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First Community Corp. Reports Operating Results (10-Q)

November 15, 2010 | About:
10qk

10qk

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First Community Corp. (FCCO) filed Quarterly Report for the period ended 2010-09-30.

First Community Corp. has a market cap of $16.47 million; its shares were traded at around $5.39 with a P/E ratio of 9.71 and P/S ratio of 0.46. The dividend yield of First Community Corp. stocks is 3.17%.

Highlight of Business Operations:

· The second plan is the Securities Program, which is administered by the Treasury and involves the creation of public-private investment funds (PPIFs) to target investments in eligible residential mortgage-backed securities and commercial mortgage-backed securities issued before 2009 that originally were rated AAA or the equivalent by two or more nationally recognized statistical rating organizations, without regard to rating enhancements (collectively, Legacy Securities). Legacy Securities must be directly secured by actual mortgage loans, leases or other assets, and may be purchased only from financial institutions that meet TARP eligibility requirements. The U.S. Treasury received over 100 unique applications to participate in the Legacy Securities PPIP and in July 2009 selected nine PPIF managers. As of September 30, 2010, the PPIFs had completed their fundraising and have closed on approximately $7.4 billion of private sector equity capital, which was matched 100 percent by Treasury, representing $14.7 billion of total equity capital. The U.S. Treasury has also provided $14.7 billion of debt capital, representing $29.4 billion of total purchasing power. As of September 30, 2010, PPIFs have drawn-down approximately $18.6 billion of total capital which has been invested in eligible assets and cash equivalents pending investment.

Our net income available to common shareholders for the nine months ended September 30, 2010 was $960,000 or $.29 diluted earnings per common share, as compared to a net loss for common shareholders of $(26.6) million, or $(8.17) diluted loss per common share, for the nine months ended September 30, 2009. During the third quarter of 2009, we recognized a non-cash goodwill impairment charge of $27.8 million, or $8.51 per diluted share, that represented the complete write-off of our goodwill intangible asset. Goodwill arises from business acquisitions and represents the value attributable to unidentifiable intangible elements in the business acquired. We annually conducted a test to assess fair value in the current economic environment, as compared to the value determined at the time of acquisition. The third quarter 2009 analysis and valuation process resulted in our determination that goodwill was impaired. This determination was reflective of the impact of the then current and ongoing economic environment and its affect on the banking industry and our Company. The calculation of fair value as part of the goodwill impairment test was subject to significant management judgment and estimates. Industry-wide, market capitalization and acquisition multiples had significantly declined since 2004 and 2006, which are the dates of our acquisitions of Dutchfork Bankshares and DeKalb Bancshares, respectively. Our Company had experienced the same trend, with a decline in its market price per share and an extended period of time trading at a discount to book value and tangible book value. The non-cash charge is the accounting recognition of those events. Given the non-cash nature of a goodwill charge, this non-interest expense item had no adverse impact upon our regulatory capital, liquidity position, operating performance or our prospects for future earnings. There was no tax benefit recognized in 2009 as a result of this goodwill impairment charge.

Excluding the impairment charge, operating net income available to shareholders for the nine months and three months ended September 30, 2009 was $1.2 million ($0.36 per diluted share) and $511,000 ($0.16 per diluted share), respectively. This compares to the previously mentioned net income available to common shareholders for the nine months and three months ended September 30, 2010 of $960,000 ($0.29 diluted earnings per common share) and $394,000 ($0.07 diluted earnings per common share). The following table reconciles net income as reported under generally accepted accounting principles (GAAP) to the previously referred to operating net income available to shareholders (non-GAAP measure) for the nine month and three month period ended September 30, 2009:

As previously stated, management uses these non-GAAP financial measures because it believes it is useful for evaluating our operations and performance over a period of time. During 2010, there were no adjustments between operating net income available to common shareholders and GAAP net income available to common shareholders. The decrease of $209,000 in operating net income, during the nine months of 2010 as compared to the same period of 2009, was primarily a result of lower amounts reflected in non-interest income and increases in certain non-interest expense amounts both of which are discussed in more detail below. These negative factors were partially offset by a 24 basis point improvement in our taxable equivalent net interest margin from 3.07% in 2009 to 3.31% in 2010. In addition, we had a decrease in our provision for loan losses of $692,000 from $2.1 million in the first nine months of 2009 as compared to $1.4 million in the same period of 2010. Average earning assets were $555.4 million for the nine month period ended September 30, 2010 as compared to $575.3 million for the nine months ended September 30, 2009. The decrease in average earning assets was a result of prepaying approximately $27.0 million in Federal Home Loan Bank advances late in the fourth quarter of 2009 as well as repaying $3.3 million in maturing advances in the first quarter of 2010. Despite the decrease in earning assets, we realized an increase in net interest income of $542,000 in the first nine months of 2010 as compared to the first nine months of 2009 as a result of the 24 basis point increase in our net interest margin.

Net interest income was $13.7 million for the nine months ended September 30, 2010 as compared to $13.1 million for the nine months ended September 30, 2009. This increase was due to the increase in our net interest margin. Net interest margin on a taxable equivalent basis increased 24 basis points, from 3.07% at September 30, 2009 to 3.31% at September 30, 2010. Yield on earning assets decreased by 39 basis points in the first nine months of 2010 as compared to the same period in 2009. The yield on earning assets for the nine months ended September 30, 2010 and 2009 was 5.02% and 5.41%, respectively. The cost of interest-bearing liabilities during the first nine months of 2010 was 1.98% as compared to 2.66% in the same period of 2009, resulting in a 68 basis points decrease. As a result of the ongoing recessionary economic conditions during 2008, throughout 2009 and thus far in 2010, interest rates continue to remain at historically low levels. There were three primary contributors to the improvement in the net interest margin. First, the repricing of time deposits have resulted in the cost of those funds decreasing by 104 basis points during the first nine months of 2010 as compared to the same period in 2009. Second, during the fourth quarter of 2009, we prepaid $27.0 million in Federal Home Loan Bank advances which contributed to an 8 basis point decrease in cost of other borrowed funds in the first nine months of 2010 as compared to the same period in 2009. Third, the percentage of non-interest bearing deposits supporting our total funding sources increased from 11.7% in the first nine months of 2009 to 13.7% in the same period of 2010.

The effects of the slowing economy have resulted in some deterioration of our loan portfolio in general as evidenced by the increase in non-performing assets from $8.3 million (1.37% of total assets) at December 31, 2009 to $13.4 million (2.19% of total assets) at September 30, 2010. While we believe these ratios are favorable in comparison to current industry results, we continue to be concerned about the impact of this economic environment on our customer base of local businesses and professionals. There are 38 loans included in non-performing status (non-accrual loans and loans past due 90 days and still accruing) totaling $6.0 million. The two largest are in the amounts of $1.4 million and $851,000. The first relationship in the amount of $1.4 million is a mortgage on a developed parking complex near the University of South Carolina athletic complex, whereby 76 individual parking spaces are to be sold to individuals. It is not anticipated that we will incur a material loss if we are required to foreclose on the property in the future. The second relationship in the amount of $851,000 is secured by a first lien on a single family residential lot located on the coast of North Carolina. The average balance of the remaining 36 loans is approximately $105,000, and the majority of these loans are secured by first mortgage liens. At the time the loans are placed in non-accrual status we typically obtain an updated evaluation and generally write the balance down to the fair value if the loan balance exceeds fair value. At September 30, 2010, we had two loans totaling $340,000 (0.10% of total loans) that were delinquent more than 90 days and still accruing interest, and 61 loans totaling $2.0 million (0.59% of total loans) that were delinquent 30 days to 89 days.

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