First Community Bancorp Inc. said Thursday that its declining market value had forced it to write down a substantial portion of the goodwill it has accumulated through acquisitions.
The $4.9 billion-asset San Diego company, which has bought 19 banks since 2000, announced the writedown of $275 million of goodwill in the first quarter, leading to a $272.7 million loss. It earned $28.5 million the year earlier.
Even without the goodwill impairment charge, net operating earnings were down 92%, to $2.3 million, due largely to a $26 million provision for credit losses.
Analysts' average estimate of earnings for the quarter was 62 cents a share; without the goodwill impairment, First Community would have earned 8 cents.
Goodwill, which does not affect regulatory capital, is added to the balance sheet after an acquisition to account for how much the buyer paid above the seller's book value.
Any goodwill kept on the balance sheet must be supported by the company's market value, and First Community's shares have lost roughly half their value in the last six months as asset quality has weakened.
The shares closed at $24.42 Thursday, down 6%
First Community had $761 million of goodwill on its balance sheet at the end of 2007 and warned in its annual report and again in a March press release that a goodwill impairment charge might be required if the stock price did not improve.
Chief executive officer Matt Wagner said in a press release that First Community acted to improve asset quality by reducing "our exposure to residential construction loans and other credits that carry heightened risk in today's environment."
First Community sold $34.1 million of nonaccruing construction-related loans at a loss of $16.2 million, which was charged to the allowance for credit losses.
"We decided to sell these loans at a substantial discount in order to eliminate from our portfolio the risks presented by these loans and to reduce the distraction their workout would have caused," the company said.
