other indebtedness

     165,877         192,853         —           192,853         —     

Derivative financial liabilities

     10         10         —           10         —     

Deferred compensation liabilities

     3,786         3,786         3,786         —           —     

 

     December 31, 2012  
     Carrying             Fair Value Measurements Using  
(Amounts in thousands)    Amount      Fair Value      Level 1      Level 2      Level 3  

Assets

              

Cash and cash equivalents

   $ 144,847       $ 144,847       $ 144,847       $ —         $ —     

Available-for-sale securities

     534,358         534,358         3,511         530,847         —     

Held-to-maturity securities

     816         832         —           832         —     

Loans held for sale

     6,672         6,774         —           6,774         —     

Loans held for investment less allowance

     1,698,883         1,702,128         —           —           1,702,128   

FDIC receivable under loss share agreements

     48,073         48,073         —           —           48,073   

Accrued interest receivable

     7,842         7,842         —           7,842         —     

Derivative financial assets

     144         144         —           144         —     

Deferred compensation assets

     3,625         3,625         3,625         —           —     

Liabilities

              

Demand deposits

   $ 343,352       $ 343,352       $ —         $ 343,352       $ —     

Interest-bearing demand deposits

     353,321         353,321         —           353,321         —     

Savings deposits

     500,276         500,276         —           500,276         —     

Time deposits

     833,226         842,331         —           842,331         —     

Securities sold under agreements to repurchase

     136,118         142,417         —           142,417         —     

Accrued interest payable

     2,481         2,481         —           2,481         —     

FHLB and other indebtedness

     177,435         200,418         —           200,418         —     

Derivative financial liabilities

     16         16         —           16         —     

Deferred compensation liabilities

     3,625         3,625         3,625         —           —     

 

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Note 11. Accumulated Other Comprehensive Income

The following table presents the changes in the Company’s accumulated other comprehensive income (“AOCI”), net of tax, by component for the period indicated:

 

    Unrealized Gains (Losses) on
Available-for-Sale Securities
    Defined Benefit
Pension Plan Items
    Total  
(Amounts in thousands)                  

Beginning balance, January 1, 2013

  $ (283   $ (1,542   $ (1,825

Other comprehensive loss before reclassifications

    (971     (248     (1,219

Amounts reclassified from AOCI

    73        51        124   
 

 

 

   

 

 

   

 

 

 

Net comprehensive loss

    (898     (197     (1,095
 

 

 

   

 

 

   

 

 

 

Ending balance, March 31, 2013

  $ (1,181   $ (1,739   $ (2,920
 

 

 

   

 

 

   

 

 

 

The following table presents reclassifications out of the Company’s AOCI for the period ended March 31, 2013:

 

Details about AOCI Components

   Amount Reclassified
from AOCI
    

Affected Line Item in the Statement

Where Net Income is Presented

(Amounts in thousands)            

Available-for-sale securities

     
   $ 117      

Net gains on sale of securities

     —        

Net impairment losses recognized in earnings

  

 

 

    
     117      

Total before tax

     44      

Income tax expense

  

 

 

    
     73      

Total net of tax

  

 

 

    

Defined benefit pension plan items

     

Amortization of prior service costs

     69      

See Note 1 below

Amortization of net losses

     12      

See Note 1 below

Net actuarial losses

     —        

See Note 1 below

  

 

 

    
     81      

Total before tax

     30      

Income tax expense

  

 

 

    
     51      

Total net of tax

  

 

 

    

Total reclassifications

   $ 124      

Total net of tax

  

 

 

    

 

Note 1: These items are included in the computation of net periodic pension cost. See Note 8, “Defined Benefit Plans,” for additional information.

Note 12. Litigation, Commitments and Contingencies

Litigation

In the normal course of business, the Company is a defendant in various legal actions and asserted claims. While the Company and its legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, the Company believes the resolution of these actions, singly or in the aggregate, should not have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

Commitments and Contingencies

The Company is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk beyond the amount recognized on the balance sheet. The contractual amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit and financial guarantees written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments.

 

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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case by case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral may include accounts receivable, inventory, property, plant and equipment, and income producing commercial properties. Commitments to extend credit, including availability on lines of credit, totaled $198.04 million at March 31, 2013, and $215.77 million at December 31, 2012. Additionally, the Company had gross notional amounts of outstanding commitments related to secondary market mortgage loans of $14.10 million at March 31, 2013, and $14.84 million at December 31, 2012.

Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. To the extent deemed necessary, collateral of varying types and amounts is held to secure customer performance under certain of those letters of credit outstanding. Standby letters of credit and financial guarantees totaled $5.89 million at March 31, 2013, and $6.81 million at December 31, 2012. The Company maintained a reserve for unfunded lending commitments of $326 thousand at March 31, 2013, and December 31, 2012.

The Company has issued, through the Trust, $15.0 million of trust preferred securities in a private placement. In connection with the issuance of the trust preferred securities, the Company has committed to irrevocably and unconditionally guarantee the following payments or distributions with respect to the trust preferred securities to the holders thereof to the extent that the Trust has not made such payments or distributions and has the funds therefore: (i) accrued and unpaid distributions, (ii) the redemption price, and (iii) upon a dissolution or termination of the Trust, the lesser of the liquidation amount and all accrued and unpaid distributions and the amount of assets of the Trust remaining available for distribution.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bancshares, Inc. and its subsidiaries as a consolidated entity. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information that will enhance understanding of our Company’s financial condition, changes in financial condition, and results of operations. This MD&A contains forward-looking statements and should be read in conjunction with our 2012 Annual Report on Form 10-K (the “2012 Form 10-K”) and the other financial information included in this report.

Forward-Looking Statements

We may make forward-looking statements in filings with the Securities and Exchange Commission (the “SEC”) including this Annual Report on Form 10-K and the Exhibits hereto and thereto in our reports to shareholders and other communications that are made in good faith by our Company pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements with respect to our beliefs, plans, objectives, goals, guidelines, expectations, anticipations, estimates, and intentions that are subject to significant risks and uncertainties and are subject to change based on various factors, many of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” and other similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

 

   

the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

 

   

the effects of, and changes in, trade, monetary, and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;

 

   

inflation, interest rate, market and monetary fluctuations;

 

   

our timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

 

   

the willingness of customers to substitute competitors’ products and services for our products and services and vice versa;

 

   

the impact of changes in financial services laws and regulations (including laws concerning taxes, banking, securities, and insurance) and the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”);

 

   

the impact of the federal banking regulators’ continued implementation of a number of programs to address capital and liquidity in the banking system; further, future and proposed rules, including those that are part of the Basel III process, which are expected to increase minimum acceptable levels of capital for the industry;

 

   

technological changes;

 

   

the effect of acquisitions, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

 

   

the growth and profitability of our noninterest, or fee, income being less than expected;

 

   

unanticipated regulatory or judicial proceedings;

 

   

changes in consumer spending and saving habits; and

 

   

our success at managing the risks involved in the foregoing.

We caution that the foregoing list of important factors is not all-inclusive. If one or more of the factors affecting these forward-looking statements proves incorrect, then our actual results, performance, or achievements could differ materially from those expressed in, or implied by, forward-looking statements contained in this Quarterly Report on Form 10-Q and other reports we filed with the SEC. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We do not intend to update any forward-looking statements, whether written or oral, to reflect change. All forward-looking statements attributable to our Company are expressly qualified by these cautionary statements. These factors and other risks and uncertainties are discussed in Part II, Item 1A, “Risk Factors,” herein, and Part I, Item 1A, “Risk Factors,” of our 2012 Form 10-K.

 

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Company Overview

Our Company is a financial holding company headquartered in Bluefield, Virginia. We operate through our community bank subsidiary, First Community Bank (the “Bank”), which provides financial, trust, and investment advisory services to individuals and commercial customers through seventy-two locations in Virginia, West Virginia, North Carolina, South Carolina, and Tennessee. Our Company is also the parent company of Greenpoint Insurance Group, Inc. (“Greenpoint”), headquartered in High Point, North Carolina, a full-service insurance agency offering commercial and personal lines of insurance through five locations in Virginia, West Virginia, and North Carolina. The Bank is the parent of First Community Wealth Management, a registered investment advisory firm that offers wealth management and investment advice with $906 million in aggregate assets under management as of March 31, 2013. These assets are not assets of our Company, but are managed under various fee-based arrangements as fiduciary or agent. We reported total assets of $2.72 billion as of March 31, 2013. Our Common Stock is traded on the NASDAQ Global Select Market under the symbol, “FCBC.”

We fund our lending and investing activities primarily through the retail deposit operations of our branch banking network. Retail and wholesale repurchase agreements and borrowings from the Federal Home Loan Bank (“FHLB”) provide additional funding. We invest our funds primarily in loans to retail and commercial customers. In addition to loans, we invest a portion of our funds in various debt securities, including those of United States and its agencies, municipals, and certain corporate notes, debt instruments, and equity securities. We also maintain overnight interest-bearing balances with the Federal Reserve and other correspondent banks. The difference between interest earned on assets and interest paid on liabilities is our primary source of earnings. Our net interest income is supplemented by fees for services, commissions on sales, and various deposit service charges.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and conform to general practices within the banking industry. Our financial position and results of operations require management to make judgments and estimates to develop the amounts reflected and disclosed in the consolidated financial statements. Different assumptions in the application of these estimates could result in material changes to our consolidated financial position and consolidated results of operations. Estimates, assumptions, and judgments are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Our accounting estimates are fundamental to understanding MD&A and the disclosures presented in the Notes to Condensed Consolidated Financial Statements and in MD&A provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Our critical accounting estimates are described in detail in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our 2012 Form 10-K.

Dodd-Frank Wall Street Reform and Consumer Protection Act

On July 21, 2010, sweeping financial regulatory reform legislation entitled the Dodd-Frank Act was signed into law. The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things:

 

   

Centralizes responsibility for consumer financial protection by creating a new agency, the Consumer Financial Protection Bureau (the “CFPB”), responsible for implementing, examining and enforcing compliance with federal consumer financial laws.

 

   

Requires financial holding companies, such as our Company, to be well capitalized and well managed as of July 21, 2011. Bank holding companies and banks must also be well capitalized and well managed to engage in interstate bank acquisitions.

 

   

Imposes comprehensive regulation of the over-the-counter derivatives market, which would include certain provisions that would effectively prohibit insured depository institutions from conducting certain derivatives businesses in the institutions themselves.

 

   

Implements corporate governance revisions, including with regard to executive compensation and proxy access by shareholders.

 

   

Makes permanent the $250 thousand limit for federal deposit insurance.

 

   

Repeals the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.

 

   

Amends the Electronic Fund Transfer Act to, among other things, give the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) the authority to establish rules regarding interchange fees charged for electronic debit transactions by payment card issuers having assets over $10 billion and enforces a new statutory requirement that such fees be reasonable and proportional to the actual cost of a transaction to the issuer.

 

   

Increases the authority of the Federal Reserve Board to examine bank holding companies, such as our Company, and their nonbank subsidiaries.

 

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Another section of the Dodd-Frank Act, the Mortgage Reform and Anti-Predatory Lending Act (the “Mortgage Reform Act”), contains new underwriting and servicing standards for the mortgage industry, as well as restrictions on compensation for mortgage originators. In addition, the Mortgage Reform Act grants broad discretionary regulatory authority to the CFPB to prohibit or condition terms, acts, or practices relating to residential mortgage loans that the CFPB finds abusive, unfair, deceptive, or predatory, as well as to take other actions that the CFPB finds are necessary or proper to ensure that responsible affordable mortgage credit remains available to consumers. The Dodd-Frank Act also contains laws affecting the securitization of mortgages, and other assets, with requirements for risk retention by securitizers and requirements for regulating credit rating agencies. Many aspects of the Dodd-Frank Act continue to be subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall financial impact on our Company, our customers, or the general financial industry. Provisions in the legislation that affect deposit insurance assessments, payment of interest on demand deposits, and interchange fees could increase costs associated with deposits, as well as place limitations on certain revenues those deposits may generate.

Recent Business Combinations

On June 8, 2012, the Company entered into a purchase and assumption agreement with loss share arrangements with the Federal Deposit Insurance Corporation (“FDIC”) to purchase certain assets and assume substantially all of the customer deposits and certain liabilities of Waccamaw Bank (“Waccamaw”). Waccamaw, a full service community bank headquartered in Whiteville, North Carolina, operated sixteen branches throughout North and South Carolina. At acquisition, Waccamaw had total assets of approximately $500.64 million, loans of approximately $318.35 million, and deposits of approximately $414.13 million. As a result of the acquisition and the preliminary purchase price allocation, approximately $10.90 million was recorded as goodwill, which represents the excess of the value of the consideration transferred over the fair value of the net assets acquired including indentified intangibles. Under the Single-Family Shared-Loss Agreement and the Commercial Shared-Loss Agreement with the FDIC, the FDIC has agreed to cover 80% of most loan and foreclosed real estate losses. All assets acquired and liabilities assumed are recorded at estimated fair value on the date of acquisition. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values may become available. After the initial acquisition, the Company agreed to purchase four properties totaling $1.80 million from the FDIC.

On May 31, 2012, the Company completed the acquisition of Peoples Bank of Virginia (“Peoples”), based in Richmond, Virginia. Peoples, a full service community bank, operated four branches throughout the Richmond area. At acquisition, Peoples had total assets of approximately $275.76 million, loans of approximately $184.84 million, and deposits of approximately $232.75 million. Under the terms of the merger agreement, shares of Peoples were exchanged for $6.08 in cash and 1.07 shares of the Company’s common stock, resulting in a purchase price of approximately $40.28 million. As a result of the acquisition and the preliminary purchase price allocation, approximately $10.21 million was recorded as goodwill, which represents the excess of the value of the consideration transferred over the fair market value of the net assets acquired including indentified intangibles. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values may become available.

Results Of Operations

Overview

The following list includes significant developments regarding our Company and operations during the first quarter of 2013:

 

   

Tax equivalent net interest margin increased 24 basis points to 4.15% for the first quarter of 2013 compared with the first quarter of 2012.

 

   

Net interest income was $23.36 million, an increase of $5.39 million, or 29.95%, compared with the first quarter of 2012.

 

   

Total assets grew $517.02 million, or 23.47%, compared with the first quarter of 2012, which includes the Peoples and Waccamaw acquisitions that occurred during the second quarter of 2012.

 

   

Total stockholders’ equity increased $48.55 million, or 15.65% compared with the first quarter of 2012, which includes the stock issued during the Peoples acquisition.

Net Income

Net income increased $1.14 million, or 19.00%, to $7.14 million for the first quarter of 2013 compared with $6.00 million for the first quarter of 2012. Net income available to common shareholders increased $1.17 million, or 20.37%, to $6.88 million for the first quarter of 2013 compared with $5.72 million for the first quarter of 2012. The increase was largely attributed to the substantial growth in earning assets as a result of the Peoples and Waccamaw acquisitions. Basic and diluted earnings per common share for the first quarter of 2013 were $0.34 and $0.33, respectively, compared to basic and diluted earnings per common share for the first quarter of 2012 of $0.32 and $0.31, respectively.

 

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Net Interest Income – Quarterly Comparison (See Table I)

For purposes of this discussion, net interest income is presented on a tax equivalent basis to provide a comparison among all types of interest earning assets. The tax equivalent basis adjusts for the tax-favored status of income from certain loans and investments. Although this is a non-GAAP measure, management believes this measure is more widely used within the financial services industry and provides better comparability of net interest income arising from taxable and tax-exempt sources. The Company uses this measure to monitor net interest income performance and to manage its balance sheet composition.

Net interest income, the largest contributor to earnings, increased $5.39 million, or 29.95%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. Tax equivalent net interest income increased $5.40 million, or 28.92%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. The increase in tax equivalent net interest income was primarily due to growth in average earning assets resulting from the Peoples and Waccamaw acquisitions and reductions in the rates paid on interest-bearing deposits resulting from the sustained low rate environment.

Average earning assets increased $432.32 million and average interest-bearing liabilities increased $382.11 million for the quarter ended March 31, 2013, compared with the same quarter of 2012. The yield on average earning assets increased 5 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. The average rate paid on interest-bearing liabilities decreased 23 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. Average balances and interest yield/rate changes for earning assets and interest-bearing liabilities resulted in a net interest rate spread that was 28 basis points higher for the first quarter of 2013 compared with the first quarter of 2012. Our net interest margin increased 24 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012.

The tax equivalent yield on loans increased 32 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. Tax equivalent loan interest income increased $5.48 million, or 28.24%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. Interest on loans for the first quarter of 2013 also includes accretion related to the Peoples and Waccamaw acquisitions of $831 thousand and $3.01 million, respectively. The Company expects the purchase accounting interest accretion to decline in future periods based on acquired portfolio attrition.

The tax equivalent yield on available-for-sale securities decreased 46 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. This decrease was primarily due to the reinvestment of proceeds from sales, maturities, prepayments, and cash in lower yielding securities. The average balance of held-to-maturity securities continued to decline as securities were called or matured and were not replaced.

The tax equivalent yield on interest-bearing deposits with banks decreased 10 basis points for the first quarter of 2013 compared with the first quarter of 2012. Interest-bearing deposits with banks are comprised primarily of excess liquidity kept at the Federal Reserve that bears overnight market rates.

The average balance of interest-bearing demand deposits increased $70.79 million, or 25.02%, and the average rate paid on those deposits increased 2 basis points for the first quarter of 2013 compared with the first quarter of 2012. The average balance of savings deposits increased $110.33 million, or 27.89%, and the average rate paid on those deposits increased 1 basis point for the quarter ended March 31, 2013, compared with the same quarter of 2012. The average balance of time deposits increased $181.67 million, or 28.64%, and the average rate paid on those deposits decreased 37 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. The average balance of noninterest-bearing demand deposits increased $93.32 million, or 39.07%, for the first quarter of 2013 compared with the third quarter of 2012.

There were no federal funds purchased on average for the first quarter of 2013, compared to $1.97 million for the first quarter of 2012. The average balance of retail repurchase agreements, including collateralized retail deposits and commercial treasury accounts, increased $3.58 million, or 4.96%, and the average rate paid on those funds decreased 8 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. The average balance of wholesale repurchase agreements increased $7.65 million, or 15.29%, and the average rate paid on those funds decreased 42 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. The average balance of FHLB and other borrowings increased $10.06 million, or 6.07%, and the average rate paid on those funds decreased 24 basis points for the quarter ended March 31, 2013, compared with the same quarter of 2012. The changes in the average balances and costs of wholesale repurchase agreements and FHLB advances were primarily due to the Waccamaw acquisition.

 

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Table I    Average Balance Sheets and Net Interest Income Analysis  
     Three Months Ended March 31,  
     2013     2012  
(Amounts in thousands)    Average
Balance
     Interest (1)      Average Yield/
Rate (1)
    Average
Balance
     Interest (1)      Average Yield/
Rate (1)
 

Assets

                

Earning assets

                

Loans (2)

   $ 1,706,296       $ 24,887         5.92   $ 1,394,246       $ 19,407         5.60

Securities available-for-sale

     544,681         3,728         2.78     478,358         3,857         3.24

Securities held-to-maturity

     816         17         8.45     3,237         62         7.70

Interest-bearing deposits

     98,893         66         0.27     42,525         39         0.37
  

 

 

    

 

 

      

 

 

    

 

 

    

Total earning assets

     2,350,686         28,698         4.95     1,918,366         23,365         4.90

Other assets

     352,343              255,638         
  

 

 

         

 

 

       

Total assets

   $ 2,703,029            $ 2,174,004         
  

 

 

         

 

 

       

Liabilities

                

Interest-bearing deposits

                

Demand deposits

   $ 353,677       $ 56         0.06   $ 282,887       $ 31         0.04

Savings deposits

     505,917         155         0.12     395,588         110         0.11

Time deposits

     816,060         2,151         1.07     634,390         2,264         1.44
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     1,675,654         2,362         0.57     1,312,865         2,405         0.74

Borrowings

                

Federal funds purchased

     —           —           —          1,970         2         0.00

Retail repurchase agreements

     75,751         105         0.56     72,171         115         0.64

Wholesale repurchase agreements

     57,645         475         3.34     50,000         468         3.76

FHLB advances and other borrowings

     175,937         1,699         3.92     165,874         1,715         4.16
  

 

 

    

 

 

      

 

 

    

 

 

    

Total borrowings

     309,333         2,279         2.99     290,015         2,300         3.19
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,984,987         4,641         0.95     1,602,880         4,705         1.18
     

 

 

         

 

 

    

Noninterest-bearing demand deposits

     332,186              238,863         

Other liabilities

     24,307              21,466         
  

 

 

         

 

 

       

Total liabilities

     2,341,480              1,863,209         

Stockholders’ equity

     361,549              310,795         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 2,703,029            $ 2,174,004         
  

 

 

         

 

 

       

Net interest income, tax equivalent

      $ 24,057            $ 18,660      
     

 

 

         

 

 

    

Net interest rate spread (3)

           4.00           3.72
        

 

 

         

 

 

 

Net interest margin (4)

           4.15           3.91
        

 

 

         

 

 

 

 

(1) Fully taxable equivalent at the rate of 35% (“FTE”). The FTE basis adjusts for the tax benefits of income on certain tax exempt loans and investments using the federal statutory rate of 35% for each period presented. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and nontaxable amounts.
(2) Nonaccrual loans are included in average balances outstanding but with no related interest income during the period of nonaccrual.
(3) Represents the difference between the yield on earning assets and cost of funds.
(4) Represents tax equivalent net interest income divided by average earning assets.

 

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The following table summarizes the changes in tax equivalent interest earned and paid detailing the amounts attributable to (i) changes in volume (change in the average volume times the prior year’s average rate), (ii) changes in rate (changes in the average rate times the prior year’s average volume), and (iii) changes in rate/volume (change in the average volume column times the change in average rate):

 

     Three Months Ended
March 31, 2013 Compared to 2012
Dollar Increase (Decrease) due to
 
(Amounts in thousands)    Volume     Rate     Rate/
Volume
    Total  

Interest earned on:

        

Loans (FTE)

   $ 4,344      $ 1,089      $ 47      $ 5,480   

Securities available-for-sale (FTE)

     535        (551     (113     (129

Securities held-to-maturity (FTE)

     (46     6        (5     (45

Interest-bearing deposits with other banks

     51        (10     (14     27   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest earning assets

     4,884        534        (85     5,333   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest paid on:

        

Demand deposits

     8        14        3        25   

Savings deposits

     31        12        2        45   

Time deposits

     648        (573     (188     (113

Federal funds purchased

     —          —          (2     (2

Retail repurchase agreements

     6        (14     (2     (10

Wholesale repurchase agreements

     71        (52     (12     7   

FHLB advances and other borrowings

     103        (99     (20     (16
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     867        (712     (219     (64
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in net interest income, tax equivalent

   $ 4,017        1,246        134        5,397   
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for Loan Losses

The provision for loan losses is determined by management as the amount to be added to the allowance for loan losses after net charge-offs have been deducted to bring the allowance to a level which, in management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The provision for loan losses was increased $220 thousand for the first quarter of 2013 compared with the first quarter of 2012. We incurred net charge-offs of $2.06 million for the quarter ended March 31, 2013, compared with $1.33 million for the same quarter of 2012. Annualized net charge-offs as a percentage of average non-covered loans were 0.56% for the quarter ended March 31, 2013, compared with 0.38% for the same quarter of 2012. Non-covered loans exclude loans acquired in the Waccamaw transaction that are covered under the FDIC loss share agreements.

Noninterest Income

Noninterest income, consisting of all revenues not included in interest and fee income related to earning assets, decreased $130 thousand, or 1.63%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. Exclusive of the impact of gains on the sale of securities and prepaid borrowings, as well as the change in the indemnification asset, noninterest income increased $1.05 million, or 13.19%, to $8.99 million for the quarter ended March 31, 2013, compared with $7.94 million for the same quarter of 2012.

Wealth management revenues, including fees and commissions for trust services and investment advisory services, decreased $48 thousand, or 5.37%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. Service charges on deposit accounts increased $155 thousand, or 5.14%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. Other service charges, commissions, and fees increased $201 thousand, or 12.68%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. Insurance commissions increased $90 thousand, or 5.71%, for the quarter ended March 31, 2013, compared with the same quarter of 2012.

 

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Other operating income increased $945 thousand for the quarter ended March 31, 2013, compared with the same quarter of 2012. The increase was primarily due to a $300 thousand increase in secondary market income and $296 thousand gain on the prepayment of borrowings. We incurred a net gain on sale of securities of $117 thousand for the quarter ended March 31, 2013, which was a $66 thousand increase from the same quarter of 2012. During the first quarter of 2013, the change in the FDIC indemnification asset totaled $1.54 million, including $1.57 million resulting from negative accretion.

Noninterest Expense

Noninterest expense increased $3.35 million, or 20.69%, for the first quarter of 2013 compared with the first quarter of 2012. Salaries and employee benefits increased $1.89 million, or 22.96%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. The Peoples and Waccamaw acquisitions completed during the second quarter of 2012 accounted for an increase in salaries and employee benefits of $1.25 million during the first quarter of 2013. At March 31, 2013, we had 746 full-time equivalent employees compared to 619 at March 31, 2012. The Peoples and Waccamaw acquisitions resulted in the addition of 100 full-time equivalent employees for the period ended March 31, 2013.

Occupancy, furniture, and equipment expense increased $861 thousand, or 36.84%, to $3.20 million for the quarter ended March 31, 2013, compared with $2.34 million for the same quarter of 2012 as a result of the Peoples and Waccamaw acquisitions. FDIC premiums and assessments increased $150 thousand, or 46.58%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. We incurred $49 thousand in merger related costs for the quarter ended March 31, 2013, in connection with the Peoples and Waccamaw acquisitions. Other operating expense increased $620 thousand, or 12.61%, for the quarter ended March 31, 2013, compared with the same quarter of 2012. The increase in other operating expense was primarily due to our expanded branch network. These increases were offset by a $196 thousand decrease in expenses and net losses associated with other real estate owned (“OREO”) to $625 thousand for the first quarter of 2013, compared with $821 thousand for the first quarter of 2012.

Income Tax Expense

Income tax as a percentage of pretax income may vary significantly from statutory rates due to permanent differences, which are items of income and expense excluded by law from the calculation of taxable income. Our most significant permanent differences include income on municipal securities, which are exempt from federal income tax; certain dividend payments, which are deductible; and increases in the cash surrender value of life insurance policies. Consolidated income taxes were $3.40 million for the first quarter of 2013 compared to $2.85 million for the first quarter of 2012. The effective tax expense rates for the quarters ended March 31, 2013 and 2012 were 32.23% and 32.22%, respectively.

Financial Condition

Total assets were $2.72 billion as of March 31, 2013, a decrease of $8.58 million, or 0.31%, compared with $2.73 billion at December 31, 2012. Total liabilities were $2.36 billion as of March 31, 2013, a decrease of $10.92 million, or 0.46%, compared with $2.37 billion at December 31, 2012. As of March 31, 2013, our book value per as-converted common share was $16.93, an increase of $0.17, compared with December 31, 2012.

Investment Securities

Available-for-Sale Securities

Available-for-sale securities as of March 31, 2013, increased $3.15 million, or 0.59%, compared with December 31, 2012. The market value of securities available-for-sale as a percentage of amortized cost was 99.65% at March 31, 2013, compared with 99.92% at December 31, 2012.

During the first quarters of 2013 and 2012, we recognized no other-than-temporary impairment (“OTTI”) charges in earnings related to nonbeneficial interest debt securities. We incurred no OTTI charges on equity securities during the three months ended March 31, 2013 and 2012. See Note 2, “Investment Securities,” of the Notes to Condensed Consolidated Financial Statements in Item 1, “Financial Statements,” herein for additional information.

Held-to-Maturity Securities

Held-to-maturity securities as of March 31, 2013, remained constant at $816 thousand compared with December 31, 2012. The market value of securities held-to-maturity as a percentage of amortized cost was 100.96% at March 31, 2013, compared with 101.96% at December 31, 2012.

 

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Loan Portfolio

Loans Held for Sale

Loans held for sale as of March 31, 2013, decreased $3.88 million, or 58.12% compared with December 31, 2012. Loans held for sale consist of mortgage loans sold on a best efforts basis into the secondary loan market; accordingly, we do not retain the interest rate risk involved in these long-term commitments. The gross notional amount of outstanding commitments related to secondary market mortgage loans at March 31, 2013, was $14.10 million for 79 loans compared to $14.84 million for 88 loans at December 31, 2012.

Loans Held for Investment

Loans held for investment as of March 31, 2013, decreased $35.36 million, or 2.05%, compared with December 31, 2012, and increased $302.77 million, or 21.84%, compared with March 31, 2012. The significant increase between the first quarter of 2013 and first quarter of 2012 was primarily due to the Peoples and Waccamaw acquisitions that occurred during the second quarter of 2012. The average loan to deposit ratio was 84.98% for the first quarter of 2013 compared to 85.71% for the fourth quarter of 2012, and 89.85% for the first quarter of 2012. The held for investment portfolio continues to be diversified among loan types and industry segments. The following table details the loan portfolio for the dates indicated:

 

     March 31, 2013     December 31, 2012     March 31, 2012  
     Amount      Percent     Amount      Percent     Amount      Percent  
(Amounts in thousands)                                        

Covered loans

   $ 195,060         11.55   $ 207,106         12.01   $ —           0.00

Non-covered loans

               

Commercial loans

               

Construction, development, and other land

     55,220         3.27     57,434         3.38     45,736         3.29

Commercial and industrial

     91,666         5.43     88,738         5.15     80,637         5.82

Multi-family residential

     63,929         3.78     65,694         3.81     78,815         5.68

Single family non-owner occupied

     136,334         8.07     135,912         7.88     108,247         7.81

Non-farm, non-residential

     440,226         26.06     448,810         26.02     356,029         25.68

Agricultural

     2,117         0.12     1,709         0.10     1,607         0.12

Farmland

     33,930         2.01     34,570         2.00     37,751         2.72
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total commercial loans

     823,422         48.74     832,867         48.29     708,822         51.12

Consumer real estate loans

               

Home equity lines

     108,385         6.42     111,081         6.44     109,751         7.91

Single family owner occupied

     470,437         27.85     473,547         27.46     479,411         34.58

Owner occupied construction

     19,760         1.17     16,223         0.94     17,995         1.30
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer real estate loans

     598,582         35.44     600,851         34.84     607,157         43.79

Consumer and other loans

               

Consumer loans

     68,625         4.06     78,163         4.53     65,036         4.69

Other

     3,603         0.21     5,666         0.33     5,510         0.40
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total consumer and other loans

     72,228         4.27     83,829         4.86     70,546         5.09
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total non-covered loans

     1,494,232         88.45     1,517,547         87.99     1,386,525         100.00
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total loans held for investment

   $ 1,689,292         100.00   $ 1,724,653         100.00   $ 1,386,525         100.00
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Loans held for sale

   $ 2,794         $ 6,672         $ 3,522      
  

 

 

      

 

 

      

 

 

    

Allowance for Loan Losses

The allowance for loan losses is maintained at a level management deems sufficient to absorb probable loan losses inherent in the loan portfolio. The allowance is increased by charges to earnings in the form of provisions for loan losses and recoveries of prior loan charge-offs and decreased by loans charged off. The determination of the allowance requires management to make various assumptions and judgments. As a result, actual loan losses may differ materially from management’s determination if actual conditions differ significantly from the assumptions utilized. The ultimate adequacy of the allowance for loan losses is dependent upon a variety of factors beyond our control including, among other things, the economy, changes in interest rates, and the view of regulatory authorities toward loan classifications. Management considers the allowance to be adequate based upon analysis of the portfolio as of March 31, 2013; however, no assurance can be made that additions to the allowance for loan losses will not be required in future periods.

 

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Qualitative risk factors for the loan portfolio remain relatively high which reflect the elevated risk of loan losses due to high unemployment, effects of the recent recession, and devaluations of various categories of collateral. Significant stress continues in commercial and residential real estate markets, resulting in significant declines in real estate valuations. Decreases in real estate values adversely affect the value of property used as collateral for loans, including loans we originated. In addition, adverse changes in the economy, particularly continued high rates of unemployment, may have a negative effect on the ability of our borrowers to make timely loan payments. A further increase in loan delinquencies could adversely impact loan loss experience, causing potential increases in the provision and allowance for loan losses.

Our allowance for loan losses totaled $24.85 million at March 31, 2013, $25.77 million at December 31, 2012, and $25.80 million at March 31, 2012. The allowance for loan losses as a percentage of non-covered loans held for investment was 1.66% at March 31, 2013, 1.70% at December 31, 2012, and 1.86% at March 31, 2012. The decrease between March 31, 2013, and March 31, 2012, was largely due to the addition of Peoples loans at fair value with no corresponding allowance for loan losses. The cash flow analysis performed for the first quarter of 2013 identified three of the Company’s seven purchased credit impaired loan pools as impaired with a combined impairment of $276 thousand at March 31, 2013. The portfolio will continue to be monitored for deterioration in credit, which may result in the need to record an allowance for loan losses in a future period. As a result of stable credit metrics and the general downward trend in net charge-offs over recent quarters, management deemed the reduced allowance and provision for loan losses as adequate and directionally consistent.

The following table details the allowance for loan loss activity and related information for the three months ended March 31, 2013 and 2012.

 

     Three Months Ended  
     March 31,  
     2013     2012  
(Amounts in thousands)             

Beginning balance

   $ 25,770      $ 26,205   

Provision for loan losses

     1,142        922   

Charge-offs

     (2,759     (1,562

Recoveries

     697        235   
  

 

 

   

 

 

 

Net charge-offs

     (2,062     (1,327
  

 

 

   

 

 

 

Ending balance

   $ 24,850      $ 25,800   
  

 

 

   

 

 

 

Non-covered loans

    

Annualized net charge-offs to average loans

     0.56     0.38

Allowance for loan losses to total loans

     1.66     1.86

 

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Table of Contents

Risk Elements

Nonperforming assets consist of loans accounted for on a nonaccrual basis, accruing loans contractually past due 90 days or more, unseasoned troubled debt restructurings (“TDRs”), and OREO. Loans acquired with credit deterioration through business combinations, for which a discount exists, are not considered to be nonaccrual as a result of the accretion of the discount based on the expected cash flow of the loans. The following table summarizes the components of nonperforming assets and presents additional detail for nonperforming and restructured loans for the periods indicated:

 

(Amounts in thousands)    March 31,
2013
    December 31,
2012
    March 31,
2012
 

Non-covered loans

      

Nonaccrual loans

   $ 30,076      $ 23,931      $ 24,617   

Accruing loans past due 90 days or more

     —          —          —     

TDRs (1)

     1,596        6,009        2,668   
  

 

 

   

 

 

   

 

 

 

Total nonperforming loans

     31,672        29,940        27,285   

OREO not covered under FDIC loss share agreements

     4,439        5,749        3,829   
  

 

 

   

 

 

   

 

 

 

Total nonperforming assets

   $ 36,111      $ 35,689      $ 31,114   
  

 

 

   

 

 

   

 

 

 

Covered loans

      

Nonaccrual loans

   $ 4,567      $ 4,323      $ —     

Accruing loans past due 90 days or more

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total nonperforming loans

     4,567        4,323        —     

OREO covered under FDIC loss share agreements

     6,911        3,255        —     
  

 

 

   

 

 

   

 

 

 

Total nonperforming assets

   $ 11,478      $ 7,578      $ —     
  

 

 

   

 

 

   

 

 

 

Total loans

      

Nonaccrual loans

   $ 34,643      $ 28,254      $ 24,617   

Accruing loans past due 90 days or more

     —          —          —     

TDRs (1)

     1,596        6,009        2,668   
  

 

 

   

 

 

   

 

 

 

Total nonperforming loans

     36,239        34,263        27,285   

OREO

     11,350        9,004        3,829   
  

 

 

   

 

 

   

 

 

 

Total nonperforming assets

   $ 47,589      $ 43,267      $ 31,114   
  

 

 

   

 

 

   

 

 

 

Performing TDRs (2)

   $ 10,272      $ 6,038      $ 7,052   

Total TDRs (3)

   $ 11,868        12,047      $ 9,720   

Non-covered loans

      

Nonperforming loans to total loans

     2.12     1.97     1.97

Nonperforming assets to total assets

     1.43     1.42     1.41

Allowance for loan losses to nonperforming loans

     78.46     86.07     94.56

Total loans (includes covered assets)

      

Nonperforming loans to total loans

     2.15     1.99     1.97

Nonperforming assets to total assets

     1.75     1.59     1.41

Allowance for loan losses to nonperforming loans

     68.57     75.21     94.56

 

(1) TDRs restructured within the past six months or nonperforming, excluding nonaccrual TDRs of $675 thousand , $3.04 million, and $2.81 million at March 31, 2013, December 31, 2012, and March 31, 2012, respectively.
(2) TDRs with six months or more of satisfactory payment performance, excluding nonaccrual TDRs of $1.67 million, $792 thousand, and $24 thousand at March 31, 2013, December 31, 2012, and March 31, 2012, respectively.
(3) Perfoming and nonperforming TDRs, excluding nonaccrual TDRs of $2.34 million, $3.83 million, and $2.83 million at March 31, 2013, December 31, 2012, and March 31, 2012, respectively.

Non-covered loans exclude loans acquired in the Waccamaw transaction that are covered under the FDIC loss share agreements. Non-covered nonperforming assets totaled $36.11 million at March 31, 2013, a $422 thousand increase over December 31, 2012, and a $5.00 million increase over March 31, 2012. Non-covered nonperforming assets as a percentage of total non-covered assets were 1.43% at March 31, 2013, 1.42% at December 31, 2012, and 1.41% at March 31, 2012.

 

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Non-covered nonaccrual loans totaled $30.08 million at March 31, 2013, $23.93 million at December 31, 2012, and $24.62 million at March 31, 2012. As of March 31, 2013, non-covered nonaccrual loans were largely attributed to the following loan classes: commercial construction (22.75%); single family owner occupied (19.53%); non-farm, non-residential (18.76%); commercial and industrial (17.90%); and single family non-owner occupied (15.30%). The increase in non-covered nonaccrual loans during the first quarter of 2013 was primarily due to one commercial loan relationship totaling $6.40 million. Approximately $5.66 million, or 18.81%, of non-covered nonaccrual loans were attributed to loans acquired in business combinations. Certain loans included in the nonaccrual category have been written down to the estimated realizable value or assigned specific reserves within the allowance for loan losses based upon management’s estimate of loss at ultimate resolution.

When restructuring loans for borrowers experiencing financial difficulty, we generally make concessions in interest rates, loan terms, and/or amortization terms. Certain TDRs are classified as nonperforming at time of restructuring and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. Accruing TDRs totaled $11.87 million at March 31, 2013, $12.05 million at December 31, 2012, and $9.72 million at March 31, 2012. Accruing nonperforming TDRs amounted to $1.60 million, or 13.45%, of total accruing TDRs as of March 31, 2013, as compared to 49.88% of accruing TDRs at December 31, 2012, and 27.45% of accruing TDRs at March 31, 2012. The allowance for loan losses attributed to TDRs totaled $1.65 million at March 31, 2013, $1.87 million at December 31, 2012, and $675 thousand at March 31, 2012.

Ongoing activity within the classification and categories of nonperforming loans include collections on delinquencies, foreclosures, loan restructurings, and movements into or out of the nonperforming classification as a result of changing economic conditions, borrower financial capacity, or resolution efforts. There were no accruing loans contractually past due 90 days or more as of March 31, 2013.

Non-covered OREO, which is carried at the lesser of estimated net realizable value or cost, totaled $4.44 million as of March 31, 2013, a decrease of $1.31 million, or 22.79%, compared with December 31, 2012. As of March 31, 2013, non-covered OREO consisted of 48 properties with an average holding period of 10 months. During the first quarter of 2013 the net loss on OREO totaled $400 thousand. Covered OREO is pursuant to the FDIC Loss Share Agreements and is presented net of the related fair value discount. The following table details activity within OREO for the periods indicated:

 

     Non-covered     Covered     Total  
(Amounts in thousands)                   

Beginning balance, January 1, 2013

   $ 5,749      $ 3,255      $ 9,004   

Acquired

     —          —          —     

Additions

     2,451        4,414        6,865   

Disposals

     (3,378     (534     (3,912

Valuation adjustments

     (383     (224     (607
  

 

 

   

 

 

   

 

 

 

Ending balance, March 31, 2013

   $ 4,439      $ 6,911      $ 11,350   
  

 

 

   

 

 

   

 

 

 

 

     Non-covered     Covered     Total  
(Amounts in thousands)                   

Beginning balance, January 1, 2012

   $ 5,914      $ —        $ 5,914   

Acquired

     —          —          —     

Additions

     1,027        —          1,027   

Disposals

     (2,550     —          (2,550

Valuation adjustments

     (562     —          (562
  

 

 

   

 

 

   

 

 

 

Ending balance, March 31, 2012

   $ 3,829      $    —         $   3,829   
  

 

 

   

 

 

   

 

 

 

Non-covered delinquent loans, comprised of loans 30 days or more past due and nonaccrual loans, totaled $42.26 million as of March 31, 2013, an increase of $3.26 million, or 8.36%, compared with December 31, 2012. Non-covered delinquent loans as a percentage of total non-covered loans measured 2.83% at March 31, 2013, of which loans 30 to 89 days past due comprised 0.82% and nonaccrual loans comprised 2.01%. Non-covered nonperforming loans, comprised of nonaccrual loans, nonperforming TDRs, and unseasoned TDRs, as a percentage of total non-covered loans were 2.12% at March 31, 2013, 1.97% at December 31, 2012, and 1.97% at March 31, 2012.

Deposits

Total deposits as of March 31, 2013, increased $17.32 million, or 0.85%, compared with December 31, 2012. Noninterest-bearing deposits and interest-bearing demand deposits as of March 31, 2013, increased $12.57 million and $24.12 million, respectively, compared with December 31, 2012. Savings deposits, which include money market accounts and savings accounts, as of March 31, 2013, increased $13.05 million compared with December 31, 2012. Time deposits as of March 31, 2013, decreased $32.41 million compared with December 31, 2012.

 

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Table of Contents

Borrowings

Our borrowings consist primarily of securities sold under agreements to repurchase and FHLB advances. Short-term borrowings consist of overnight federal funds purchased and repurchase agreements. There were no federal funds purchased at March 31, 2013, or December 31, 2012. The balance of retail repurchase agreements decreased $6.42 million, or 8.23%, as of March 31, 2013, compared with December 31, 2012. The balance of wholesale repurchase agreements decreased $8.20 million, or 14.08%, and the weighted average rate increased 37 basis points to 3.71% as of March 31, 2013, compared with December 31, 2012. The balance of FHLB borrowings, including convertible and callable advances and fixed rate credit, decreased $11.56 million, or 7.15%, and the weighted average rate increased 26 basis points to 4.12% as of March 31, 2013, compared with December 31, 2012. As of March 31, 2013, the FHLB borrowings had maturities between four and eight years. During the first quarter of 2013, the Company prepaid $8.15 million of wholesale repurchase agreements and $11.47 million of FHLB borrowings that resulted in gains totaling $296 thousand.

Stockholders’ Equity

Total stockholders’ equity increased 2.35 million, or 0.66%, from $356.32 million at December 31, 2012, to $358.67 million at March 31, 2013. The change in stockholders’ equity during the first quarter of 2013 was primarily due to net income of $7.14 million, dividends declared on common and preferred stock of $2.67 million, treasury share purchases of $1.08 million, and an increase in accumulated other comprehensive loss of $1.10 million.

Risk-Based Capital

Risk-based capital guidelines promulgated by state and federal banking agencies weight balance sheet assets and off-balance sheet commitments based on inherent risks associated with the respective asset types. As of March 31, 2013, the Bank was deemed “well capitalized” under regulatory capital adequacy standards. Our Company’s and the Bank’s capital ratios are presented in the following table for the dates indicated.

 

     March 31, 2013     December 31, 2012  

Total risk-based capital ratio

    

First Community Bancshares, Inc.

     17.65     16.70

First Community Bank

     16.06     15.23

Tier 1 risk-based capital ratio

    

First Community Bancshares, Inc.

     16.40     15.44

First Community Bank

     14.81     13.97

Tier 1 leverage ratio

    

First Community Bancshares, Inc.

     10.35     9.96

First Community Bank

     9.31     8.98

Liquidity and Capital Resources

We maintain a liquidity policy as a means to manage liquidity and the associated risk. The policy includes a Liquidity Contingency Plan (the “Liquidity Plan”) that is designed as a tool for us to detect liquidity issues promptly to protect depositors, creditors and shareholders. The Liquidity Plan includes monitoring various internal and external indicators such as changes in core deposits and changes in market conditions. It provides for timely responses to a wide variety of funding scenarios ranging from changes in loan demand to a decline in our quarterly earnings to a decline in the market price of our stock. The Liquidity Plan calls for specific responses designed to meet a wide range of liquidity needs based upon assessments on a recurring basis by our Company and Board of Directors.

As of March 31, 2013, we maintained liquidity in the form of unencumbered cash on hand and deposits with other financial institutions of $167.04 million, unpledged available-for-sale securities of $256.62 million, FHLB unused borrowing capacity of $331.57 million, and federal funds lines availability of $114.51 million. Cash on hand and deposits with other financial institutions, as well as the FHLB, are immediately available for satisfaction of deposit withdrawals, customer credit needs, and our operations. Available-for-sale securities represent a secondary level of liquidity available for conversion to liquid funds in the event of extraordinary needs. Our approved lines of credit with correspondent banks are available as backup liquidity sources.

 

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Table of Contents

As a holding company, we do not conduct significant operations and our primary sources of liquidity are dividends upstreamed from the Bank and borrowings from outside sources. Banking regulations limit the amount of dividends that may be paid by the Bank. As of March 31, 2013, our liquid assets, including cash and investment securities, totaled $23.27 million. Our cash reserves and investments, as well as management fee arrangements, provide adequate working capital to meet obligations and projected dividends to shareholders for the next twelve months. Additionally, we maintain a $15.00 million unsecured, committed line of credit. There was no balance on the line as of March 31, 2013.

Off-Balance Sheet Risk

As of March 31, 2013, our off-balance sheet risk included $198.04 million in commitments to extend credit and $5.89 million in standby letters of credit and financial guarantees. Our exposure to credit loss in the event of nonperformance by other parties to financial instruments is represented by the contractual amount of those instruments.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our profitability is dependent to a large extent upon net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Our Company, like other financial institutions, is subject to interest rate risk to the degree that interest-earning assets reprice differently than interest-bearing liabilities. We manage our mix of assets and liabilities with the goal of limiting exposure to interest rate risk, ensuring adequate liquidity, and coordinating sources and uses of funds while maintaining an acceptable level of net interest income given the current interest rate environment.

Our primary component of operational revenue, net interest income, is subject to variation as a result of changes in interest rate environments in conjunction with unbalanced repricing opportunities on earning assets and interest-bearing liabilities. Interest rate risk has four primary components: repricing risk, basis risk, yield curve risk and option risk. Repricing risk occurs when earning assets and paying liabilities reprice at differing times as interest rates change. Basis risk occurs when the underlying rates on the assets and liabilities the institution holds change at different levels or in varying degrees. Yield curve risk is the risk of adverse consequences as a result of unequal changes in the spread between two or more rates for different maturities for the same instrument. Lastly, option risk is due to embedded options, often put or call options, given or sold to holders of financial instruments.

To mitigate the effect of changes in the general level of interest rates, we manage repricing opportunities and thus, our interest rate sensitivity. We seek to control our interest rate risk exposure to insulate net interest income and net earnings from fluctuations in the general level of interest rates. To measure our exposure to interest rate risk, quarterly simulations of net interest income are performed using financial models that project net interest income through a range of possible interest rate environments including rising, declining, most likely and flat rate scenarios. We use a simulation model that captures all earning assets, interest-bearing liabilities, and off-balance sheet financial instruments and combines the various factors affecting rate sensitivity into an earnings outlook for a range of assumed interest rate scenarios. The results of these simulations indicate the existence and severity of interest rate risk in each of those rate environments based upon the current balance sheet position, assumptions as to changes in the volume and mix of interest-earning assets and interest-paying liabilities and our estimate of yields to be attained in those future rate environments and rates that will be paid on various deposit instruments and borrowings. These assumptions are inherently uncertain and, as a result, the model cannot precisely predict the impact of fluctuations in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude, and frequency of interest rate changes, as well as changes in market conditions and our strategies. However, the earnings simulation model is currently the best tool available to us and the industry for managing interest rate risk.

We have established policy limits for tolerance of interest rate risk in various interest rate scenarios. In addition, the policy addresses exposure limits to changes in the economic value of equity according to predefined policy guidelines. The most recent simulation indicates that current exposure to interest rate risk is within our defined policy limits.

 

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Table of Contents

The following table summarizes the impact of immediate and sustained rate shocks in the interest rate environment on net interest income. The model simulates plus 300 to minus 100 basis point changes from the base case rate simulation and illustrates the prospective effects of hypothetical interest rate changes over a twelve-month time period. This modeling technique, although useful, does not take into account all strategies that management might undertake in response to a sudden and sustained rate shock as depicted. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes, and other internal and external variables. As of March 31, 2013, the Federal Open Market Committee maintained a target range for federal funds of 0 to 25 basis points, rendering a complete downward shock of 200 basis points meaningless; accordingly, downward rate scenarios are limited to minus 100 basis points. In the downward rate shocks presented, benchmark interest rates are assumed at levels with floors near 0%.

 

     March 31, 2013      December 31, 2012  

(Amounts in thousands, except basis points)

Increase (Decrease) in

Interest Rates/Basis Points

   Change in
Net Interest
Income
     Percent
Change
     Change in
Net Interest
Income
    Percent
Change
 

300

   $ 9,330         11.3       $ 10,928        13.2   

200

     5,842         7.1         7,455        9.0   

100

     2,617         3.2         3,606        4.4   

(100)

     68         0.1         (35     —     

During the next twelve months we have more assets than liabilities projected to reprice. As a result, projected net interest income will increase if and when benchmark rates increase. If benchmark interest rates decrease further than current levels, projected net interest income will remain roughly level.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on our operations is reflected in increased operating costs. In management’s opinion, interest rates have a greater impact on our consolidated performance than do the effects of general levels of inflation. Interest rates do not necessarily fluctuate in the same direction or to the same extent as the price of goods and services.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with this report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 13a-15(b). Based upon that evaluation, the CEO and CFO concluded that, as of March 31, 2013, our disclosure controls and procedures were effective.

Disclosure controls and procedures are Company controls and other procedures that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

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Management, including the CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or management’s override of the controls.

Changes in Internal Control over Financial Reporting

We assess the adequacy of our internal control over financial reporting quarterly and enhance our controls in response to internal control assessments and internal and external audit and regulatory recommendations. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2013, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

We are currently a defendant in various legal actions and asserted claims in the normal course of business. Although our Company and legal counsel are unable to assess the ultimate outcome of each of these matters with certainty, they are of the belief that the resolution of these actions should not have a material adverse effect on our financial position, results of operations, or cash flows.

 

ITEM 1A. Risk Factors

Refer to our 2012 Form 10-K for disclosures with respect to our risk factors which could materially affect our business, financial condition, or future results. The risks described in the 2012 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also adversely affect our business, financial condition, or operating results. There have been no material changes from the risk factors previously disclosed in Part I, Item 1A, “Risk Factors,” of our 2012 Form 10-K.

 

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

(a) Not Applicable

 

(b) Not Applicable

 

(c) Issuer Purchases of Equity Securities

The following table provides information with respect to purchases made by or on behalf of our Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) of our Company’s Common Stock during the first quarter of 2013:

 

     Total Number
of Shares
Purchased
     Average
Price Paid
per Share
     Total Number of
Shares Purchased
as Part of a Publicly
Announced Plan
     Maximum Number
of Shares that May
Yet be Purchased
Under the Plan (1)
 

January 1-31, 2013

     1,015       $ 15.50         1,015         809,124   

February 1-28, 2013

     6,767         15.58         6,767         803,157   

March 1-31, 2013

     61,272         15.55         61,272         741,885   
  

 

 

    

 

 

    

 

 

    

Total

     69,054       $ 15.55         69,054      
  

 

 

    

 

 

    

 

 

    

 

(1) Our Company’s stock repurchase plan, as amended, authorizes the purchase and retention of up to 1,100,000 shares. The plan has no expiration date and currently is in effect. No determination has been made to terminate the plan or to cease making purchases. We held 358,115 shares in treasury as of March 31, 2013.

 

ITEM 3. Defaults Upon Senior Securities

Not Applicable

 

ITEM 4. Mine Safety Disclosures

Not Applicable

 

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Table of Contents
ITEM 5. Other Information

None

 

ITEM 6. Exhibits

 

  (a) Exhibits and index required

 

Exhibit

No.

 

Exhibit

    3(i)   Articles of Incorporation of First Community Bancshares, Inc., as amended (1)
    3(ii)   Amended and Restated Bylaws of First Community Bancshares, Inc. (2)
    4.1   Specimen stock certificate of First Community Bancshares, Inc. (3)
    4.2   Indenture Agreement dated September 25, 2003. (4)
    4.3   Declaration of Trust of FCBI Capital Trust dated September 25, 2003, as amended and restated. (5)
    4.4   Preferred Securities Guarantee Agreement dated September 25, 2003. (6)
    4.5   Certificate of Designation of 6.00% Series A Noncumulative Convertible Preferred Stock. (7)
  10.1**   First Community Bancshares, Inc. 1999 Stock Option Agreement (8) and Plan. (9)
  10.1.1**   First Community Bancshares, Inc. 1999 Stock Option Plan, Amendment One. (10)
  10.2**   First Community Bancshares, Inc. 2001 Nonqualified Director Stock Option Plan. (11)
  10.3**   Employment Agreement between First Community Bancshares, Inc. and John M. Mendez dated December 16, 2008, as amended and restated (21) and Waiver Agreement. (29)
  10.4**   First Community Bancshares, Inc. and Affiliates Executive Retention Plan (12), Amendment #1 (13), and Amendment #2 (33).
  10.5**   First Community Bancshares, Inc. Split Dollar Plan and Agreement. (14)
  10.6**   First Community Bancshares, Inc. Supplemental Directors Retirement Plan, as amended and restated. (15)
  10.7**   First Community Bancshares, Inc. Wrap Plan, as amended and restated. (16)
  10.8**   Employment Agreement between First Community Bank and Marshall E. McCall dated March 1, 2012. (31)
  10.9**   Form of Indemnification Agreement between First Community Bancshares, Inc., its Directors, and Certain Executive Officers. (17)
  10.10**   Form of Indemnification Agreement between First Community Bank, its Directors, and Certain Executive Officers. (17)
  10.12**   First Community Bancshares, Inc. 2004 Omnibus Stock Option Plan (18) and Stock Award Agreement. (19)
  10.13**   First Community Bancshares, Inc. 2012 Omnibus Equity Compensation Plan (32)
  10.14**   First Community Bancshares, Inc. Directors Deferred Compensation Plan, as amended and restated. (20)
  10.19**   Employment Agreement between First Community Bancshares, Inc. and David D. Brown dated December 16, 2008. (22)
  10.20**   Employment Agreement between First Community Bancshares, Inc. and Robert L. Buzzo dated December 16, 2008, as amended and restated. (23)
  10.21**   Employment Agreement between First Community Bancshares, Inc. and E. Stephen Lilly dated December 16, 2008, as amended and restated. (24)
  10.22**   Employment Agreement between First Community Bank and Gary R. Mills dated December 16, 2008. (25)
  10.23**   Employment Agreement between First Community Bank and Martyn A. Pell dated December 16, 2008. (26)
  10.24**   Employment Agreement between First Community Bank and Robert L. Schumacher dated December 16, 2008. (27)
  10.25**   Employment Agreement between First Community Bank and Simpson O. Brown dated July 31, 2009. (28)
  10.26**   Employment Agreement between First Community Bank and Mark R. Evans dated July 31, 2009. (28)
  11   Statement Regarding Computation of Earnings per Share. (30)
  31.1*   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
  31.2*   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
  32*   Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS***   XBRL Instance Document #
101.SCH***   XBRL Taxonomy Extension Schema Document #
101.CAL***   XBRL Taxonomy Extension Calculation Linkbase Document #
101.LAB***   XBRL Taxonomy Extension Label Linkbase Document #
101.PRE***   XBRL Taxonomy Extension Presentation Linkbase Document #
101.DEF***   XBRL Taxonomy Extension Definition Linkbase Document #

 

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In accordance with Rule 406T of SEC Regulation S-T, the XBRL related documents in Exhibit 101 to this Quarterly Report on Form 10-Q for the period ended March 31, 2013, are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these Sections.

 

* Incorporated herewith.
** Indicates a management contract or compensation plan.
*** Submitted electronically herewith.
# Attached as Exhibit 101 to the Quarterly Report on Form 10-Q for the period ended March 31, 2013, of First Community Bancshares, Inc. are the following documents formatted in XBRL (eXtensive Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2013, (Unaudited), and December 31, 2012; (ii) Condensed Consolidated Statements of Income (Unaudited) for the three months ended March 31, 2013 and 2012; (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2013 and 2012; (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the three months ended March 31, 2013 and 2012; (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2013 and 2012; and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).
(1) Incorporated by reference from Exhibit 3(i) of the Quarterly Report on Form 10-Q for the period ended June 30, 2010, filed on August 16, 2010.
(2) Incorporated by reference from Exhibit 3.1 of the Current Report on Form 8-K dated and filed on August 28, 2012.
(3) Incorporated by reference from Exhibit 4.1 of the Annual Report on Form 10-K for the period ended December 31, 2002, filed on March 25, 2003, amended on March 31, 2003.
(4) Incorporated by reference from Exhibit 4.2 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003.
(5) Incorporated by reference from Exhibit 4.3 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003.
(6) Incorporated by reference from Exhibit 4.4 of the Quarterly Report on Form 10-Q for the period ended September 30, 2003, filed on November 10, 2003.
(7) Incorporated by reference from Exhibit 4.1 of the Current Report on Form 8-K dated May 20, 2011, filed on May 23, 2011.
(8) Incorporated by reference from Exhibit 10.5 of the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002.
(9) Incorporated by reference from Exhibit 10.1 of the Annual Report on Form 10-K for the period ended December 31, 1999, filed on March 30, 2000, amended on April 13, 2000.
(10) Incorporated by reference from Exhibit 10.1.1 of the Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed on May 7, 2004.
(11) Incorporated by reference from Exhibit 10.4 of the Quarterly Report on Form 10-Q for the period ended June 30, 2002, filed on August 14, 2002.
(12) Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated December 30, 2008, filed on January 5, 2009.
(13) Incorporated by reference from Exhibit 10.3 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010.
(14) Incorporated by reference from Exhibit 10.5 of the Annual Report on Form 10-K for the period ended December 31, 1999, filed on March 30, 2000, amended on April 13, 2000.
(15) Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010.
(16) Incorporated by reference from Exhibit 99.1 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006.
(17) Form of indemnification agreement entered into by the Company and First Community Bank with their respective directors and certain officers of each including, for the Registrant and Bank: John M. Mendez, Robert L. Schumacher, Robert L. Buzzo, E. Stephen Lilly, David D. Brown, and Gary R. Mills. Incorporated by reference from the Annual Report on Form 10-K for the period ended December 31, 2003, filed on March 15, 2004, amended on May 19, 2004.
(18) Incorporated by reference from the 2004 First Community Bancshares, Inc. Definitive Proxy Statement filed on March 15, 2004.
(19) Incorporated by reference from Exhibit 10.13 of the Quarterly Report on Form 10-Q for the period ended June 30, 2004, filed on August 6, 2004.
(20) Incorporated by reference from Exhibit 99.2 of the Current Report on Form 8-K dated August 22, 2006, filed on August 23, 2006.
(21) Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated and filed on December 16, 2008.

 

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(22) Incorporated by reference from Exhibit 10.2 of the Current Report on Form 8-K dated and filed on December 16, 2008.
(23) Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated and filed on July 6, 2009.
(24) Incorporated by reference from Exhibit 10.2 of the Current Report on Form 8-K dated and filed on July 6, 2009.
(25) Incorporated by reference from Exhibit 10.3 of the Current Report on Form 8-K dated and filed on July 6, 2009.
(26) Incorporated by reference from Exhibit 10.4 of the Current Report on Form 8-K dated and filed on July 6, 2009.
(27) Incorporated by reference from Exhibit 10.5 of the Current Report on Form 8-K dated and filed on July 6, 2009.
(28) Incorporated by reference from Exhibit 2.1 of the Current Report on Form 8-K dated April 2, 2009, filed on April 3, 2009.
(29) Incorporated by reference from Exhibit 10.2 of the Current Report on Form 8-K dated December 16, 2010, filed on December 17, 2010.
(30) Incorporated by reference from Note 1 of the Notes to Condensed Consolidated Financial Statements included herein.
(31) Incorporated by reference from Exhibit 2.1 of the Current Report on Form 8-K dated and filed on March 1, 2012.
(32) Incorporated by reference from the 2012 First Community Bancshares, Inc. Definitive Proxy Statement filed on March 7, 2012.
(33) Incorporated by reference from Exhibit 10.1 of the Current Report on Form 8-K dated February 21, 2013, filed on February 25, 2013.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

First Community Bancshares, Inc.

DATE: May 10, 2013

 

/s/ John M. Mendez

John M. Mendez
President & Chief Executive Officer
(Principal Executive Officer)

 

/s/ David D. Brown

David D. Brown
Chief Financial Officer
(Principal Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
No.

  

Exhibit

  31.1    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
  31.2    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
  32    Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema Document
101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document

 

57