FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements
At December 31, 2007 and 2006 and For Each of the Three Years
in the Period Ended December 31, 2007
|
(1)
|
Description of Business and Summary of Significant Accounting Policies
|
Organization.
First Community Bank Corporation of America (the “Holding Company”) owns all of the outstanding
common stock of First Community Bank of America (the “Bank”) and First Community Lender Services, Inc. (“FCLS”) (collectively, the “Company”). The Holding Company’s primary business activity is the operations of
the Bank. The Bank is a federally-chartered stock savings bank that provides a variety of banking services to small and middle market businesses and individuals through its three banking offices located in Pinellas County, two banking offices
located in Hillsborough County, one banking office in Pasco County and three banking offices located in Charlotte County, Florida. FCLS provides tax deferred 1031 exchange services for eligible transactions. The following is a description of the
significant accounting policies which the Company follows in preparing and presenting its consolidated financial statements.
Principles of Consolidation.
The consolidated financial statements include the accounts of the Holding Company, the Bank and FCLS. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates.
In preparing consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. The material estimate that is particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses.
Cash and Cash Equivalents.
For purposes of the consolidated statements of cash flows, cash and cash
equivalents include cash and balances due from banks and interest-bearing deposits with banks.
Banks are required to maintain cash reserves
in the form of vault cash or in a noninterest-earning account with the Federal Reserve Bank or in noninterest-earning accounts with other qualified banks based on the balances of their transaction deposit accounts. The Bank’s reserve
requirements at December 31, 2007 and 2006 was approximately $200,000 and $702,000, respectively.
(continued)
F-9
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(1)
|
Description of Business and Summary of Significant Accounting Policies, Continued
|
Securities.
The Company may classify its securities as either trading,
held to maturity or available for sale. Trading securities are held principally for resale and recorded at their fair values. Unrealized gains and losses on trading securities are included immediately in earnings. Held-to-maturity securities are
those which the Company has the positive intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities consist of securities not classified as trading securities nor as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale securities are excluded from earnings and reported in accumulated other comprehensive income. Gains and losses on the sale of available-for-sale securities are reported on the
trade date and are determined using the specific-identification method. Premiums and discounts on securities available for sale and held to maturity are recognized in interest income using the interest method over the period to maturity.
Derivatives.
The Company for the convenience of its customers enters into fixed rate loan commitments for loans which
will be sold to a secondary market investor. Simultaneously with the commitment the Company enters into a forward sales agreement with a secondary market investor. Any holding gains or losses associated with the loan commitments are offset by the
holding gains or losses on the forward sales agreement.
Loans.
Loans that management has the intent and
ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan origination fees are deferred and certain direct origination costs are capitalized. Both are
recognized as an adjustment of the yield of the related loan.
The accrual of interest on loans is discontinued at the time the loan is
ninety days delinquent unless the loan is well collateralized and in process of collection. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged-off is reversed against interest income. The interest on these
loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are
reasonably assured.
(continued)
F-10
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(1)
|
Description of Business and Summary of Significant Accounting Policies, Continued
|
Loans Held for Sale.
Loans originated that are intended to be sold in
the secondary market are carried at the lower of cost or estimated fair value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to earnings. The Company had approximately $428,000 and $461,000 of loans
held for sale at December 31, 2007 and 2006, respectively, which are included in loans on the accompanying consolidated balance sheets and the fair value of these loans exceeded book value in the aggregate.
Loan origination fees are deferred and direct loan origination costs are capitalized until the related loan is sold, at which time the net fees are
included in the gain on the sale of loans in the consolidated statements of earnings.
Allowance for Loan
Losses.
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the
uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.
The allowance for loan
losses is divided into two groups: (1) impaired loans, (2) all other loans. For impaired loans, the Company has determined an allowance amount to set aside which it believes is sufficient to cover any losses. Impaired loans are identified
by the Loan Officer, Loan Review, Loan Committee or by the Examiners. All other loans are multiplied by an historical loss factor adjusted for economic factors, concentration of credit and portfolio composition changes.
A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled
payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in
relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial, commercial real estate and land, development and construction loans by either the present value of expected future cash flows discounted at
the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual installment and residential loans for impairment
disclosures.
(continued)
F-11
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(1)
|
Description of Business and Summary of Significant Accounting Policies, Continued
|
Foreclosed Real Estate.
Real estate acquired through, or in lieu of,
foreclosure, is initially recorded at the lower of fair value or the loan balance plus acquisition costs at the date of foreclosure. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower
of carrying amount or fair value, less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in earnings.
Premises and Equipment.
Land is stated at cost. Buildings, furniture, fixtures, equipment and leasehold improvements are carried at cost, less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method over the estimated useful life of each type of asset or lease term, if shorter.
Off-Balance-Sheet Financial Instruments.
In the ordinary course of business, the Company has entered into off-balance-sheet financial instruments consisting of commitments to extend credit, unused lines
of credit and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they are funded.
Transfer of Financial Assets.
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when
(1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does
not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Income Taxes.
Deferred income tax assets and liabilities are recorded to reflect the tax consequences on future years of temporary differences between revenues and expenses reported for financial statement and those reported
for income tax purposes. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be realized or settled. Valuation allowances
are provided against assets which are not likely to be realized.
(continued)
F-12
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(1)
|
Description of Business and Summary of Significant Accounting Policies, Continued
|
Stock Compensation Plans.
Prior to January 1, 2006, the
Company’s employees and directors stock option plans were accounted for under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25 (Opinion 25),
Accounting for Stock Issued to Employees
, and
related Interpretations, as permitted by Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation
(as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and
Disclosure
) (collectively SFAS 123). No stock-based employee compensation cost was recognized in the Company’s consolidated statements of operations through December 31, 2005, as all options granted under the plans had an exercise
price equal to the market value of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of Financial Accounting Standards Board (“FASB”) Statement
No. 123(R),
Share-Based Payment
(SFAS 123(R))
,
using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments
granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to
December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).
In addition, prior
to the adoption of SFAS 123(R), the tax benefits of stock options exercised were classified as operating cash flows. Since the adoption of SFAS 123(R), tax benefits resulting from tax deductions in excess of the compensation cost recognized for
options are classified as financing cash flows.
(continued)
F-13
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(1)
|
Description of Business and Summary of Significant Accounting Policies, Continued
|
Fair Values of Financial Instruments.
The fair value of a financial
instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for
the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments
are excluded from fair value disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. The following methods and assumptions were used by the Company in
estimating fair values of financial instruments:
Cash and Cash Equivalents.
The carrying amounts of cash and cash equivalents
approximate their fair value.
Other Interest-Bearing Deposits with Banks.
The carrying value of other interest-bearing
deposits with bank approximates their fair value.
Securities.
Fair values for securities available for sale and held to
maturity are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments.
Loans.
For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying
values. Fair values for certain fixed-rate mortgage (e.g. one-to-four family residential), commercial real estate and commercial loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Federal Home Loan Bank Stock.
The carrying amount of the Federal Home
Loan Bank stock approximates its fair value.
Accrued Interest Receivable.
The carrying amount of accrued interest receivable
approximates its fair value.
Deposits.
The fair values disclosed for demand deposits, savings, money-market and NOW accounts
are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected monthly maturities of time deposits.
(continued)
F-14
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(1)
|
Description of Business and Summary of Significant Accounting Policies, Continued
|
Fair Values of Financial Instruments, Continued.
Federal Funds Purchased.
The carrying amount of federal funds purchased approximates fair value.
Borrowed Funds.
The carrying amounts of other borrowings approximate their fair values. Fair values of advances from the Federal Home
Loan Bank are estimated using discounted cash flow analysis based on the Company’s current incremental borrowing rates for similar types of borrowings.
Off-Balance-Sheet Instruments.
Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the
agreements and the counterparties’ credit standing.
Comprehensive Income.
Accounting principles
generally require that recognized revenue, expenses, gains and losses be included in net earnings. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate
component of the equity section of the consolidated balance sheet, such items along with net earnings, are components of comprehensive income.
Earnings Per Share.
Basic earnings per share is computed on the basis of the weighted-average number of common shares outstanding. Diluted earnings per share is computed based on the weighted-average
number of shares outstanding plus the effect of outstanding stock options and warrants, computed using the treasury stock method. All per share information has been restated to reflect the 5% stock dividend paid in March, 2005, the three-for-two
stock split declared in December, 2005 and the 5% stock dividend declared in January, 2007 and paid in February, 2007.
Recent Accounting Pronouncements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value under generally
accepted accounting principles and enhances disclosures about fair value measurements. SFAS 157 retains the exchange price notion and clarifies that the exchange price is the price that would be received for an asset or paid to transfer a liability
(an exit price) in an orderly transaction between market participants on the measurement date. SFAS 157 is effective for the Company’s financial statements for the year beginning on January 1, 2008, with earlier adoption
permitted. The adoption of SFAS 157 is not expected to have a material impact on the Company.
In February 2007, the FASB issued SFAS
No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS 159”). SFAS 159 provides the Company with an option to report selected financial assets and liabilities at fair value. This statement is
effective as of the beginning of a Company’s first fiscal year beginning after November 15, 2007. Management has evaluated the impact of SFAS 159 and it did not have a material effect on the Company’s consolidated financial condition
or results of operations.
(continued)
F-15
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(1)
|
Description of Business and Summary of Significant Accounting Policies, Continued
|
Recent Accounting Pronouncements, Continued.
In September 2006, the
Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108 (SAB 108). SAB 108 expresses the SEC Staff’s views regarding the process of quantifying financial statement misstatements. SAB 108 states that in evaluating
the materiality of financial statement misstatements a corporation must quantify the impact of correcting misstatements, including both the carryover and reversing effects of prior year misstatements, on the current year financial statements. SAB
108 was effective for the fiscal years ended after November 15, 2006. The adoption of SAB 108 had no effect on the Company’s results of operations or financial condition.
In July 2006, the FASB released FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109
(FIN 48). FIN 48 clarifies the accounting and reporting for income taxes where interpretation of the tax law may be uncertain. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of income tax uncertainties with respect to positions taken or expected to be taken in income tax returns. The Company adopted FIN 48 on January 1, 2007. The adoption of FIN 48 had no effect on the Company.
In March 2006, the FASB issued SFAS No. 156,
Accounting for Servicing of Financial Assets, an amendment of FASB Statement
No. 133 and 140
(SFAS 156), which permits, but does not require, an entity to account for one or more classes of servicing rights (i.e., mortgage servicing rights) at fair value, with the changes in fair value recorded in the consolidated
statement of earnings. This Statement was effective as of January 1, 2007. The adoption of SFAS 156 had no effect on the Company.
In December 2007, the FASB issued SFAS No. 141(R),
Business Combinations
(“SFAS 141(R)”). SFAS 141(R) is effective for fiscal years beginning after December 15, 2008 and early implementation is not permitted. SFAS
141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction; establishes the acquisition date fair value as the measurement objective for all assets
acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information they need to evaluate and understand the nature and financial effect of the business combination. Acquisition related costs
including finder’s fees, advisory, legal, accounting valuation and other professional and consulting fees are required to be expensed as incurred. Management is in the process of evaluating the impact of SFAS 141(R) and does not anticipate it
will have a material impact on the Company’s financial condition or results of operations.
Reclassifications.
Certain amounts in the 2006 consolidated financial statements have been reclassified to conform to the 2007 presentation.
(continued)
F-16
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Securities have been
classified according to management’s intent. The carrying amounts of securities and their fair value were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Available for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
|
$
|
4,197
|
|
76
|
|
—
|
|
|
4,273
|
|
Mortgage-backed securities
|
|
|
2,539
|
|
36
|
|
(1
|
)
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,736
|
|
112
|
|
(1
|
)
|
|
6,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
499
|
|
—
|
|
(1
|
)
|
|
498
|
|
U.S. government agency securities
|
|
|
2,992
|
|
1
|
|
—
|
|
|
2,993
|
|
Mortgage-backed securities
|
|
|
704
|
|
—
|
|
(7
|
)
|
|
697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,195
|
|
1
|
|
(8
|
)
|
|
4,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to Maturity:
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
|
|
2,156
|
|
11
|
|
—
|
|
|
2,167
|
|
Mortgage-backed securities
|
|
|
1,156
|
|
—
|
|
(6
|
)
|
|
1,150
|
|
Municipal securities
|
|
|
7,018
|
|
—
|
|
(157
|
)
|
|
6,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,330
|
|
11
|
|
(163
|
)
|
|
10,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
|
|
2,646
|
|
—
|
|
(6
|
)
|
|
2,640
|
|
Mortgage-backed securities
|
|
|
1,487
|
|
—
|
|
(35
|
)
|
|
1,452
|
|
Municipal securities
|
|
|
7,018
|
|
—
|
|
(71
|
)
|
|
6,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,151
|
|
—
|
|
(112
|
)
|
|
11,039
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
F-17
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(2)
|
Securities, Continued
|
The scheduled maturities of securities at December 31, 2007 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
Held to Maturity
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Less than one year
|
|
$
|
500
|
|
500
|
|
1,159
|
|
1,161
|
|
One to five years
|
|
|
1,196
|
|
1,216
|
|
497
|
|
500
|
|
Five to ten years
|
|
|
2,500
|
|
2,557
|
|
1,249
|
|
1,211
|
|
After ten years
|
|
|
—
|
|
—
|
|
6,269
|
|
6,156
|
|
Mortgage-backed securities
|
|
|
2,539
|
|
2,574
|
|
1,156
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,735
|
|
6,847
|
|
10,330
|
|
10,178
|
|
|
|
|
|
|
|
|
|
|
|
There were no sales of securities in 2007, 2006 or 2005.
Securities with gross unrealized losses at December 31, 2007, aggregated by investment category and length of time that individual
securities have been in a continuous loss position, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months
|
|
Over Twelve Months
|
|
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities
|
|
$
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Mortgage-backed securities
|
|
|
—
|
|
—
|
|
(1
|
)
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
—
|
|
—
|
|
(1
|
)
|
|
319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government agency securities
|
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
Mortgage-backed securities
|
|
|
—
|
|
—
|
|
(7
|
)
|
|
1,150
|
|
Municipal securities
|
|
|
—
|
|
—
|
|
(156
|
)
|
|
6,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities held to maturity
|
|
$
|
—
|
|
—
|
|
(163
|
)
|
|
8,011
|
|
|
|
|
|
|
|
|
|
|
|
|
Management evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
(continued)
F-18
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(2)
|
Securities, Continued
|
The unrealized losses on twenty-four investment securities were caused by interest
rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the
Company has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.
As of December 31, 2007 and 2006, securities with a carrying value of $13,574,000 and $9,603,000, respectively, were pledged for
repurchase agreements with customers and for various purposes required or permitted by law.
The components of loans are
summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Residential mortgage loans
|
|
$
|
113,887
|
|
|
101,800
|
|
|
Commercial real estate loans
|
|
|
123,206
|
|
|
105,557
|
|
|
Land loans
|
|
|
23,344
|
|
|
25,660
|
|
|
Developed lot loans
|
|
|
23,495
|
|
|
22,053
|
|
|
Construction loans
|
|
|
24,798
|
|
|
22,214
|
|
|
Commercial loans
|
|
|
22,343
|
|
|
21,572
|
|
|
Installment loans
|
|
|
56,496
|
|
|
51,784
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
387,569
|
|
|
350,640
|
|
|
Deduct:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,479
|
)
|
|
(3,499
|
)
|
|
Net deferred loan fees
|
|
|
(539
|
)
|
|
(353
|
)
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
382,551
|
|
|
346,788
|
|
|
|
|
|
|
|
|
|
|
An analysis of the change in the allowance for loan losses follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Balance at beginning of year
|
|
$
|
3,499
|
|
|
3,416
|
|
|
2,640
|
|
|
Provision for loan losses
|
|
|
1,165
|
|
|
230
|
|
|
795
|
|
|
(Charge-offs) net of recoveries
|
|
|
(185
|
)
|
|
(147
|
)
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
4,479
|
|
|
3,499
|
|
|
3,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
F-19
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following summarizes the amount of collateral dependent impaired loans (in
thousands):
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2007
|
|
|
Gross loans with no related allowance for loan losses
|
|
$
|
4,357
|
|
|
Gross loans with related allowance for loan losses
|
|
|
2,106
|
|
|
Total related allowance for loan losses
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
Net investment in impaired loans
|
|
$
|
6,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
December 31, 2007
|
|
|
Average net investment in impaired loans
|
|
$
|
2,855
|
|
|
|
|
|
|
|
|
Interest income recognized on impaired loans
|
|
$
|
210
|
|
|
|
|
|
|
|
|
Interest income received on impaired loans
|
|
$
|
210
|
|
|
|
|
|
|
|
There were no impaired loans at December 31, 2006.
Nonaccrual and past due loans were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
2006
|
|
Nonaccrual loans
|
|
$
|
2,364
|
|
150
|
|
Past due ninety days or more, still accruing
|
|
|
—
|
|
—
|
|
|
|
|
|
|
|
|
|
|
$
|
2,364
|
|
150
|
|
|
|
|
|
|
|
Credit Risk and Credit Losses.
A credit risk concentration results
when the Bank has a significant credit exposure to an individual or a group engaged in similar activities or having similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes
in economic or other conditions.
Most of the Company’s lending activity is with borrowers located within Charlotte,
Pinellas, Pasco and Hillsborough Counties, Florida. Therefore, the Company’s exposure to credit risk is significantly affected by changes in the economy and real estate markets in those counties.
(continued)
F-20
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
At December 31, 2007, the construction loans included $12.5 million to
individuals. The remaining construction loans included $8.3 million in commercial properties and $4.0 million in residential builder lines. The Bank believes that it has no significant exposure to any individual builder.
A majority of the Bank’s loan activity is with customers located in our four markets, St. Petersburg/Clearwater, Tampa, Dade City
and Port Charlotte/Punta Gorda. The customer base is comprised of individuals, professionals and small to middle market sized companies. Loans are underwritten primarily on the borrower’s ability to repay the loan through personal cash flow,
cash flow generated from the business, income producing real estate or the specific sale of an asset. Collateral and the amount to be obtained are determined through an analysis of the specific transaction and the source of repayment and related
risk assessment. Collateral types are accounts receivable, inventory, equipment, commercial and residential real estate. The real estate utilized in commercial transactions is predominantly owner occupied industrial or income producing properties
such as apartments, office, warehouse and some retail. The Bank’s exposure in commercial real estate is over 65% owner occupied and the source of repayment is cash flow from the Company’s operations. The remaining 35% of commercial real
estate is income producing properties dependent on tenants. The Bank’s residential mortgage loans are comprised of 1-4 family homes and condominiums, 84% of which are primary residences and 16% are for investment.
The Bank has no major concentration in acquisition and development or builder lines. The Bank currently has two acquisition and
development loans with 35 lots totaling $1.7million, two primary builder relationships totaling $3.2 million. The builders are located in the St. Petersburg/Clearwater area and the inventory is six speculative lots and fourteen model homes/townhouse
units and the source of repayment is sale of the asset. The Banks raw land (commercial and residential) and developed commercial land loans totals $23.3 million to eighty-seven borrowers a majority of which was underwritten based on the cash flow of
the borrower or guarantors to support the loan. The Bank has $23.5 million in developed residential lots to 139 borrowers mostly underwritten with the borrower’s personal cash flow as the primary source of repayment. Within this number are
several small builders who maintain minimal lot inventory. The bank has minimal exposure in speculative single family homes as most loans are underwritten based on the borrowers ability to cash flow the loan in the event it must be termed out on a
permanent basis.
The Bank also has over $15 million in manufactured housing loans in numerous parks through out the four
market areas. These loans would be in rental parks, cooperative owned parks and subdivision parks. The Bank perfects its interest in the title and the cooperative share or real estate if applicable.
(continued)
F-21
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(4)
|
Premises and Equipment, Net
|
Premises and equipment are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Land
|
|
$
|
5,323
|
|
|
2,289
|
|
|
Buildings
|
|
|
4,875
|
|
|
3,634
|
|
|
Furniture, fixtures and equipment
|
|
|
2,764
|
|
|
2,313
|
|
|
Leasehold improvements
|
|
|
546
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
Total, at cost
|
|
|
13,508
|
|
|
8,585
|
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(2,022
|
)
|
|
(1,491
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,486
|
|
|
7,094
|
|
|
|
|
|
|
|
|
|
|
The Company leases four branch offices, an operations center and a loan
production office. The leases have initial terms ranging from two to ten years. Three of the leases contain escalation clauses and renewal options.
The Bank sold its office properties in St. Petersburg and Pinellas Park, Florida on May 17, 2006, and simultaneously leased both properties with favorable long-term leases. An immediate gain of approximately
$225,000 was recognized on one of the properties because of the excess gain over the present value of the lease payments. The remaining gain of approximately $2.6 million was deferred and is being amortized using the straight-line method over the
ten year lease term. The lease expense is being straight-lined over the ten year lease life due to yearly 2% annual increases.
(continued)
F-22
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(4)
|
Premises and Equipment, Net, Continued
|
Rent expense under the operating leases, net of related deferred gain amortization,
was approximately $412,000, $278,000 and $128,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Future minimum rental commitments at December 31, 2007 under these operating leases are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
2008
|
|
$
|
625
|
|
2009
|
|
|
586
|
|
2010
|
|
|
502
|
|
2011
|
|
|
474
|
|
2012
|
|
|
440
|
|
Thereafter
|
|
|
1,531
|
|
|
|
|
|
|
Total
|
|
$
|
4,158
|
|
|
|
|
|
During 2007, the Company opened two new banking offices in Charlotte County,
Florida. The Veterans Boulevard office is a two-story, 7,400 square foot building and the Punta Gorda office is a renovated 1,509 square foot former commercial building. There is no more than $30,000 in remaining payments on the completion of the
Punta Gorda office.
The aggregate amount of
time deposits of $100,000 or more was $74.2 million and $93.2 million at December 31, 2007 and 2006, respectively.
At December 31, 2007, scheduled maturities of time deposits are as follows (in thousands):
|
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
2008
|
|
$
|
161,329
|
|
2009
|
|
|
18,121
|
|
2010
|
|
|
5,233
|
|
2011
|
|
|
244
|
|
2012
|
|
|
2,301
|
|
|
|
|
|
|
Total
|
|
$
|
187,228
|
|
|
|
|
|
(continued)
F-23
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(6)
|
Federal Home Loan Bank Advances
|
A summary of the Company’s Federal Home Loan Bank of Atlanta (“FHLB”) advances by maturity follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate
|
|
|
At December 31,
|
|
Maturing in Year Ending December 31,
|
|
|
2007
|
|
2006
|
|
2007
|
|
5.50
|
|
|
$
|
—
|
|
17,500
|
|
2007
|
|
5.36
|
|
|
|
—
|
|
7,000
|
|
2007
|
|
3.34
|
|
|
|
—
|
|
2,000
|
|
2008
|
|
4.64
|
|
|
|
8,000
|
|
—
|
|
2008
|
|
4.45
|
|
|
|
3,000
|
|
3,000
|
|
2008
|
|
4.14
|
|
|
|
2,000
|
|
2,000
|
|
2009
|
|
3.71
|
|
|
|
1,000
|
|
1,000
|
|
2010
|
|
3.75
|
(1)
|
|
|
5,000
|
|
—
|
|
2011
|
|
5.40
|
|
|
|
5,000
|
|
5,000
|
|
2012
|
|
4.06
|
(2)
|
|
|
5,000
|
|
—
|
|
2016
|
|
4.62
|
(3)
|
|
|
5,000
|
|
5,000
|
|
2017
|
|
2.92
|
(4)
|
|
|
6,000
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,000
|
|
42,500
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
FHLB has a call option in December 2009
|
|
|
(2)
|
FHLB has a call option in September 2008
|
|
|
(3)
|
FHLB has a call option in October 2009
|
|
|
(4)
|
FHLB has a call option in December 2008
|
The Company has entered into a collateral agreement with the FHLB. These advances are collateralized by all of the Company’s FHLB
stock and a blanket floating lien on all qualified 1-4 family mortgage loans.
(continued)
F-24
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company
enters into repurchase agreements with customers. These agreements require the Company to pledge securities as collateral for borrowings under these agreements. At December 31, 2007 and 2006, the outstanding balance of such borrowings totaled
$9,613,000 and $6,289,000, respectively and the Company pledged securities with a carrying value of $13,574,000 and $9,105,000, respectively as collateral for these agreements.
Income taxes consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
1,844
|
|
|
1,963
|
|
|
1,958
|
|
|
State
|
|
|
329
|
|
|
341
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
2,173
|
|
|
2,304
|
|
|
2,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(530
|
)
|
|
(173
|
)
|
|
(531
|
)
|
|
State
|
|
|
(91
|
)
|
|
(29
|
)
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred benefit
|
|
|
(621
|
)
|
|
(202
|
)
|
|
(622
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$
|
1,552
|
|
|
2,102
|
|
|
1,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
F-25
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(8)
|
Income Taxes, Continued
|
The reasons for the differences between the statutory Federal income tax rate and
the effective tax rate are summarized as follows ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Amount
|
|
|
% of
Earnings
|
|
|
Amount
|
|
|
% of
Earnings
|
|
|
Amount
|
|
|
% of
Earnings
|
|
|
Income taxes at statutory rate
|
|
$
|
1,502
|
|
|
34.0
|
%
|
|
$
|
1,956
|
|
|
34.0
|
%
|
|
$
|
1,542
|
|
|
34.0
|
%
|
|
Increase (decrease) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of Federal benefit
|
|
|
157
|
|
|
3.6
|
|
|
|
206
|
|
|
3.6
|
|
|
|
162
|
|
|
3.6
|
|
|
Tax exempt interest
|
|
|
(96
|
)
|
|
(2.2
|
)
|
|
|
(38
|
)
|
|
(.7
|
)
|
|
|
—
|
|
|
—
|
|
|
Other
|
|
|
(11
|
)
|
|
(.3
|
)
|
|
|
(22
|
)
|
|
(.4
|
)
|
|
|
(32
|
)
|
|
(.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,552
|
|
|
35.1
|
%
|
|
$
|
2,102
|
|
|
36.5
|
%
|
|
$
|
1,672
|
|
|
36.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are presented below (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
1,598
|
|
|
1,231
|
|
|
Deferred loan fees
|
|
|
407
|
|
|
376
|
|
|
Deferred compensation
|
|
|
421
|
|
|
339
|
|
|
Premises and equipment
|
|
|
16
|
|
|
—
|
|
|
Other
|
|
|
59
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
2,501
|
|
|
1,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred loan costs
|
|
|
(207
|
)
|
|
(244
|
)
|
|
Premises and equipment
|
|
|
—
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(207
|
)
|
|
(283
|
)
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
2,294
|
|
|
1,673
|
|
The Company
sponsors a 401(k) profit sharing plan which is available to all employees electing to participate after meeting certain length-of-service requirements. The Company contributed $162,000, $118,000 and $88,000 to the plan during the years ended
December 31, 2007, 2006 and 2005, respectively.
(continued)
F-26
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(10)
|
Salary Continuation Agreement
|
During the year ended December 31, 2005, the Company entered into a Salary Continuation Agreement (the “Agreement”) with the President and Chief Executive Officer of the Company which requires the Company to provide salary
continuation benefits to him upon retirement. The Agreement requires the Company to pay monthly benefits following normal retirement age. The Agreement also provides for salary continuation in the event of a change in control of the Company and for
early voluntary termination. The Company is accruing the present value of the future benefits over the term of the Agreement. The Company expensed $152,000, $148,000 and $83,000 under the Agreement in 2007, 2006 and 2005, respectively.
|
(11)
|
Stockholders’ Equity
|
In
February, 2005, the Company declared a 5% stock dividend to shareholders of record on March 1, 2005 which was paid on March 15, 2005.
On December 19, 2005, a three-for-two stock split was declared by the Company for shareholders of record as of January 10, 2006, which was paid on January 20, 2006. Also, the par value of the common
stock was decreased from $.08 per share to $.05 per share.
In January, 2007, the Company declared a 5% stock dividend to
shareholders of record on January 22, 2007 which was paid on February 28, 2007.
Banking
regulations place certain restrictions on dividends and loans or advances made by the Bank to the Holding Company.
The
Bank is subject to various regulatory capital requirements administered by the regulatory banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that,
if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
(continued)
F-27
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(12)
|
Regulatory Matters, Continued
|
Quantitative measures established by regulation to ensure capital adequacy require
the Bank to maintain minimum amounts and percentages (set forth in the following table) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and of Tier 1 capital (as defined) to average assets (as
defined). Management believes, as of December 31, 2007, the Bank met all capital adequacy requirements to which they are subject.
As of December 31, 2007, the most recent notification from the regulatory authorities categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as
well capitalized, an institution must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage percentages as set forth in the following tables. There are no conditions or events since that notification that management believes have
changed the Bank’s category. The Bank’s actual capital amounts and percentages are also presented in the table (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
For Capital
Adequacy Purposes
|
|
|
Minimum To Be
Well Capitalized
Under Prompt
Corrective Action
Provisions
|
|
|
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|
|
As of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-Weighted Assets
|
|
$
|
37,684
|
|
11.23
|
%
|
|
$
|
26,849
|
|
8.00
|
%
|
|
$
|
33,561
|
|
10.00
|
%
|
|
Tier I Capital to Risk-Weighted Assets
|
|
|
33,625
|
|
10.02
|
|
|
|
13,424
|
|
4.00
|
|
|
|
20,136
|
|
6.00
|
|
|
Tier I Capital (to Total Assets)
|
|
|
33,625
|
|
7.71
|
|
|
|
17,449
|
|
4.00
|
|
|
|
21,811
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital to Risk-Weighted Assets
|
|
|
34,135
|
|
11.19
|
|
|
|
24,410
|
|
8.00
|
|
|
|
30,513
|
|
10.00
|
|
|
Tier I Capital to Risk-Weighted Assets
|
|
|
30,636
|
|
10.04
|
|
|
|
12,206
|
|
4.00
|
|
|
|
18,307
|
|
6.00
|
|
|
Tier I Capital (to Total Assets)
|
|
|
30,636
|
|
7.85
|
|
|
|
15,616
|
|
4.00
|
|
|
|
19,519
|
|
5.00
|
|
The aggregate
amount of loans owed to the Company by its officers and directors at December 31, 2007 and 2006 was $623,000 and $618,000, respectively. During 2007, total principal additions were $160,000 and total principal payments were $155,000.
(continued)
F-28
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(14)
|
Off-Balance-Sheet Financial Instruments
|
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 are commitments to extend credit, unused lines of credit
and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest-rate risk in excess of the amount recognized in the consolidated balance sheet. The contract amounts of these instruments reflect the
extent of involvement the Company has in these 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, unused lines of credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same
credit policies in making commitments as it does for on-balance-sheet instruments.
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 some 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 credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty.
Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party and to support public and private borrowing arrangements. Essentially all
letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters-of-credit is essentially the same as that involved in extending loan facilities to customers. The Company may hold collateral supporting
these commitments, and at December 31, 2007 such collateral amounted to $14,614,000.
A summary of the notional
amounts of the Company’s financial instruments, with off-balance sheet risk at December 31, 2007, follows (in thousands):
|
|
|
|
|
|
|
|
Contract
Amount
|
|
Commitments to extend credit
|
|
$
|
12,334
|
|
|
|
|
|
|
Unused lines of credit
|
|
$
|
39,882
|
|
|
|
|
|
|
Standby letters of credit
|
|
$
|
2,812
|
|
|
|
|
|
(continued)
F-29
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(15)
|
Fair Value of Financial Instruments
|
The estimated fair values of the Company’s financial instruments were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
At December 31, 2006
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,100
|
|
9,100
|
|
|
|
11,527
|
|
11,527
|
|
Other interest-bearing deposits with banks
|
|
|
498
|
|
498
|
|
|
|
431
|
|
431
|
|
Securities
|
|
|
17,177
|
|
17,025
|
|
|
|
15,339
|
|
15,227
|
|
Loans
|
|
|
382,551
|
|
382,407
|
|
|
|
346,788
|
|
343,581
|
|
Federal Home Loan Bank stock
|
|
|
2,504
|
|
2,504
|
|
|
|
2,533
|
|
2,533
|
|
Accrued interest receivable
|
|
|
1,855
|
|
1,855
|
|
|
|
1,720
|
|
1,720
|
|
|
|
|
|
|
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
334,620
|
|
335,166
|
|
|
|
299,710
|
|
295,411
|
|
Federal Home Loan Bank advances
|
|
|
40,000
|
|
39,877
|
|
|
|
42,500
|
|
42,484
|
|
Federal funds purchased
|
|
|
8,900
|
|
8,900
|
|
|
|
—
|
|
—
|
|
Other borrowings
|
|
|
9,613
|
|
9,613
|
|
|
|
6,289
|
|
6,289
|
|
Off-Balance Sheet Financial Instruments
|
|
|
—
|
|
—
|
|
|
|
—
|
|
—
|
(continued)
F-30
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(16)
|
Share-Based Compensation
|
The
Company has three stock option plans for directors and employees of the Company. Under the first two plans, the total number of options which may be granted to purchase common stock is 620,156 (amended) for directors and 516,797 (amended) for
employees. At December 31, 2007, no options remain available for grant under the directors’ plan and 39,253 options remain available for grant under the employees’ plan. The third plan has 236,250 (amended) options available to either
employees or directors and 15,750 remain available for grant as of December 31, 2007. The directors’ options vest immediately and have a life of five years. The employees’ options vest over periods up to four years and have terms up
to ten years. All options and share prices have been adjusted to reflect the 5% stock dividend paid in March 2005, the three-for-two stock split declared in December 2005 and the 5% stock dividend declared in January 2007 and paid in February 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
Weighted
Average
Per Share
Price
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at December 31, 2005
|
|
781,981
|
|
|
$
|
9.63
|
|
|
|
|
|
|
Options granted
|
|
32,550
|
|
|
|
19.51
|
|
|
|
|
|
|
Options exercised
|
|
(97,816
|
)
|
|
|
6.25
|
|
|
|
|
|
|
Options forfeited
|
|
(1,574
|
)
|
|
|
16.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2006
|
|
715,141
|
|
|
|
10.28
|
|
|
|
|
|
|
Options granted
|
|
22,350
|
|
|
|
17.78
|
|
|
|
|
|
|
Options exercised
|
|
(49,409
|
)
|
|
|
5.92
|
|
|
|
|
|
|
Options forfeited
|
|
(2,361
|
)
|
|
|
16.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2007
|
|
685,721
|
|
|
$
|
10.71
|
|
3.7 years
|
|
$
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2007
|
|
648,311
|
|
|
$
|
10.34
|
|
4.0 years
|
|
$
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company accelerated the vesting of all unvested options in 2005, primarily to
reduce noncash compensation expense that would have been recorded in its consolidated statements of earnings in future years due to the adoption of SFAS No. 123(R) in January 2006. In accordance with SFAS 123, in 2005 the Company expensed the
remaining unrecognized compensation cost associated with these options in the proforma disclosure.
(continued)
F-31
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(16)
|
Share-Based Compensation, Continued
|
The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation for the year ended
December 31, 2005. All per share information has been restated to reflect the 5% stock dividend paid in March, 2005, the three-for-two stock split declared in December, 2005 and the 5% stock dividend declared in January, 2007 and paid in
February, 2007 (in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
Year Ended
December 31,
|
|
|
|
|
2005
|
|
|
Net earnings, as reported
|
|
$
|
2,863
|
|
|
Deduct: Total stock-based employee compensation determined under the fair value based method for all awards, net of related tax
effect
|
|
|
(133
|
)
|
|
|
|
|
|
|
|
Proforma net earnings
|
|
$
|
2,730
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
Basic, as reported
|
|
$
|
.82
|
|
|
|
|
|
|
|
|
Basic, proforma
|
|
$
|
.78
|
|
|
|
|
|
|
|
|
Diluted, as reported
|
|
$
|
.74
|
|
|
|
|
|
|
|
|
Diluted, proforma
|
|
$
|
.71
|
|
|
|
|
|
|
|
The total intrinsic value of options exercised during the years ended
December 31, 2007 and 2006 was $645,000 and $1,064,000, respectively, and the tax benefit relating to the stock options exercised was $0 and $188,000, respectively. At December 31, 2007, there was $109,000 of total unrecognized
compensation expense related to nonvested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted-average period of thirty-three months. The total fair value of shares vesting and
recognized as compensation expense was $57,000 and $22,000 for the years ended December 31, 2007 and 2006, respectively.
(continued)
F-32
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(16)
|
Share-Based Compensation, Continued
|
The fair value of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Risk-free interest rate
|
|
|
4.28
|
%
|
|
4.94
|
%
|
|
3.79
|
%
|
|
Expected dividend yield
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Expected volatility
|
|
|
4.00
|
%
|
|
8.00
|
%
|
|
9.27
|
%
|
|
Expected life in years
|
|
|
6
|
|
|
6
|
|
|
3
|
|
|
Per share grant-date fair value of options issued during the year
|
|
$
|
3.28
|
|
|
4.79
|
|
|
3.82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As part of its adoption of SFAS 123(R), the Company examined its historical
pattern of option exercises in an effort to determine if there were any pattern based on certain employee populations. From this analysis, the Company could not identify any patterns in the exercise of options. As such, the Company used the guidance
in Staff Accounting Bulletin No. 107 to determine the estimated life of options issued subsequent to the adoption of SFAS 123(R). Expected volatility is based on historical volatility of the Company’s stock. The risk-free rate for periods
within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield assumption is based on the Company’s history and expectation of dividend payments.
(continued)
F-33
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Earnings per
share (“EPS”) of common stock has been computed on the basis of the weighted-average number of shares of common stock outstanding. Outstanding stock options are considered dilutive securities for purposes of calculating diluted EPS which
is computed using the treasury stock method. All per share amounts have been adjusted to reflect the 5% stock dividend paid in March, 2005, the three-for-two stock split declared in December 2005 and the 5% stock dividend declared in January 2007
and paid in February 2007. The following tables present the calculations of EPS (dollars in thousands, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
Weighted-
Average
Shares
|
|
Per
Share
Amount
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
Net earnings available to common stockholders
|
|
$
|
2,865
|
|
4,073,207
|
|
$
|
.70
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities-
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversion of options
|
|
|
|
|
214,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
Net earnings available to common stockholders and assumed conversions
|
|
$
|
2,865
|
|
4,287,443
|
|
$
|
.67
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
Net earnings available to common stockholders
|
|
|
3,652
|
|
4,002,822
|
|
$
|
.91
|
|
Effect of dilutive securities-
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversion of options
|
|
|
|
|
291,019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
Net earnings available to common stockholders and assumed conversions
|
|
$
|
3,652
|
|
4,293,841
|
|
$
|
.85
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
Basic EPS:
|
|
|
|
|
|
|
|
|
|
Net earnings available to common stockholders
|
|
|
2,863
|
|
3,511,292
|
|
$
|
.82
|
|
Effect of dilutive securities-
|
|
|
|
|
|
|
|
|
|
Incremental shares from assumed conversion of options
|
|
|
|
|
358,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS:
|
|
|
|
|
|
|
|
|
|
Net earnings available to common stockholders and assumed conversions
|
|
$
|
2,863
|
|
3,869,660
|
|
$
|
.74
|
|
|
|
|
|
|
|
|
|
|
(continued)
F-34
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(17)
|
Earnings Per Share
, Continued
|
At December 31, 2007 and 2006, the following options were excluded from the
calculation of EPS due to the exercise price being above the average market price:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Outstanding
Options
|
|
Exercise
Price
|
|
Expire
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
Options
|
|
220,500
|
|
$
|
16.31
|
|
2011
|
|
|
|
12,602
|
|
|
16.31
|
|
2011
|
|
|
|
788
|
|
|
16.80
|
|
2011
|
|
|
|
6,300
|
|
|
19.23
|
|
2012-2016
|
|
|
|
5,250
|
|
|
19.52
|
|
2012-2016
|
|
|
|
10,500
|
|
|
20.00
|
|
2012-2016
|
|
|
|
10,500
|
|
|
19.19
|
|
2016
|
|
|
|
10,500
|
|
|
18.71
|
|
2017
|
|
|
|
6,850
|
|
|
18.57
|
|
2017
|
|
2006
|
|
|
|
|
|
|
|
|
Options
|
|
6,300
|
|
|
19.23
|
|
2016
|
|
|
|
5,250
|
|
|
19.52
|
|
2016
|
|
|
|
10,500
|
|
|
20.00
|
|
2016
|
|
|
|
10,500
|
|
|
19.19
|
|
2016
|
Various legal
claims arise from time to time in the normal course of business which, in the opinion of management, will not have a material effect on the Bank’s financial statements.
(continued)
F-35
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(19)
|
Holding Company Financial Information
|
The Holding Company’s unconsolidated financial information is as follows (in thousands):
Condensed Balance Sheets
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
2007
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
2,314
|
|
2,114
|
|
Investment in subsidiaries
|
|
|
34,158
|
|
31,094
|
|
Other assets
|
|
|
555
|
|
511
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
37,027
|
|
33,719
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
Liabilities
|
|
|
59
|
|
37
|
|
Stockholders’ equity
|
|
|
36,968
|
|
33,682
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
37,027
|
|
33,719
|
|
|
|
|
|
|
|
Condensed Statements of Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Revenues
|
|
$
|
76
|
|
|
145
|
|
|
79
|
|
|
Expenses
|
|
|
(144
|
)
|
|
(174
|
)
|
|
(84
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before earnings of subsidiaries
|
|
|
(68
|
)
|
|
(29
|
)
|
|
(5
|
)
|
|
Earnings of subsidiaries
|
|
|
2,933
|
|
|
3,681
|
|
|
2,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
2,865
|
|
|
3,652
|
|
|
2,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
F-36
FIRST COMMUNITY BANK CORPORATION OF AMERICA AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
|
(19)
|
Holding Company Financial Information, Continued
|
Condensed Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
2,865
|
|
|
3,652
|
|
|
2,863
|
|
|
Adjustments to reconcile net earnings to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed earnings of subsidiaries
|
|
|
(2,933
|
)
|
|
(3,681
|
)
|
|
(2,868
|
)
|
|
Increase in other assets
|
|
|
(44
|
)
|
|
(205
|
)
|
|
(529
|
)
|
|
Increase in liabilities
|
|
|
22
|
|
|
28
|
|
|
2
|
|
|
Tax benefit from options exercised
|
|
|
—
|
|
|
—
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(90
|
)
|
|
(206
|
)
|
|
(234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activity-
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
—
|
|
|
(3,526
|
)
|
|
(1,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and warrants
|
|
|
292
|
|
|
611
|
|
|
2,666
|
|
|
Repurchase of common stock
|
|
|
—
|
|
|
—
|
|
|
(288
|
)
|
|
Fractional shares of stock dividend paid in cash
|
|
|
(2
|
)
|
|
—
|
|
|
(4
|
)
|
|
Tax benefit from options exercised
|
|
|
—
|
|
|
188
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
290
|
|
|
799
|
|
|
2,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
|
|
|
200
|
|
|
(2,933
|
)
|
|
488
|
|
|
Cash at beginning of year
|
|
|
2,114
|
|
|
5,047
|
|
|
4,559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
2,314
|
|
|
2,114
|
|
|
5,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information-
|
|
|
|
|
|
|
|
|
|
|
|
Noncash transactions:
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain (loss) on securities available for sale of the Bank
|
|
$
|
74
|
|
|
62
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation of the Bank
|
|
$
|
57
|
|
|
22
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fractional shares of stock split accrued
|
|
$
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37