SEC Company Response from FIRST COMMUNITY BANKSHARES (FCBC) — Aug 21, 2009
FIRST COMMUNITY BANKSHARES INC /VA/ (FCBC) (CIK 0000859070)
Date: Aug. 21, 2009 · CIK: 0000859070 · Accession: 0001144204-09-045142
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-19297
Referenced dates: June 23, 2009
Letter
Via EDGAR Division of Corporation Finance First Community Bancshares, Inc. Form 10-K for the Fiscal Year Ended December 31, 2008 Form 10-Q for the Fiscal Quarter Ended March 31, 2009 File No. 000-19297
Dear Ms. Connell:
This letter is provided on behalf of First Community Bancshares, Inc. (“First Community,” the “Company,” “we,” or “our”) in response to your letter of July 27, 2009, regarding the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2009.
The Company acknowledges that:
·
The Company is responsible for the adequacy and accuracy of the disclosure in the referenced filings;
·
Staff comments or changes to disclosures in response to staff comments do not foreclose the Securities and Exchange Commission (the “Commission”) from taking any action with respect to the referenced filings; and
·
The Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
For your convenience, we have included in this letter, in bold, the number and description of each of the comments in your letter; our responses follow.
Form 10-K for Fiscal Year Ended December 31, 2008:
Note 1. Summary of Significant Accounting Policies
Long-term Investments, page
1.
We note your response to comment 1 of our letter dated June 23, 2009. Please confirm that you will revise your future filings to disclose your accounting and impairment policy related to your investment in FHLB stock.
We confirm that we will revise future Annual Report on Form 10-K filings to disclose our accounting and impairment policy related to our investment in Federal Home Loan Bank of Atlanta stock.
P.O. Box 989 □ One Community Place □ Bluefield, VA 24605 □ Telephone: 276-326-9000 □ Fax: 276-326-9010 □ www.fcbinc.com
Ms. Angela Connell
August 21, 2009
Page
Form 10-Q for Fiscal Quarter Ended March 31, 2009:
Management’s Analysis of Financial Condition and Results of Operations
Financial Condition – Securities, page 29
2.
We note your response to comment 15 of our letter dated June 23, 2009. Considering the significant judgment required to determine if a security is other than temporarily impaired and the focus users of financial statements have placed on this area, we believe comprehensive and detailed disclosure is required to meet the disclosure requirements in paragraph 38 of FSP FAS 115-2 and FAS 124-2 and Item 303 of Regulation S-K. Therefore, for each individual and pooled trust preferred security with at least one rating below investment grade, please revise your future filings to disclose the following information (some of which you provided in response to our initial comment) as of the most recent period end:
·
deal name
·
single issuer or pooled
·
class/tranche
·
book value
·
fair value
·
unrealized gain/loss
·
lowest credit rating assigned
·
number of banks currently performing
·
actual deferrals and defaults as a percentage of original collateral
·
expected deferrals and defaults as a percentage of remaining performing collateral
·
excess subordination as a percentage of remaining performing collateral
Additionally, please clearly disclose how you calculate excess subordination and discuss what the excess subordination percentage signifies to allow an investor to understand why this information is relevant and meaningful.
We propose making the following enhanced disclosure in future periodic filings:
Ms. Angela Connell
August 21, 2009
Page
The following table presents in more detail the single-issue and pooled trust preferred security holdings as of March 31, 2009.
(In Thousands)
Current
Excess
Current
Credit
Deferrals/Defaults
Subordination
Lowest
Rating
Currently
Unrealized
Percent
Percent
Class/
Credit
at
Original
Performing
Book
Fair
Gain/
of
of
Deal Name
Tranche
Rating
Purchase
Issuers
Issuers
Value
Value
(Loss)
Amount
Deal
Amount
Deal
Single-issuer
BankAmerica Cap
n/a
BB
A
$ 2,344
$ 1,039
$ (1,305 )
None
n/a
n/a
n/a
BankBoston Cap
n/a
BB
A
4,129
2,736
(1,393 )
None
n/a
n/a
n/a
Chase Captial II
n/a
AA
A
3,615
1,507
(2,108 )
None
n/a
n/a
n/a
CoreStates Capital I
n/a
A
A
2,933
1,518
(1,415 )
None
n/a
n/a
n/a
First Chicago NDB CA
n/a
AA
A
1,434
(791 )
None
n/a
n/a
n/a
JPMorgan Chase Cap X
n/a
AA
A
5,014
2,020
(2,994 )
None
n/a
n/a
n/a
NB-Global
n/a
BB
A
19,382
7,123
(12,259 )
None
n/a
n/a
n/a
NTC Capital I Float
n/a
A
A
4,004
2,146
(1,858 )
None
n/a
n/a
n/a
SunTrust Banks
n/a
A
A
4,939
2,655
(2,284 )
None
n/a
n/a
n/a
Wachovia Cap II
n/a
A
A
4,875
2,535
(2,340 )
None
n/a
n/a
n/a
Pooled
PreTSL X
B1
CC
A
$ 10,000
$ 3,796
$ (6,204 )
$ 91,800
21.8 %
$ 40,500
10.0 %
PreTSL XII
B1
CC
A
20,000
10,282
(9,718 )
70,000
10.0 %
113,000
16.0 %
PreTSL XIV
B1
CC
A
9,016
4,056
(4,960 )
43,000
9.9 %
75,000
17.0 %
PreTSL XVI
C
CC
A
4,001
(3,485 )
84,230
16.1 %
82,000
16.0 %
PreTSL XXII
C1
CC
A
12,566
(12,158 )
210,000
17.9 %
190,500
16.0 %
PreTSL XXIII
C1
CCC
A
7,894
1,335
(6,559 )
112,500
8.8 %
313,500
25.0 %
PreTSL XXVI
C1
CC
A
6,946
(6,813 )
124,000
14.8 %
151,500
18.0 %
SLOSO 2007 1A
A3L
CC
A
2,944
1,243
(1,701 )
47,500
9.9 %
0.1 %
Trapeza Ser 13A
D
A
A
20,000
(19,064 )
46,500
6.6 %
2,434
0.4 %
The amount of immediate default a security can withstand before an expected loss of principal is commonly referred to as “excess subordination.” It is a good tool for determining the ability of a specific deal to absorb future defaults and deferrals before principal loss can be expected within a certain tranche. Excess subordination is generally calculated by modeling increasing levels of current default until a projected loss of principal occurs.
3.
Please provide us with your calculation of the present value of cash flows expected to be collected from the following debt securities – PreTSL XII and TRAPEZA SER 13A – as of March 31, 2009 and confirm that you use the same methodology for all of your trust preferred securities. Identify the key assumptions used in your analysis and explain how you determined the assumptions were appropriate and consistent with FSP FAS 115-2 and FAS 124-2 and related guidance. Specifically address the following with respect to the assumptions used in your calculation:
·
Discount rate – specify the discount rate and how it was determined.
·
Deferrals and defaults –
a)
Explain in detail how you developed your estimates of future deferrals and defaults. Specifically tell us if and how you considered specific collateral underlying each individual security and tell us whether you had different estimates of deferrals and defaults for each security;
b)
Provide us with the actual amount and percentage of deferrals and defaults experienced by the trust by quarter;
Ms. Angela Connell
August 21, 2009
Page
c)
Provide us with your estimate for future deferrals and defaults and compare your estimate to the actual amounts experienced to date;
d)
Explain how you treat deferrals (e.g. – do you treat deferrals the same as defaults); and
e)
Specify the recovery rate used and how it was determined.
We use the same methodology for determining other-than-temporary impairment (“OTTI”) for all of our pooled trust preferred securities. FSP FAS 115-2 and FAS 124-2 guides preparers to EITF 99-20, as amended, when securities with a fair value less than book value are beneficial interests and rated lower than AA by a credit rating agency. Cash flow projections for the purpose of determining if an adverse change in cash flows has occurred and the resulting present value computation to determine credit impairment are derived from an analysis provided by INTEX and are used as the base for these analyses. Paragraph 12(b) of EITF 99-20, as amended, requires the future cash flows to be discounted at a rate equal to that used to accrete beneficial interest. Accordingly, we discounted the projected cash flows at the current coupon rate for the security being analyzed. At March 31, 2009, those rates were 2.94% and 4.43% for PreTSL XII and Trapeza Ser 13A, respectively. Both of these securities are floating rate based off of 3-month LIBOR plus a spread, and thus the coupon of the securities and the discount rate used in the present value calculation will change.
INTEX cash flow models quantify the effects of current known defaults and deferrals. In addition to known defaults and deferrals within each security, we applied a constant default rate of 0.75% to all securities analyzed. The projected default rate was derived from the FDIC listing of the number of bank failures from 1934-2008. Comparing bank failures to the number of FDIC institutions produces an annual average default rate of 36 basis points. A qualitative adjustment was made to that absolute failure rate was qualitatively adjusted to 75 basis points trying to take into account potentially higher levels of default, on average, over the course of the next 30 years than previously experienced. The projected default rate was applied consistently to all securities analyzed.
The discounted projected cash flo
Show Raw Text
CORRESP
1
filename1.htm
August
21, 2009
Via
EDGAR
Ms.
Angela Connell
Reviewing
Accountant
Division
of Corporation Finance
U.S.
Securities and Exchange Commission
100 F
Street, NW
Washington,
D.C. 20549
Mail Stop
4720
Re:
First
Community Bancshares, Inc.
Form
10-K for the Fiscal Year Ended December 31, 2008
Form
10-Q for the Fiscal Quarter Ended March 31, 2009
File
No. 000-19297
Dear Ms.
Connell:
This
letter is provided on behalf of First Community Bancshares, Inc. (“First
Community,” the “Company,” “we,” or “our”) in response to your letter of July
27, 2009, regarding the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2008, and its Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 2009.
The
Company acknowledges that:
·
The
Company is responsible for the adequacy and accuracy of the disclosure in
the referenced filings;
·
Staff
comments or changes to disclosures in response to staff comments do not
foreclose the Securities and Exchange Commission (the “Commission”) from
taking any action with respect to the referenced filings;
and
·
The
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
For your
convenience, we have included in this letter, in bold, the number and
description of each of the comments in your letter; our responses
follow.
Form 10-K for Fiscal Year
Ended December 31, 2008:
Note 1. Summary of
Significant Accounting Policies
Long-term Investments, page
53
1.
We
note your response to comment 1 of our letter dated June 23,
2009. Please confirm that you will revise your future filings
to disclose your accounting and impairment policy related to your
investment in FHLB stock.
We
confirm that we will revise future Annual Report on Form 10-K filings to
disclose our accounting and impairment policy related to our investment in
Federal Home Loan Bank of Atlanta stock.
P.O. Box
989 □ One Community Place □ Bluefield, VA 24605 □ Telephone: 276-326-9000 □ Fax:
276-326-9010 □ www.fcbinc.com
Ms.
Angela Connell
August
21, 2009
Page
2
Form 10-Q for Fiscal Quarter
Ended March 31, 2009:
Management’s Analysis of
Financial Condition and Results of Operations
Financial Condition –
Securities, page 29
2.
We
note your response to comment 15 of our letter dated June 23,
2009. Considering the significant judgment required to
determine if a security is other than temporarily impaired and the focus
users of financial statements have placed on this area, we believe
comprehensive and detailed disclosure is required to meet the disclosure
requirements in paragraph 38 of FSP FAS 115-2 and FAS 124-2 and Item 303
of Regulation S-K. Therefore, for each individual and pooled
trust preferred security with at least one rating below investment grade,
please revise your future filings to disclose the following information
(some of which you provided in response to our initial comment) as of the
most recent period end:
·
deal
name
·
single issuer or
pooled
·
class/tranche
·
book
value
·
fair
value
·
unrealized
gain/loss
·
lowest credit rating
assigned
·
number of banks currently
performing
·
actual deferrals and defaults
as a percentage of original
collateral
·
expected deferrals and defaults
as a percentage of remaining performing
collateral
·
excess subordination as a
percentage of remaining performing
collateral
Additionally,
please clearly disclose how you calculate excess subordination and discuss what
the excess subordination percentage signifies to allow an investor to understand
why this information is relevant and meaningful.
We
propose making the following enhanced disclosure in future periodic
filings:
Ms.
Angela Connell
August
21, 2009
Page
3
The
following table presents in more detail the single-issue and pooled trust
preferred security holdings as of March 31, 2009.
(In
Thousands)
Current
Excess
Current
Credit
Deferrals/Defaults
Subordination
Lowest
Rating
Currently
Unrealized
Percent
Percent
Class/
Credit
at
Original
Performing
Book
Fair
Gain/
of
of
Deal
Name
Tranche
Rating
Purchase
Issuers
Issuers
Value
Value
(Loss)
Amount
Deal
Amount
Deal
Single-issuer
BankAmerica
Cap
n/a
BB
A
1
1
$
2,344
$
1,039
$
(1,305
)
None
n/a
n/a
n/a
BankBoston
Cap
n/a
BB
A
1
1
4,129
2,736
(1,393
)
None
n/a
n/a
n/a
Chase
Captial II
n/a
AA
A
1
1
3,615
1,507
(2,108
)
None
n/a
n/a
n/a
CoreStates
Capital I
n/a
A
A
1
1
2,933
1,518
(1,415
)
None
n/a
n/a
n/a
First
Chicago NDB CA
n/a
AA
A
1
1
1,434
643
(791
)
None
n/a
n/a
n/a
JPMorgan
Chase Cap X
n/a
AA
A
1
1
5,014
2,020
(2,994
)
None
n/a
n/a
n/a
NB-Global
n/a
BB
A
1
1
19,382
7,123
(12,259
)
None
n/a
n/a
n/a
NTC
Capital I Float
n/a
A
A
1
1
4,004
2,146
(1,858
)
None
n/a
n/a
n/a
SunTrust
Banks
n/a
A
A
1
1
4,939
2,655
(2,284
)
None
n/a
n/a
n/a
Wachovia
Cap II
n/a
A
A
1
1
4,875
2,535
(2,340
)
None
n/a
n/a
n/a
Pooled
PreTSL
X
B1
CC
A
61
50
$
10,000
$
3,796
$
(6,204
)
$
91,800
21.8
%
$
40,500
10.0
%
PreTSL
XII
B1
CC
A
83
73
20,000
10,282
(9,718
)
70,000
10.0
%
113,000
16.0
%
PreTSL
XIV
B1
CC
A
65
57
9,016
4,056
(4,960
)
43,000
9.9
%
75,000
17.0
%
PreTSL
XVI
C
CC
A
58
52
4,001
516
(3,485
)
84,230
16.1
%
82,000
16.0
%
PreTSL
XXII
C1
CC
A
103
87
12,566
408
(12,158
)
210,000
17.9
%
190,500
16.0
%
PreTSL
XXIII
C1
CCC
A
137
117
7,894
1,335
(6,559
)
112,500
8.8
%
313,500
25.0
%
PreTSL
XXVI
C1
CC
A
78
65
6,946
133
(6,813
)
124,000
14.8
%
151,500
18.0
%
SLOSO
2007 1A
A3L
CC
A
56
55
2,944
1,243
(1,701
)
47,500
9.9
%
487
0.1
%
Trapeza
Ser 13A
D
A
A
63
59
20,000
936
(19,064
)
46,500
6.6
%
2,434
0.4
%
The
amount of immediate default a security can withstand before an expected loss of
principal is commonly referred to as “excess subordination.” It is a
good tool for determining the ability of a specific deal to absorb future
defaults and deferrals before principal loss can be expected within a certain
tranche. Excess subordination is generally calculated by modeling
increasing levels of current default until a projected loss of principal
occurs.
3.
Please
provide us with your calculation of the present value of cash flows
expected to be collected from the following debt securities – PreTSL XII
and TRAPEZA SER 13A – as of March 31, 2009 and confirm that you use the
same methodology for all of your trust preferred
securities. Identify the key assumptions used in your analysis
and explain how you determined the assumptions were appropriate and
consistent with FSP FAS 115-2 and FAS 124-2 and related
guidance. Specifically address the following with respect to
the assumptions used in your
calculation:
·
Discount rate – specify the
discount rate and how it was
determined.
·
Deferrals and defaults
–
a)
Explain
in detail how you developed your estimates of future deferrals and
defaults. Specifically tell us if and how you considered
specific collateral underlying each individual security and tell us
whether you had different estimates of deferrals and defaults for each
security;
b)
Provide
us with the actual amount and percentage of deferrals and defaults
experienced by the trust by
quarter;
Ms.
Angela Connell
August
21, 2009
Page
4
c)
Provide
us with your estimate for future deferrals and defaults and compare your
estimate to the actual amounts experienced to
date;
d)
Explain
how you treat deferrals (e.g. – do you treat deferrals the same as
defaults); and
e)
Specify
the recovery rate used and how it was
determined.
We use
the same methodology for determining other-than-temporary impairment (“OTTI”)
for all of our pooled trust preferred securities. FSP FAS 115-2 and
FAS 124-2 guides preparers to EITF 99-20, as amended, when securities with a
fair value less than book value are beneficial interests and rated lower than AA
by a credit rating agency. Cash flow projections for the purpose of
determining if an adverse change in cash flows has occurred and the resulting
present value computation to determine credit impairment are derived from an
analysis provided by INTEX and are used as the base for these
analyses. Paragraph 12(b) of EITF 99-20, as amended, requires the
future cash flows to be discounted at a rate equal to that used to accrete
beneficial interest. Accordingly, we discounted the projected cash
flows at the current coupon rate for the security being analyzed. At
March 31, 2009, those rates were 2.94% and 4.43% for PreTSL XII and Trapeza Ser
13A, respectively. Both of these securities are floating rate based
off of 3-month LIBOR plus a spread, and thus the coupon of the securities and
the discount rate used in the present value calculation will
change.
INTEX
cash flow models quantify the effects of current known defaults and
deferrals. In addition to known defaults and deferrals within each
security, we applied a constant default rate of 0.75% to all securities
analyzed. The projected default rate was derived from the FDIC
listing of the number of bank failures from 1934-2008. Comparing bank
failures to the number of FDIC institutions produces an annual average default
rate of 36 basis points. A qualitative adjustment was made to that
absolute failure rate was qualitatively adjusted to 75 basis points trying to
take into account potentially higher levels of default, on average, over the
course of the next 30 years than previously experienced. The
projected default rate was applied consistently to all securities
analyzed.
The
discounted projected cash flo