**
~cSFirst
Community
Bancshares,Inc.
&
&
& #
P
l
l
598
1
o
began in Princeton, West Virginia
in 1874,
as
opened
of a courthouse,
its doors
to a town
post office,
shop and a dozen or so homesteads.
history
Our Company’s
the Bank of Princeton
photo)
that consisted
maker’s
historical
and the first
West Virginia,
Virginia. The First National
West Virginia,
later became
banks on October
event,
31, 1988.
as it was one of the first
to be chartered
Bank of Grafton,
a member
tanyard,
(as illustrated
store,
in the
shoe-
The bank’s opening was a
in
to be chartered
in all of southern West
four banks
the first bank chartered
in
family of
of the First Community
The Bank was located
store and the community
bound
directors, who usually
trunk
and important
building
in a frame
post office. Cash was kept
documents were divided
that also housed
a general
in an old leather-
among
the bank’s
carried
the papers
in the tops of their hats.
One of the Bank’s most
famous
(or infamous)
visitors was Frank James
— a member
brother,
worth
impression
the legendary
trunk.
leather
of the notorious
James Gang, which was led by Frank’s
Jesse. James
robbing. However,
rode into Princeton
its small
the small bank was not worth
size and poor
that
to survey the Bank to see it was
gave him the
appearance
the effort. Little did
in gold rested in the Bank’s old
outlaw know that $25,000
Change
has erased the days of our old leather-bound
by a technological
long since replaced
life untouched.
and capitalize
why we are blessed with the celebration
Our Company’s
on the opportunities
ability to adapt
presented
age that has managed
to changing
by change
is the reason
of an anniversary
of 125 years.
trunk — an era
to leave no
environments
Financial Highlights
(Amounts
in Thousands, Except Percent and Per Share Data)
Earnings and Dividends
income
Net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends per share
Return on average equity
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
13,101
$
1.86
1.05
13.02%
1.24%
15,094
2.14
1.04
16.05%
1.590/0
$ 13,917
1.98
.91
16.26”%
1.73%
1998
1997
1996
Balance Sheet Data at Year-End
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earning assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits
Securities
. . . . . . . . . . . . .
sold under agreements
equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’
to repurchase
$1,054,006
971,856
875,996
47,680
101,737
$1,042,322
955,337
853,507
52,351
97,860
1998
1997
1996
$837,615
775,244
643,497
53,031
89,276
1
Table of Contents
Message to StocWolders
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
9
23
49
Message To Stockholders
To Our Stockholders:
First Community Bancshares, Inc. enjoyed
another great year in 1998. We are pleased to
provide this report on the financial performance of
your Company for that year and to review with you
other activities, both completed and ongoing, which
are directed to ensuring continuing financial success
in the future.
The world is counting the days to December31,
readiness for the Year 2000 and its impact
1999, and the beginning of a new millennium.
Computer
on the world economy is an ongoing topic of
discussion and has resulted in misinformation and the
unnecessary heightening of concerns that banks and
the financial system may not be ready for the
transition. The Year 2000 issue in its most simple
form is based upon the inability of some computer
chips and software to distinguish between the years
2000 and 1900. First Community began its Y2K
efforts in 1997, carefully reviewing all computer
hardware and software purchases for Y2K readiness.
Early in 1998, the Board of Directors appointed a
Y2K coordinator and established a committee to
review all operations of the Company to ensure we
are well prepared to make the millennium change
smoothly. First Community’s core processing systems
information
which support customers and other
applications are dependent upon hardware and
software used by literally hundreds of other financial
institutions
are state-of-the-art
readiness testing since 1997, first by the vendors
themselves then by users similar to First Community.
Our systems have been tested by artificially advanc-
ing the internal system dates gradually through the
year 2000 and beyond while processing data. Our
core systems all have performed well which was
expected as they have been certified by vendors of
substantial
reputation as Y2K compliant and have
testing by other
undergone substantial
users with similar good results. Other non-customer
computer applications have been or are being tested
throughout
the Company and where necessary both
software and hardware replaced and retested. The
Company has budgeted $150,000 in one-time costs to
prepare for the Y2K transition. As a further precau-
tion, a contingency plan was developed early in 1999
to ensure there is no disruption of service to our
customers or disruption of operations in the unlikely
event our testing fails to identify a potential problem
the country. These systems
and have been undergoing Y2K
independent
throughout
or should a vendor critical
ence problems with the millennium date change.
to our operations experi-
1,200}
1,000
800
600
400
200
0
I
I
1994
1995
1996
1997
1998
m
the
With these testing efforts continuing throughout
remainder of 1999, our efforts have now been
directed to communicating with customers our state
of readiness and to working with customers to ensure
they too are well-prepared. All of these activities
should ensure that
event for First Community and, as one of our Y2K
marketing pieces states, “we want to ensure that the
only ball dropped on New Year’s Ewe is in Times
Square.”
the century date change is a non-
Net
income for 1998 was $13.101 million,
significantly lower than the $15.094 million reported
for 1997 and lower than our plan. Late in the second
quarter
the Company recorded a one-time $2,900,000
loan loss provision related to a single commercial
loan charge-off resulting from foreclosure on a West
Virginia based furniture manufacturing facility.
Although reserves had been established in prior
periods related to this loan, a single provision
adequate to absorb the entire loss significantly
strengthened the Company’s reserves and positioned
us well to speedily dispose of the real estate acquired
through foreclosure. This extraordinary loan loss
provision, while undesirable,
a community bank which includes contributing to
and supporting community development
efforts which
create jobs and add to the ongoing economic vitality
is a result of our role as
3
of the areas we serve. Over the years, First Commu-
nity Banks have been lenders to the small business
community and have always been supporters of new
business and business expansion through involvement
in loans to developing enterprises. Most of these
investments have yielded great dividends in the form
of new jobs and the improvement of local economies.
From time to time, however, success is not realized
and assets which serve as collateral must be liqui-
dated often at values which are inadequate to repay
the entire debt. First Community will, however,
continue to play a significant role in the economic
development process within the bounds of prudent
underwriting and tolerable risk as we believe that
and willingness to invest
community involvement
efforts to improve the economic health of our
communities
Company. We are pleased to report
facturing facility is under contract
closing expected in March 1999, and that
owner will not only create jobs at the facility but
will immediately begin a substantial building expan-
sion which will create even more opportunity and
employment
to sell with the
the new
is one of the primary roles of your
in our market area.
the manu-
that
in
Earnings per share were $1.86 in 1998 compared
with $2.14 for the preceding year while dividends
paid were $1.05 and $1.04 in 1998 and 1997,
respectively. Return on Average Equity which mea-
sures our stewardship of your equity was 13.02% for
1998, very comparable to our peers, but somewhat off
the 16% standard set by First Community in recent
2.50
t
2.00-
1.50-
1.00-
0.50
0.00~
I
2.14
1.98
1994
1995
1996
1997
1998
~’
—
~g::;ity
Bancshares,
Inc.
income combined with
years. Return on Average Assets measures our ability
to use assets to produce net
the effective use of capital resources. Acquisitions
completed during 1997 which added over $200 mil-
lion in resources, negatively impacted our Return on
Average Assets. This reduction is part of our overall
strategic plan which requires more effective leverag
ing of capital with asset growth through acquisitions
that produce initial
returns on assets of less than 1Yo.
Return on Average Assets was 1.24% in 1998, 1.59%
in 1997 and 1.73Yoin 1996, reflecting the impact of
acquisitions completed during 1997.
I
1
u
1994
1995
1996
1997
1998
““”
q ReturnonAverageEquity
ReturnonAverageAssetsn
While the extraordinary provision for loan losses
income,
discussed above significantly impacted net
earnings per share, return on average equity and
return on average assets, a rapid downturn in overall
interest
interest
rates to 30-Year lows compressed net
margins during 1998 as assets repriced more rapidly
In addition, current attitudes of
than did liabilities.
many bank and non-bank financial service providers
which have relaxed what we consider prudent
risk/
reward standards resulted in the prepayment of
approximately $40 million in outstanding commercial
loans in 1998. The U.S. economy is more robust
than ever in history. However,
opinion, never a time when it makes good long-term
sense to weaken commercial and other
writing standards,
as any future economic downturn will have signifi-
cant negative impact on the collection of poorly
underwritten credit. Our approach continues
one of care, caution and patience as we remain
regardless of competitive pressures,
there is, in our
loan under.
to be
willing to give up some current period net
income to avoid substantial exposure to losses in the
future.
interest
the foundation
Total assets grew to $1.054 billion at year-end
1998 compared with $1.042 billion at year-end 1997.
Earning assets, those which produce revenue, grew to
an impressive $971.9 million from $955.3 million
one year earlier. Stockholders’ equity,
upon which the Company is based, broke the
$100 million mark in 1998 and was $101.7 million at
year end with book value per share of $14.50
compared with $13.85 at the end of 1997. Reserves
for loan losses were $11.4 million at year end 1998
or 1.86% of outstanding loans, an increase of 9.86%
over the 1.70% reported at the end of 1997. Record
levels of assets, capital and reserves position First
Community well for the new millennium and the
years to follow.
Wide-ranging issues including deterioration
in
the flattening of the yield curve,
concern over
relaxation of underwriting standards,
the global economy,
projected costs of Y2K remediation,
indust~wide
slowdown in industry consolidation and the threat of
a deflationary recession took its toll on the market
value of stock in the financial services sector during
the third and fourth quarters of 1998 and continuing
adjustment has been experienced in early 1999.
-
+
+
+
S&P500Index
FCBC
PEERGroup
3oiI-
250-
200-
150-
100
decline in the market for bank stock with a market
value of $29.25 at December 31, 1998, compared
with $30.45 at year end 1997, and slipping to $27.00
during January and February 1999. Cumulative
returns on your First Community stock, however,
continue to out-perform our peers which also were
negatively impacted by the decline in the broader
market, but for the first time in recent years were
slightly below the S&P 500.
The decline in market value afforded the
Company the opportunity to reinstate our Stock
Repurchase Program in the third quarter of 1998
which had been suspended since 1996 due to
pending business combinations. Your Company’s
Board of Directors has authorized the repurchase of
up to 100,000 shares of FCBC stock on the open
market. The timing, price and quantity of purchases
are at the discretion of the Corporation and the
program may be discontinued or suspended at any
time. The Board believes that current market prices
present an attractive buying opportunity for the
Company and will make the shares available for
general corporate purposes which may include poten-
tial acquisitions, shareholder dividend reinvestment
and employee benefit plans.
35
30
25
20
15
10
5
of
I
1994
1995
1996
1997
1998
q MarketValuePerShwe
Stockholders’Equityn
(2nthousands)
20,00(
100,OOC
80,000
60,000i
40,000
20,000
3
I
‘- 1993
1994
1995
1996
1997
1998
In June 1998, your Board of Directors adopted a
Currently, bank stocks are trading at approximately
58% of the S&P 500 versus historical averages of
63% on a relative price/earnings basis, in spite of
record levels of capital and reserves, lower levels of
non-performing assets and record earnings in the
industry. First Community did not escape the broad
new ~lan of strate~ic vision for &e Company which
prov{des both dire;tion and goals well into the
future. The 1998 Strategic Plan provides a new
statement of purpose, vision and culture specifically
focused on stockholders, customers and employees.
Although no area of operation is untouched by the
Plan,
its primary focus is on raising the level of
5
service quality to all those we serve. Initiatives
incorporated in the Plan transform the entire organi-
zation into one which is more proactive, moving
from a focus on products and delivery to a greater
focus on customer relationships and their needs. The
entire financial services community is undergoing
rapid change and we are excited that
the activities
contemplated by our Strategic Plan will create an
organization of service second to none, providing the
financial products and services necessary for our
customers to reach their maximum financial potential
as we go through the years ahead together. We think
that success in the future will be the result of First
Community growing with its well-established cus-
tomer base, and we are confident
Plan provides the guidance to ensure that future
success.
the new Strategic
of
During 1999, we celebrate 125 Years
to customers, communities
fewer and fewer true community
service
and sharehold-
ers. Rich in history and heritage, we enjoy a unique
position in that
banking institutions
exist today. We quietly invest
our time, our economic resources and ourselves in
the communities which we call home to ensure
their continual
success as ours is an effort of
the strongest
intelligent, but
. . . that survive, nor the
the one most responsive to
cooperation — an effort of community — simply
what we are about. One well-known author suc-
cinctly stated the challenge of the future when he
said, “It is not
most
change.” We do not wish only to survive by being
responsive to the changes around us, but desire to
thrive in the new millennium and the years to come
by being a proactive agent of change. First Commu-
nity is celebrating 125 years of success and, armed
is well-prepared for the century
with a new vision,
the opportunities
date change and is excited about
which lie in its future. As always, we greatly
appreciate your loyalty and support as customers and
stockholders and welcome your input and
suggestions.
Sincerely,
+“”&
James L. Harrison, Sr.
President & Chief Executive Officer
The Oficers of First Community Bancshares, Inc. from kft to right:
John M. Mendez, Vice President
James L. Harrison, Sr. President
and Chief Financial Officer
and Chief Executive Officer
Robert L. Buzzo, Vice President
Year 2000 Statement
First Community Bancshares has made a commitment
to Year 2000 readiness which began in 1997 and
will continue until
the issue is resolved in the coming New Year. The Year 2000 problem revolves around a
computer programming oversight which was made when program date fields were written in two character
(i.e., 99) instead of four character
(i.e. 1999) formats. It is feared that when the date changes from 1999 to
2000, some systems may not properly recognize the step forward to 2000 and revert
to 1900. This incorrect
assumption may cause the non-Y2K ready systems to malfunction or fail.
What
is First Community Bancshares’ solution for the Y2K problem? Our solution is extensive planning
and preparation. Our Board of Directors and senior management have made Year 2000 readiness a top priority.
An in-depth Year 2000 Plan was devised and a Board-appointed Steering Committee composed of senior level
management and internal
technology specialists was assembled to address our Year 2000 concerns.
Our Year 2000 Plan not only addresses First Community’s Y2K preparation, but also works to veri~ that
our
vendors are prepared and will not fail to deliver the services upon which we rely. The Plan incorporates
the
Federal Financial
Institution Examination Council’s guidelines and deadlines for bank Y2K preparations,
These guidelines are divided into five phases: Awareness, Assessment, Renovation, Testing and Implementation.
The Plan also focuses on evaluating the ability of our primary borrowers to operate and keep their relationships
in good standing. The results of this evaluation have been encouraging and indicate that most of our customers
and vendors are aware of and are working to eliminate the Y2K issues they may face.
First Community Bancshares’ Year 2000 Steering Committee began a full risk assessment of hardware,
software and service providers during the fourth quarter of 1997. The Committee has used this risk assessment
to help monitor Year 2000 remediation and testing efforts for computer systems throughout our organization.
Special attention has been focused on “mission critical” system — those systems upon which our Company
most heavily relies for daily operation. The key component
in our system is the central mainframe computer,
which is an IBM AS400. Not relying upon hardware and software manufacturer
reassurances,
the Steering
Committee
acquired an additional AS400 computer
in September 1998 for use as a “time machine.” The
AS400 “time machine” enabled First Community’s specialists to leap forward into the future to December 31,
1999. On this simulated New Year’s Eve the test team ran our actual core application software (CBS Fiserv) on
the same type of computer
that drives the bank’s daily operations. Both hardware and software ran smoothly
through the simulated New Year’s date change,
through the leap year and other key processing dates which
have generated concern. So far, &is test has provided us with assurance that our core system and its connected
sub-systems have been properly remediated and will be able to deliver non-interrupted
service to our customers
in the new millennium. All other mission critical systems have also performed superbly in extensive Y2K
testing,
the results of which have been verified by system users and our audit department’s quality control staff.
In addition to our testing,
the hardware and software used by our Company is used by other banks nationally
and has withstood their testing regimens.
7,
Although First Community Bancshares’ important
systems have been tested and proven Y2K ready, a
contingency plan has been developed. This plan provides further assurance that no disruption of service will
occur in the unlikely event our testing efforts have failed to identify a potential Year 2000 problem. The
second and third quarters of 1999 will be devoted to Year 2000 contingency plan training and testing.
Our in-depth risk assessment also isolated some systems which were not capable of working in the new
millennium. The systems which have been or are being replaced include payroll, several personal computers
and their operating systems and some telephone equipment. Non-compliant
systems will be replaced and
thoroughly tested before the century date change.
Our projected Year 2000 direct expenses are expected to total $150,000. Due to our practice of investing
in top quality technology,
the actual direct expense to date has been approximately $47,000. These expenses
have been aimed at replacing non-compliant
systems and personnel costs associated with our comprehensive
testing and test results validation.
In addition to these direct expenses, $30,000 in administrative
costs have
been realized to assure proper management of the project.
We are proud of the efforts and results of our Year 2000 preparation and are excited by the level of
readiness it has given our Company. The commitment
and energy of our board, management and staff will
ensure that our 125 year old company will be there to provide service in the new millennium.
Management’s Discussion
and Analysis
Introduction,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary Financial Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Five-Year Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock and Dividends.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Interest
Income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Interest
Income........,..
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Securities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,.
Securities Available for sake....
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Performing Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Indebtedness
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Rate Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year 2000 Preparedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
10
10
12
12
13
14
14
15
15
17
17
17
17
18
19
19
19
19
20
20
20
21
9
Management’s Discussion
and
Analysis of Financial Condition and Results of Operations
Introduction
This discussion should be read in conjunction with
this report and the
the consolidated financial statements, notes and
tables included throughout
Company’s Annual Report on Form 1O-K. Manage-
ment’s discussion and analysis may contain forward-
looking statements
that are provided to assist in the
understanding of future financial performance. How-
ever, such performance involves risks and uncertain-
ties, which may cause actual results to differ
materially from those expressed in forwarding-looking
statements.
First Community Bancshares, Inc. (the “Company”
is currently a multi-state,
or “First Community”)
multi-bank holding company headquartered in
Princeton, West Virginia. With to~al resources of
$1.054 billion at year-end 1998, First Community
provides financial and trust services to individuals
and commercial customers through 33 full-service
banking locations in West Virginia, Virginia and
North Carolina.
In February 1999, the respective boards of the four
Inc.
affiliate banks adopted a merger and reorganization
agreement providing for the merger of all affiliate
banks of First Community Bancshares,
into a
single national association. The mergers are expected
to be complete on or about April 30, 1999, at which
time all banking operations will be conducted within
First Community Bank, N.A., a national association
to supervision of the Comptroller of the
subject
Currency. The mergers are designed to enhance
operational efficiency and streamline regulatory
considerations.
The completion of bank and branch acquisitions
in 1997 resulted in significant growth in total
resources of the Company between 1996 and 1997
and have a material
discussion of financial condition and results of
operations in comparison with other periods
presented.
impact on the following
Acquisitions
The Company acquired Citizens Bank of Tazewell
in Tazewell, Virginia in July 1996 and
(“Citizens”)
Blue Ridge Bank (“Blue Ridge”)
Carolina in April 1997. Additionally,
in Sparta, North
the Company
a*First
Community
Bancshares,Inc.
acquired three Virginia branches in July 1997 and
one additional West Virginia branch in Septem.
ber 1997. All of the above acquisitions, except
Citizens, were accounted for as “purchase” transac-
tions. “Purchase” accounting does not require restate-
ment of prior years’ results; accordingly,
the addition
of Blue Ridge and the branches result
changes in balance sheet
expenses.
in material
items and revenues and
The Company’s common stock was split five shares
for four on March 31, 1997 and March 31, 1998. All
share and per share data in this report have been
retroactively adjusted to reflect these two stock splits.
Summary Financial Results
20
.—...——
;:.
$15,094
i
15
10
50
0
Net
loan loss provisions in the second
income for 1998 was $13.1 million, or
$1.86 per share, down $1.99 million from $15.09 mil-
lion or $2.14 per share in 1997. The decrease in net
income between 1997 and 1998 is primarily attribu-
table to higher
quarter of 1998 due to the resolution through
foreclosure of a $4.7 million commercial
tionship. Other
results include the increase in operating costs and
intangible amortization associated with the bank and
branch acquisitions and the decline in net
margin from 5.25% in 1997 to the 1998 level of
factors negatively affecting 1998
loan rela-
interest
4.8 1%. The reduction in net
interest margin reflects
the addition of interest cost on acquisition indebted.
ness, a decrease in the Company’s loan-to-deposit
ratio, and declining asset yields as a result of the
overall decreasing trend in the interest
ment
throughout- 1998.
rate environ-
2.0
1.5
I
I 1.0
0.5
0.0
1.70% 1.73%
1.59%
1994
1995
1996
1997
1998
The Company’s key profitability ratios of Return
on Average Assets (ROA) and Return on Average
Equity (ROE) continue to reflect the strong earnings
performance of the Company and compare favorably
with regional and national peer groups. ROA,which
measures the Company’s stewardship of assets, was
in large part,
1.24%, down from 1.59% in 1997 and 1,73% in
1996. These decreases in ROA relate,
to branch acquisitions and related increases in
average assets in 1997 and 1998 designed to maintain
the Company’s capital
leverage position. ROE for the
Company remained strong in 1998 at 13.02% but
reflects a decrease from 16.05% in 1997 and 16.26%
in 1996. The declining ROE reflects the effect of
capital growth from $80.4 million in 1995 to
$101.7 million at the close of 1998 and the lower
net
paragraph.
income in 1998 as discussed in the preceding
20
15
I
I
10
5
0
16.33%
—_____
13.02%
1YY4
lYY>
19Y6
1997
11
Five-Year Selected Financial Data
(Amounts
in Thousands, Except Percent and Per Share Data)
$
$
$
Balance Sheet Summary (at end of period)
Loans, net of unearned income . . . . . . . . . . .
Reserve for loan losses . . . . . . . . . . . . . . . . . .
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lon~term debt
. . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . .
Summary of Earnings
interest
income . . . . . . . . . . . . . . . . . . .
Total
Total
interest expense . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . .
income . . . . . . . . . . . . . . . . . . . .
Non-interest
Non-interest
expense . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . .
Income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net
Per Share Data
. . . . . . . . . . . . . . .
Basic and diluted easings
Cash dividends
. . . . . . . . . . . . . . . . . . . . . . . .
Book value at year-end . . . . . . . . . . . . . . . . . .
Selected Ratios
Return on average assets . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . .
Dividend payout
Equity to year-end assets . . . . . . . . . . . . . . . .
Risk based capital
. . .
Leverage ratio . . . . . . . . . . . . . . . . . . . . . . . . .
to risk adjusted assets.
1998
1997
1996
1995
1994
611,493
11,404
277,210
1,054,006
875,996
18,176
101,737
$ 6[;,~~[
$54~,j~:
270;969
1,042,322
853,507
24,330
97,860
236:441
837,615
643,497
15,000
89,276
$485,151
8,321
246,578
780,253
622,723
15,000
80,411
$421,189
8,479
268,906
744,686
616,226
10,000
70,149
$
$
81,213
38,128
6,250
11,182
28,752
6,164
13,101
1.86
1.05
14.50
75,834
32,890
4,963
8,661
24,672
6,876
15,094
$64,941
$58,954
$53,723
26,933
2,273
9,070
24,358
6,530
13,917
23,482
2,235
7,214
22,694
4,968
12,789
19,846
1,764
7,035
23,238
4,456
11,454
2.14
1.04
13.85
$
1.98
.91
12.64
$
1.82
.78
11.50
$
1.62
.68
9.97
1.24%
13.02%
56.45%
9.65%
13.25%
7.370/0
1.59%
16.05%
48.60%
9.39%
11.96%
6.96%
1.73%
16.26%
45.96%
10.66%
17.02%
10.33%
1.70%
16.77%
42.86%
10.31%
17.29%
9.86%
1.55%
16.33%
41.98%
9.42%
17,22%
9.49%
Common Stock and Dividends
The Company’s common stock istraded
inthe
over-the-counter market. Daily bid and ask quota-
tions are available through the NASDAQ Level 111
Electronic Billboard under the symbol FCBC. On
December 31, 1998, First Community’s common
stock price was $29.25, a decrease of 3.9% from the
split adjusted December 31, 1997 closing price of
$30.45.
The year-end market price for First Community
common stock of $29.25 represents 202% of the
Company’s book value as of the close of the year and
reflects total market capitalization of $205 million.
Utilizing the year-end market price and 1998 basic
earnings per share, First Community common stock
closed the year trading at a price/earnings multiple of
15.73 times 1998 basic earnings per share.
Book value per common share was $14.50 at
December 31, 1998, compared with $13.85at
December 31, 1997, and $12.64 at the close of 1996.
Dividends for 1998 totaled $1.05 per share, up
$.01 from $1,04 paid in 1997. The 1998 dividends
resulted in a cash yield on year-end market of 3 .59Y0.
~og$;;iti
Bancshares,
Inc.
1.2-T ‘---
1.0
0.8
0.6
0.4
0.2
..-
00
I
1997
1998
lstQ.tier
2ndQuarter
3rdQuarter n 4thQuarter n Cumulative
Market Price and Dividends
1998
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bid
Low
$24.48
36.00
31.00
26.50
High
$29.60
43,00
42.75
33.75
Book
Value
Per Share
$14,18
14.01
14.35
14.50
1997
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$23.68
26.40
28.90
32.00
$21.76
22.60
25.40
26.20
$12.83
13.30
13.58
13.85
Cash Dividends
Per Share
$.25
.25
.25
.30
$1.05
$ .22
.25
.25
.32
$1.04
Net
Interest Margin
Net
interest margin measures net
interest
income
of average earning assets. In 1998,
interest margin declined to 4.81% for the year
as apercentage
net
from 5.25% in1997
decrease was due in large part
yield which decreased 26 basis points,
largely in the
taxable portion of the “available for sale” securities
portfolio andshort-term investments. During 1998, a
and 5.39% in1996. This
toa declining asset
further
reducing the
assets was invested in lower
larger portion ofeaming
yield, short-term investments
overall asset yield. Increases in the Company’s cost of
19980f10
funds during 1997and
14 basis Points, respectively, also had a negative
impact on net
adversely impacted by branch acquisitions which
brought with them a relatively higher cost of funds.
interest margin. The cost of funds was
basis points and
13
q
q
q
.
5.39% 5.25%
2
1
0
,-
1994
1995
1996
1997
1998
50,000
40,000
30,000
120,000
10,000
0
I
$40,395
1994
1995
1996
1997
1998
Net
Interest
Income
Provision for Loan Losses
in the Company’s loan portfolio. The level
The provision for loan losses represents charges
against operations to establish reserves for loan losses
inherent
of expense, as well as the required level of reserves, is
dependent upon a number of factors including
historical
specific credit weaknesses within the portfolio, con-
centrations of credit, assessment of the prevailing
economic climate, and other factors which may affect
the overall condition of the loan portfolio.
loss ratios by loan type, assessment of
The provision for loan losses was $6.3 million in
1998, $5.0 million in 1997 and $2.3 million in 1996.
The increase in the provision for loan losses in 1998
of $1.3 million was largely the result of a second
quarter provision taken in response to a commercial
loan foreclosure.
Elevated provisions in both 1997 and 1998 also
levels of consumer
include higher
loan charge-offs in
the Company’s credit card division and indirect auto
financing program. Each of these programs were
curtailed in 1998 and losses associated with these
types of retail
lending are expected to be substan-
tially reduced.
The fundamental
source of the Company’s ear-
interest
income,
is defined as the difference
nings,net
between income on earning assets and the cost of
funds supporting those assets. Significant categories of
earning assets are loans and securities while deposits
and short-term borrowings represent
the major por-
tion of interest-bearing liabilities.
On a tax equivalent basis, net
interest
income
increased $726,000 or 1.6% in 1998 and $5.3 million
or 13.1 Yoin 1997. Average earning assets increased
10.9% in 1998 and 16.1% in 1997. These increases
were primarily the result of bank and branch
acquisitions occurring throughout
tributed new earning assets and increases in tax
equivalent net
1997 which con-
income.
interest
The modest
increase in tax equivalent net
interest
income for 1998 is impacted by the sale of approxi-
mately $14.0 million in credit card revolving loan
accounts which reduced interest and fees on loans
approximately $747,000 in 1998. The proceeds of the
sale were reinvested in interest bearing balances
which yielded substantially lower earnings and,
accordingly,
income.
The portfolio sale was part of an overall exit strategy
for the credit card division.
reduced current year net
interest
@~ Firstl
Community
Bancshares,Inc.
Non-Interest
Income
Non-interest
income consists primarily of fiduciary
income on trust services and service charges on
deposit accounts. Non-interest
$11.2 million in 1998, a $2.5 million increase or
29.1% over the $8.7 million in 1997 and $2.1 roil.
lion or 23.3% improvement over the 1996 totals of
$9.1 million.
income totaled
Total non-interest
revenues from continuing
sources increased $1.04 million between 1996 and
1997 with this increase due largely to the acquisi-
tions of Blue Ridge Bank in 1997 which contributed
$457,000 in other revenues and new branches which
added an additional $179,000. When comparing
1998 with 1997, the full year of Blue Ridge and
branches contributed an additional $509,000 in other
operating revenues with non-interest
continuing sources increasing approximately
$260,000.
income from
.30
.25
.20
.15
.10
.05
.00
-
Higher
levels of non-interest
income for 1998 and
and termination
1996 include pension curtailment
gains of $1,062,000 (net of federal excise tax of
$764,000) and $1,450,000,
the Company’s termination of its Defined Benefit
Pension Plan, which was completed in the first
quarter of 1998.
respectively, as a result of
Included in other operating income for 1998 are
relationships
in the Company’s credit card
gains totaling $1.2 million on the sale of substan-
tially all revolving loan accounts and all merchant
account
division. The Company’s decision to exit this line of
business was based on its relatively small share of this
market, vigorous competition for credit card accounts
and rising consumer delinquencies. At year-end 1998,
the Company retained approximately $2 million in
revolving private label credit card accounts.
Service charges on deposit accounts are the largest
income. Service charge income
source of non-interest
totaled $3.8 million in 1998, an increase of $457,000
or 13.9% over 1997. This compares with a 10.5%
increase of $313,000 between 1997 and 1996.
Other service charges, commissions and fees
declined slightly in 1998 versus 1997. Alternatively,
a 30.5% increase in 1997 of $696,000 was exper-
ienced over 1996 levels. The increase in 1997 is the
result of an increased emphasis on fee bwed revenues
throughout
the organization as well as the addition of
Blue Ridge Bank and branch acquisitions occurring
in 1997 which added approximately $142,000. Other
transaction volume also increased in 1997, adding fee
revenues of approximately $614,000.
Fiduciary income continued at a strong level and
totaled $1.7 million in 1998, 1997 and 1996. Tmst
revenues are comprised of fees for asset management
and estate settlement. Expenses associated with the
operation of the Tmst and Financial Services Divi-
sion are included in non-interest
expense.
Non-interest
Expense
Non-interest
expenses consist of salaries and bene-
fits, occupancy, equipment and all other operating
expense incurred by the Company.
Non-interest
expense totaled $28.8 million in
1998, as compared with $24.7 million and $24.4 mil-
lion in 1997 and 1996, respectively. The substantial
increase in 1998 operating costs was attributable
to
the full year costs of Blue Ridge Bank and the
various branches in 1998 versus the partial year of
operation in 1997. When comparing 1998 to 1997,
the addition of Blue Ridge Bank and branches
acquired throughout 1997 added approximately
$956,000 and $1,268,000,
1997 levels. The total
respectively, over their
increase in 1997 over 1996 for
15
the bank and branch acquisitions was approximately
$3,301,000 and $722,000,
respectively.
In November 1996, the Company detected a
“payments system fraud” perpetrated by a business
customer and certain of its principals, all of whom
were long-term customers of a subsidiary of the
Company. The transaction commonly referred to as a
funds
“kite” involved the transfer of non-existent
between a subsidiary bank of the Company and a
third party to cover existing overdrafts. The Com-
pany recorded associated losses in December of 1996
totaling $3.4 million. These losses are reflected as a
expenses for 1996.
separate line item in non-interest
The Company expects partial repayment
from either
the principals or their business interests. Partial
in 1997 totaled $177,000 and is reflected
repayment
in other operating income. There were no recoveries
recognized in 1998.
($700,000)
The nominal
increase in total non-interest
expense
between 1996 and 1997 reflects the net effect of the
check collection losses in 1996 and the added
operating cost of Blue Ridge Bank ($3.3 million) and
new branches
in 1997. Partially offsetting
the cost of operation of new branches in 1997, was
the recognition of a $439,000 credit
in lieu of
pension expense due to the benefit freeze and
pending plan termination and the reversal of
$700,000 in litigation reserves established in 1995
and 1996. The Company was able to reverse the
largest portion of $1.1 million in reserves established
to provide for possible losses on litigation which was
ultimately settled in the second quarter of 1997 at a
total cost of approximately $460,000.
Salaries and employee benefits increased $906,000
or 8.090 when comparing 1998 with 1997 and relate
almost exclusively to the addition of Blue Ridge and
five new branches acquired in 1997. The effect of a
fill year of operations of these facilities in 1998
versus a partial year in 1997 resulted in additional
personnel costs of approximately $1,118,000 in 1998.
Blue Ridge contributed an additional $521,000 of
this total while the branch acquisitions added an
additional $597,000 in 1998. When comparing 1997
to 1996, the increase of approximately $1.8 million is
largely the result of the Blue Ridge and branch
acquisitions occurring in 1997 which added an
additional $1,653,000 over 1996. Blue Ridge added
an additional $1,355,000 while the branches added
an additional $298,000 in personnel cost.
occupancy
expense increased $264,000 or 15.7%
between 1998 and 1997. The acquisition of Blue
Ridge and new branches in 1997 resulted in addi-
tional occupancy cost in 1998 of approximately
$195,000.
The $323,000 increase (19.7%)
in firniture
and
equipment expense in 1998 reflects not only the
impact of acquisitions, which added approximately
$197,000 in additional cost, but also includes depre-
associated with the imple-
ciation and maintenance
mentation of new check processing technology and
the advent of electronic banking services imple-
mented in 1997 and early 1998.
1—
—
3.0
2.5
2.0
I
1.5
1.0
0.5
0.0
——
rhe Company’s net overhead ratio (non-interest
income excluding security
expense less non-interest
ga;ns and non-recurring gains divided by average
earning assets) is a measure of its ability to manage
and contr~l costs. As this ratio decreases, more of the
net
The net overhead ratios for 1998, 1997 and 1996
were 2.06Y0, 1.84% and 2.22Y0, respectively.
income earned is realized as net
income.
interest
The Company’s efficiency ratio also measures
management’s ability to control costs and maximize
revenue growth. The efficiency ratio is computed by
dividing non-interest
expense by the sum of the net
income (all non-
interest
recurring items excluded). The efficiency ratio for
1998 was 47.4%. The efficiency ratio for both 1997
and 1996 was 42.2%
income plus non-interest
q
(cid:151)
Income Tax Expense
Income tax expense totaled $6.2 million in 1998,
compared with $6.9 million in 1997 and $6.5 million
in 1996. The major difference between the statutory
tax rate and the effective tax rate (income tax
expense divided bypre-tax
income which is not
purposes. The primary category of non-taxable
income is that of state and municipal securities and
industrial
effective tax rate for 1998 was 32.0% as compared
with 31.3% for 1997 and 31.9% in 1996.
book income)
taxable for Federal
revenue bonds and tax-free loans. The
income tax
results from
Investment Securities
Investment
securities are comprised largely of U.S.
Agency obligations and state and municipal securi-
ties. U.S. Agency obligations include securities issued
by various government corporations and agencies,
including FHLB, FNMA, GNMA, SLMA, FFCB, and
FHLMC.
Obligations of States and Political Subdivisions
totaling $75.0 million are comprised of high grade
municipal securities generally carrying AAA bond
ratings, many of which also carry credit enhancement
insurance by major insurers of investment obligations.
The average maturity of the investment portfolio
increased from 9.08 years in 1997 to 10.05 years in
1998 with the tax equivalent yield increasing from
7.87% at year-end 1997 to 8.38% at the close of
1998. The increase in yield reflects the change in
portfolio composition which shifted toward the
municipal bond sector.
The investment portfolio totaling $84.0 million
decreased $25.2 million between 1997 and 1998.
This decrease is the result of large prepayments and
calls occurring as a result of the declining interest
in 1998. Portions of these cash
rate environment
flows were invested in overnight
interest bearing
balances with the Federal Home Loan Bank and
correspondent banking institutions.
Securities Available for Sale
Securities available for sale are used as part of
management’s asset/liability strategy. These securities
may be sold in response to changes in interest
rates,
changes in prepayment
other factors. These securities are recorded at market
value.
risk, for liquidity needs and
At December 31, 1998, the Company had
$193.2 million in securities available for sale, com-
pared with $161.8 million at year-end 1997. The
increase in this portfolio reflects the reinvestment of
funds received from loan principal prepayments
arising from early payoffs and calls and maturities of
investment
securities.
The market value of securities available for sale
exceeded book value at year-end 1998 by $2.1 mil-
lion. The tax equivalent purchase yield on securities
available for sale in 1998 was 6.56% and the tax
equivalent purchase yield in 1997 was 6.99Y0. The 43
basis point decrease in yield on the portfolio is a
rates
direct result of a general decline in interest
which triggered above average calls and prepayments.
These prepayments were then invested at prevailing
lower market rates along with additional
derived from reductions
in the loan portfolio.
funds
The average maturity of the portfolio was
15.6 years and 11.8 years at December 31, 1998 and
1997, respectively. The extended average maturity
reflects an increase in longer term municipal securi-
ties as a percentage of the total portfolio as well as
the replacement of short-term agency securities with
longer term instruments. Most of these longer term
~ecurities have call provisions and many are expected
:0 be called prior to &eir final maturity.
RealEstate- Construction
1.5%
Commercial.Financird
andAgricultural ~mi —
AllOthers
.1%
12!.6%
/
RealEstate-
Residential
37.3%
RealEstate- Commercial
27.9%
Loan Portfolio
The loan portfolio is diversified among loan types
and indust~ segments as well as geography. Commer-
cial and commercial
real estate loans represent 40.5%
real
of the total portfolio. During 1998, residential
loans
estate loans increased as a percentage of total
and now comprise 37.3 Yoof the portfolio. Decreases
in portfolio sectors were noted in commercial and
commercial
real estate, which declined by $37.2 mil-
17
consumer
lion or 13.0% in 1998. Additionally,
loans
declined by $23.0 million or 15.5% from $148.5 mil-
lion at December 31, 1997 to $125.5 million at the
close of 1998 and include the reduction due to the
aforementioned sale of credit card loans. Consumer
loans re~resent 20.6% and 22.0% of the portfolio at
the close of 1998 and 1997, respectively .-
.
800
700
600
I500
400
300
200
100-
0
1994
1995
1996
1997
1998
Loans, net of unearned income, were $611.5 mil-
lion at year-end 1998. This represents a $60.3 mil-
lion decline or 9.0% from the $671.8 million level at
December 31, 1997. During 1998, increased competi-
tion for commercial
loans by other banks and capital
market groups impacted minimum underwriting stan-
dards within the industry leading to sub-prime
interest
emphasis on owner guarantees. The Company
resisted this easing of price and quality standards and
sacrificed some existing and new loan business in the
process. This shift in underwriting standards coupled
with the declining interest
resulted
in above average principal prepayments and contrib-
uted to the decline in the loan portfolio.
rate environment
ratios, and less
loan-to-value
rates, higher
In addition to loan prepayments,
the sale of
substantially all credit card loans in the third and
fourth quarters of 1998 resulted in an additional $14
million reduction in the loan portfolio.
The loan-to-deposit
ratio decreased to 70% at
December 31, 1998 from 79% at December 31, 1997.
The reduction in the loan-to-deposit
ratio is a result
a .
Com%;kity
Bancshares,
Inc.
of the decline noted in the loan portfolio and a
$22.5 million increase in total deposits.
Reserve for Loan Losses
to extend
The reserve for loan losses represents reserves
available to absorb estimated loan losses and other
credit-related charges. Loan losses arise primarily
from the loan portfolio, but may also be derived from
other sources, including commitments
credit, guarantees, and standby letters of credit. The
reserve for loan losses is increased by both charges to
earnings in the form of provisions for loan losses and
recoveries of prior loan charge-offs, and decreased by
loans charged-off. The provision for loan losses is
calculated to bring the reserve to a level which,
management’s judgment,
absorb potential
in the loan portfolio.
Management performs monthly assessments to deter-
mine the appropriate level of the reserve. The factors
considered in this evaluation include, but are not
necessarily limited to, estimated losses from loan and
other credit arrangements, general economic condi-
tions, changes in credit concentrations
collateral, historical
in portfolio volume, maturity, composition, delin-
quencies, and non-accruals. While management has
the
attributed reserves to various portfolio segments,
allowance is general
entire portfolio.
in
is considered adequate to
loan loss experience, and trends
in nature and is available for the
losses inherent
or pledged
The reserve for loan losses represents 140% of
non-performing loans at year-end 1998 versus 79%
and 144% at December 1997 and 1996, respectively.
When other real estate is combined with non-
performing loans, reserves equal 98% of non-perform-
ing assets at the end of 1998 versus 72% and 106%
at December 31, 1997 and 1996, respectively.
Net charge-offs were $6.3 million in 1998, as
compared with $4.5 million in 1997 and $1.6 million
in 1996, respectively. The $1.8 million increase in
net charge-offs for 1998 is principally related to the
commercial
in
relationship to a failed furniture assembly plant
Princeton, West Virginia in the second quarter of
1998.
loan charge-off of $2.9 million on a loan
Net charge-offs for 1997 were elevated, due in
to retail
loan losses of $955,000 and $468,000
part,
in the credit card and indirect auto loan areas,
respectively, as well as a large single commercial
charge-off of $800,000 on a car dealer floor plan
arrangement.
loan
Non-Performing
Assets
Non-performing assets include loans on which
interest accruals have ceased, loans contractually past
due 90 days or more and still accruing interest, and
other
real estate owned (OREO) pursuant
to foreclo-
sure proceedings. Total non-performing assets were
$11.7 million at December31,
1998. The levels of
non-performing assets for the last five years are
presented in the table below.
1
December
31
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-accruing Loans
Loans 90 Days Past Due . . . . . . . . . . . . . . . . . . . . . . . .
Other Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . .
.!
I
Non-performing
Non-performing
andother
loans as a percentage of total
assets as a percentage of total
l~ans
loans
real estate owned...
Reserve for loan losses as a percentage of non-
. . . . . . . . . . . . . . . .
1998
1997
$7,763
$9,988
37’7
3,547
4,391
1,472
$11,687
$15,851
1996
.
$5,476
780
2,225
$8,481
1995
—
$4,371
673
929
$5,973
1994
—,
$6,909
968
919
$8,796
1.3%
1.9%
2.1%
1.1%
1.0%
1.9%
2.4%
1.6%
1.2%
2.l%
performing loans . . . . . . . . . . . . . . . . . . . . . . . . . . . .
140.l%
79.3%
143.7%
165.0%
107.6%
Reserve for loan losses as a percentage of non-
performing assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Non-performing
assets decreased $4.2 million
between 1997 and 1998 with decreases in both
loans. An
ninety days past due and non-accrual
real estate owned
increase was reflected in other
during 1998 as a result of the acquisitions of a
furniture manufacturing facility in southern West
Virginia and a townhouse project
Virginia. These acquisitions resulted in additional
other real estate owned in the amounts of $1.5 mil-
lion and $500,000, respectively. The manufacturing
to sell and the
property is presently under contract
income until
townhouse project
the units are sold. No losses are anticipated from the
sale of these properties.
is providing rental
in northern West
Deposits
Toval deposits at December 31, 1998 increased
$22.5 million or 2.6% when compared to Decem-
ber 31, 1997. The increase in deposits is the result of
$20.1 million and $9.6 million increases in demand
and interest bearing demand deposits, respectively.
Slight decreases were realized in other savings deposit
categories. In 1998, the average rate paid on interest
bearing liabilities was 4.57%, up from 4.4% in 1997.
The increase in the Company’s cost of funds is the
result of competition for deposits among both finan-
and non-bank financial service prov-
cial institutions
iders and the addition of new branches in late 1997
with relatively higher costs of funds. These factors
lead to an increase in the overall cost of funds
despite a general decline in market
during the year.
interest
rates
97.6%
72.0%
106.0%
139.3%
96.4%
Average deposits totaled $870.8 million for 1998
versus $759.4 million in 1997. The largest increase in
average deposits was experienced in interest-bearing
demand deposits, which increased 20.7% versus an
overall
bearing
increase of 14.7Y0.Non-interest
demand deposits increased 11.590 with a 16.8%
increase experienced on average time deposits. Aver-
age savings deposit accounts also increased 6.3Y0.
Short-Term Borrowings
The Company’s short-term borrowings consist pri-
marily of Federal Funds purchased and securities sold
under agreements to repurchase. This category of
funding is a source of moderately priced short-term
funds. Short-term borrowings decreased on average
$8.0 million or 13.5% from 1997 following a 8.4%
decrease between 1997 and 1996. The decrease in
average balances in 1998 is the result of the
increased liquidity in 1998. Strong liquidity in 1998
eliminated the need to purchase federal funds and
reduced the emphasis on short-term finding through
customer repurchase agreements.
Other
Indebtedness
Other
indebtedness, which represents long-term
advances from the Federal Home Loan Bank
(FHLB) and acquisition debt
bank decreased by $6.3 million in 1998. The
decrease is attributable
lion of FHLB debt and principal
acquisition debt.
to a correspondent
repayments on
to the maturity of $5.o roil.
19
Stockholders’ Equity
Risk-based capital ratios are a measure of the
Company’s capital adequacy. At December 31, 1998,
the Company’s Tier I capital ratio was 12.0%
compared with 10.70% in 1997. Risk-based capital
ratios and the leverage ratio are used by banking
regulators to measure the capital adequacy of banking
institutions. Risk-based capital guidelines risk weight
balance sheet assets and off-balance sheet commit-
ments in determining capital adequacy. The Com-
pany’s total risk-based capital-to-asset
13.25% at the close of 1998 compared with 11.96%
in 1997. Both of these ratios are well above the
current minimum level of 870 prescribed for bank
holding companies.
ratio was
H
I
20
—
I
15
-—
-—8.M%
I 101
1995
1996
1997
19
0
5
.
= RegulatoVMinimum W Risk-AdjustedAssets
The leverage ratio is the measurement of total
tangible equity to total assets. The Company’s
leverage ratio at December 31, 1998 was 7.37%,
compared to 6.96% at December 31, 1997, both of
which are well above the minimum 3% and the
recommended 4% to 5% range prescribed by the
Federal Reserve.
Liquidity
Liquidity represents the Company’s ability to
respond to demands for funds and is usually derived
from maturing investment
investments, periodic repayment of loan principal,
and from the Company’s ability to generate new
deposits. The Company also has the ability to attmct
securities, overnight
a .
~omktikty
Bancshares,
Inc.
short-term sources of finds and draw on credit
which have been established at financial
to meet cash needs.
lines
institutions
Total
liquidity of $462.7 million at December 31,
1998 is comprised of the following: cash on hand and
deposits with other financial
institutions of
$91.5 miIIion; securities available for sale of
investment
$193.2 million;
due within one year of $3.9 milliow federal finds
sold of $25.6 millio~ and Federal Home Loan Bank
credit availability of $148.5 million.
securities held to maturity
Interest Rate Sensitivity
Net
income,
revenue,
is subject
rate environments
rate risk has four primary components
the Company’s primary com-
to variation
interest
ponent of operational
as a result of changes in interest
in conjunction with unbalanced repricing opportuni-
ties in earning assets and interest bearing liabilities.
Interest
including repricing risk, basis risk, yield curve risk
and option risk. Repricing risk occurs when earning
assets and paying liabilities reprice at differing times
as interest
underlying rates on the assets and liabilities the
institution holds change at different
levels or in
varying degrees. Yield curve risk is the risk of adverse
consequences as a result of unequal changes in the
spread between two or more rates for different
maturities for the same instrument. Lastly, option risk
is due to “embedded options” often called put or call
options given or sold to holders of financial
instruments.
rates change. Basis risk occurs when the
rate
level of interest
to measure interest
rates, the Company manages
its interest
and thus,
general
repricing opportunities
sensitivity. The Company uses an earnings simulation
model
rate sensitivityy. The model
captures all earning assets, interest bearing liabilities
and all off balance sheet financial
combines the various factors affecting rate sensitivity
into an earnings outlook and based upon the latest
simulation,
it is currently
the Company believes that
asset sensitive. Asset sensitive positions can positively
impact net
ment or, alternatively,
income in a falling rate environment.
income in a rising rate environ-
interest
adversely impact net
instruments and
interest
The Company has established policy limits for
rate risk which allows for no
tolerance of interest
more than a ten percent
interest
tions. Based on the most recent simulation,
reduction in projected net
income based on quarterly income simula-
the
1998
13
In order to mitigate the effect of changes in the
its current exposure to
rate risk does not exceed this policy limit. In
Company believes that
interest
the simulation’s most likely scenario which incorpo-
rates relatively little change in the treasury yield
curve and a 25 basis point drop in the prime lending
rate in the second quarter of 1999, net
income could potentially increase by as much as 4°A
over 1998 with effective management of key deposit
interest
interest
rates.
Year 2000 Preparedness
The arrival of January 1, 2000 is expected to cause
issues involv-
the
is ongoing and is nearing the completion of
disruption in computer systems (hardware, software
and imbedded chips) with two-digit year fields, which
cannot distinguish between the years 1900 and 2000.
First Community Bancshares, Inc. and affiliates have
established an oversight committee to direct and
monitor
its Year 2000 readiness project. As of
December 31, 1998 and the date of this report,
project
the testing phase. The principal purpose of the
project
is to address issues or potential
ing computer programs and imbedded computer chips
which may be unable to distinguish between the Year
is
1900 and the Year 2000. The Project Committee
comprised of key management and operational per-
sonnel from throughout
the Company. This Commit-
tee, appointed by the Company’s Board of Directors,
has full authority to direct resources as necessary to
ensure that project objectives are achieved and
completed within prescribed time frames and well in
advance of the millennium date change. The Com-
mittee has completed its work in the awareness and
assessment phases by identifying those computer
systems which the Company uses to process impor-
tant
have embedded computer chips which are subject
Year 2000 problems. The Committee prioritized all
such systems and identified a group of ‘(mission
critical” systems.
information, and those other systems which may
to
the
loan relationships and suppliers to
In order to determine the Company’s exposure due
third-party Year 2000 problems,
to potential
oversight committee coordinated the risk assessment
of significant
evaluate the state of readiness of these entities and
their ability to deal with Year 2000 problems. The
remediation phase involves upgrading or replacing of
hardware, software and other systems which could be
affected by Year 2000 problems. This phase is
complete for all mission critical systems and the
testing process is underway on these renovated
systems and mission critical systems provided by third
parties which are certified as Year 2000 compliant.
Testing for mission critical systems, including the
items
the Federal Reserve On-Line Exchange,
Company’s Comprehensive Banking System,
processing,
the Trust accounting system, and the ATM Manage-
ment system has been completed. Testing for other
mission critical systems including loan and deposit
origination platform systems is underway and is
scheduled to be complete by March 31, 1999.
Additional
testing for vendor-provided releases on
these systems will be necessary throughout 1999 as
these releases are made available.
Other systems which are not considered mission
critical remain in the remediation phase with com-
pletion of remediation and testing planned for the
second quarter of 1999.
Risks
The failure to correct a material Year 2000
if
in
loan
in, or a
in an interruption
their ability to repay their
loan customers experience severe
problem could result
failure of, certain normal business activities or
operations. Such failures could materially and
adversely effect the Company’s results of operations,
liquidity and financial condition. For example,
significant
Year 2000 problems,
obligations in a timely manner would be adversely
affected. Due to the general uncertainty inherent
the Year 2000 problem,
resulting in part from the
uncertainty of the Year 2000 readiness of certain
third party suppliers and customers,
unable to determine at this time whether
consequences of Year 2000 failures will have a
material
tions,
the Year 2000 project
is expected to significantly
reduce the Company’s level of uncertainty about
the
Year 2000 problem and,
Year 2000 compliance and readiness of its material
external agents and customers. The Company
believes that with the remediation of existing systems
of new business systems
and with the implementation
and completion of the project as scheduled,
possibility of significant
operations should be reduced.
impact on the Company’s results of opera-
liquidity or financial condition. Completion of
the
interruptions of normal
the Company is
the
in particular, about
the
costs
The Company’s budgeted total cost of the
is approximately $150,000. The
through the
is
Year 2000 project
total amount expended on the project
date of this report, exclusive of administration,
approximately $47,000 and includes the cost of salary
and overtime for existing operations and Information
testing, and verifica-
Systems staff in the assessment,
21
costs of $30,000 are
is estimated at $103,000. Approximately
tion of systems. Additional
estimated to have been incurred to date in adminis-
tration and committee meeting bringing total costs to
$77,000. The total remaining cost of the Year 2000
project
$75,000 is for new software and hardware purchases.
As of the date of this report,
only 31 ‘A of its direct budget for the project despite
the fact that
mission critical systems. Hardware replacement
minor software replacement
will bring expenditures more closely in line with the
overall project percentage of completion.
it is nearing completion of all phases for
the Company has spent
in the second quarter
and
The cost of the project,
the dates on which the
Company plans to complete Year 2000 modifications,
and the impact of third party compliance are based
on management’s best estimates which were derived
utilizing certain assumptions as to future events
including the availability of outside resources, cooper-
ation from third parties and external agents of the
Company as well as the level of Year 2000 readiness
by various vendors and customers. Some of these
assumptions involve contingencies which are beyond
the actual
the control of the Company. Accordingly,
cost and impact of Year 2000 problems which the
company may experience, particularly those caused
by third-party difficulties, can only be estimated at
this time.
Contingency
Planning
The Company has developed a contingency plan
remediation,
for mission critical systems designed to allow it to
avoid significant business interruption
in the event
current systems are affected by Year 2000 issues. This
Contingency Plan involves the maintenance of alter-
nate processing sites, acquisition and development of
additional human resources which will be prepared
for additional
if necessary, throughout
1999 and in January 2000, as well as the develop-
ment of alternate manual procedures which can be
employed as back-up processes for existing automated
business processes. The Contingency Plan was com-
pleted and approved by the Board of Directors in
February 1999. Testing of the Plan will be completed
early in the second quarter of 1999 and the Plan will
be revised as necessary throughout
1999.
Consolidated Financial Statements
Consolidated Balance Sheets . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income and
Comprehensive
Income
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flow.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..O .O .”.””””
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Independent Auditors’ Report..
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”.””.””.””””.”””
““””
Report on Management’s Responsibilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
25
26
27
28
47
48
23
Consolidated Balance Sheets
(Amounts
in Thousands, Except Share Data)
ASSETS
Cash andduefiom banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest bearing balances—FHLB.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(amortized cost of$l9l,l3l,
Securities available forsale
1998;
$159,711, 1997) . . . . . ..."".".".".""..."."..".""""...."."."".."..."""
Investment
securities held to maturiW.
U.S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
agencies and corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. Government
States and political subdivisions.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other securities
Total
securities (market value, $88,256, 1998;
investment
$112,263, 1997) . . . . . . .. O.". "" O"O"O.--- o-o"o -o""""""""""""
Total
loans, net ofuneamed
Less reserve for loan losses..
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
loans.............”””””
““” .” ”” ”” .- DO-””””””””””””””
Net
Premises and equipment
Other
Interest
Other assets . . . . . . . . . . . . . . . . .............”..”..”o””””
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
““”””””””::::
. “””..”::::::
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits:
LIABILITIES
Total deposits . . . . . . . . . . . ..-.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Demand
Interest-bearing
Savings . . . . .. o. 4. . . . ..”.”..””
Time . . . . . . . . . . . . . . . ..””””.””
.“--. O-”””””””””””””””””””””””
.“ . . .. ” O””””””””””””””””””””””
demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“::::::
“
““”””””
Interest,
taxes and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
indebtedness
Total Liabilities
““. ”. ”” ”. ”” .” .” O-”””””””””””
Common stock, $l par value in 1998 and 1997, 10,000,000 shares authorized;
STOCKHOLDERS’ EQUITY
1997, respectively; 7,014,042 and
7,193,909 shares issued in1998and
7.063,665 shares outstanding in1998
and 1997, respectively . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock, ac cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive
Total Stockholders’ Equity...
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . .
See Notes to Consolidated Financial Statements.
CoR$ihty
Bancshares,lnCo
December
31
1998
1997
$
33,961
57,523
25,630
193,194
100
7,546
75,009
1,361
84,016
611,493
11,404
600,089
17,986
3,547
7,030
6,684
24,346
$
34,;;
12,406
161,795
4,098
26,377
77,641
1,058
109,174
671,817
11,406
660,411
19,133
1,472
7,688
9,734
25,774
$1,054,006
$1,042,322
$
123,992
137,169
148,461
466,374
875,996
10,417
—
47,680
18,176
952,269
$ ;:;,:fi
149:407
472,713
853,507
11,455
2,705
52,351
24,444
944,462
7,194
36,122
60,250
(1,403)
(1,664)
1,238
101,737
$1,054,006
7,194
36,122
54,564
(1,271)
–
1,251
97,860
$1,042,322
Consolidated Statements of Income and Comprehensive
Income
(Amounts
in Thousands, Except Share and Per Share Data)
YearsEnded December
31
1998
1997
1996
$62,323
9,060
$59,753
9,128
$50,553
7,556
Income
Interest
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
available for sale . . . . . . . . . . . . . . . . . . . . .
Interest on investment
insecurities
securities:
U. S. Treasury securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
agencies and corporations
U.S. Government
States and political subdivisions,
. . . . . . . . . . . . . .
tax exempt
Other securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”.
Interest on federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Interest ondeposits
in banks .,.......
Total
interest
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense
Interest on deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”””.””
Interest onshort-term bomowings . . . . . . . . . . . . . . . . . . . . . . . . .
indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on other
Total
interest expense
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net
interest
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netinterest
income after provision for loan losses . . . .
Non.lnterestlncome
Fiduciary income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service charges on deposit accounts
. . . . . . . . . . . . . . . . . . . . . . .
Other service charges, commissions and fees . . . . . . . . . . . . . . . .
Net securities (losses) gains ..,...
. . . . . . . . . . . . . . . . . . . . . . . .
Other operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension termination gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-interest
income...
. . . . . . . . . . . . . . . . . . . . . .
Expense
Non-Interest
Salaries and employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Occupancy expense ofbank premises . . . . . . . . . . . . . . . . . . . . . .
Furniture and equipment expense . . . . . . . . . . . . . . . . . . . . . . . . .
Check collection losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill and core deposit amortization . . . . . . . . . . . . . . . . . . . .
Other operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non”interest
expense
. . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes...
Income tax expense
. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”..
117
1,034
3,989
90
1,594
3,006
81,213
34,374
2,295
1,459
38,128
43,085
6,250
36,835
1,682
3,’746
2,935
25
1,732
1,062
11,182
12,242
1,943
1,965
—
2,061
10;541
28,752
19,265
6,164
337
2,333
3,205
85
949
44
75,834
28,773
2,623
1,494
32,890
42,944
4,963
37,981
1,678
3,289
2,979
70;
—
8,661
11,336
1,679
1,642
—
1,379
8,636
24,672
21,970
6,876
Net
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”.”””
Other comprehensive
(loss) income, net of tax . . . . . . . . . . . . . .
Comprehensive
income
. . . . . . . . . . . . . . . . . . . . . . . . . . ...””..
Weighted average basic and diluted shares outstanding . . . . . . .
Basic and diluted earnings per common share . . . . . . . . . . . . . .
$13,101
(13)
$13,088
7,040,437
$1.86
$15,094
818
$15,912
7,063,033
$2.14
See Notes to Consoli&ted Fiwncial Statements
I
778
3,307
2,520
82
117
28
64,941
23,158
2,898
877
26,933
38,008
2,273
35,735
1,731
2,976
2,283
(;;:)
1,450
9,070
9,580
1,596
1,212
3,365
315
8,290
24,358
20,447
6,530
$13,917
41
$13,958
7,028,349
$1.98
25
Consolidated Statements of Cash Flow
(Amounts
in Thousands)
Operating Activities
Cash flows from operating activities:
Net
Adjustments
to reconcile net
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
income to net cash provided by
Years Ended December
31
1998
1997
1996
$
13,101
$
15,094
$
13,917
operating activities:
Provision for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation ofpremises and equipment.
. . . . . . . . . . . . . . .
Amortization of intangibles
. . . . . . . . . . . . . . . . . . . . . . . . . .
investment amorti~ation and accretion . . . . . . . . . . . . .
Net
saleof assets . . . . . . . . . . . . . . . . . . .
(gain) loss onthe
Net
in interest receivable . . . . . . . . . . . . . . .
Decrease (increase)
in other assets . . . . . . . . . . . . . . . . . . . .
Decrease (increase)
Decrease in other liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Net cash provided by operating activities
. . . . . . . . . . . . . . . . . .
Investing Activities
Cash flows from investing activities:
Proceeds from sales of securities available for sale . . . . . . . . . . . .
Proceeds from maturities and calls of securities available for sale
Proceeds from maturities and calls of investment
. . . .
Proceeds from sale ofcredit
card loans . . . . . . . . . . . . . . . . . . . . .
Purchase of securities available for sale . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of investment
. . . . . . . . . .
Net decrease (increase)
Cash provided by branch acquisitions, net
. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Purchase ofpremises and equipment..
. . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of equipment.
securities.
in loans made to customers
securities
6,250
1,514
1,915
(1,3;:)
658
2,958
(1,033)
88
24,108
—
100,920
25,488
15,590
(132,381)
(300)
37,664
(7=)
287
Net cash provided by (used in) investing activities
. . . . . . . . . .
46,542
Financing Activities
Cash flows from financing activities:
increase (decrease)
in demand and savings deposits . . . . . . .
Net
(decrease) increase in time deposits . . . . . . . . . . . . . . . . . . . .
Net
Net
. . . . . . . . . . . . . . . . .
(decrease) increase in short-term debt.
Repayment oflong-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . .
Acquisition oftreasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reissuance oftreasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
fractional shares . . . . . . . . . . . . . . . . . . . . . .
Cash paid inlieuof
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by financing activities
. . . . . . . . . .
Cash and Cash Equivalents
Netincrease
Cash and cash equivalents at beginning of year.
cash equivalents
incashand
. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
28,556
(6,351)
(7,376)
(7,768)
1,500
(1,796)
(;)
(7,415)
(677)
69,973
47;141
4,963
1,192
647
(332)
(103)
(358)
1,046
(2,857)
(51)
19,241
18
24,762
26,509
(35,0;)
(26,447)
(27,014)
39,658
(2,018)
16
394
(8,507)
30,398
(23,443)
(2,412)
11,500
—
(;;)
(7,345)
186
19,821
27,320
2,273
856
625
271
12
285
(3,323)
(887)
(274)
13,755
15,868
14,771
27,723
(45,6;)
(2,915)
(64,044)
18,735
(439)
159
(35,783)
(10,328)
10,263
28,294
(lo)
(1;)
1,499
—
(6,422)
23,126
1,098
26,222
Cash andcash
equivalents at end of year . . . . . . . . . . . . . . . . . .
$ 117,114
$ 47,141
$
27,320
See Notes to Consolidated Financial Statements.
~:g$:~ity
Bancshares,
Inc.
Consolidated
Statements of Stockholders’ Equity
(Amounts
in Thousands, Except Share and Per Share Information)
Balance, December 31, 1995 . . . . . . . .
Net
Common dividends declared
income . . . . . . . . . . . . . . . . . . . ----
($.91 pershare)
. . . . . . . . . . . . . . . . . .
Purchase of 6,375 treasury shares at
$26.80 per share . . . . . . . . . . . . . . . . .
Reissuance of 62,286 treasury shares at
$24.06 per share . . . . . . . . . . . . . . . . .
Comprehensive income, net of tax . . . .
Balance, December 31, 1996 . . . . . . . .
Net
income . . . . . . . . . . . . . . . . . . . . . . .
Common dividends declared ($1.04 per
. . . . . . . .
share) . . . . . . . . . . . . .. ----
Change from $5.00 par value to
$1.00 par value . . . . . . . . . . . . .. ----
Reissuanceof 727 treasury sharesat
$23.70 per share . . . . . . . . . . . . . . . . .
Comprehensive income, net of taX . . . .
Balance, December 31, 1997 . . . . . . . .
Net
income . . . . . . . . . . . . . . . . . . . . . . .
Common dividends declared ($1 .05 per
share) . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase 44,731 ESOP shares at a
weighted cost of $37,20 per share . . .
Purchase 4,125 treasury sharesat
$31.87 pershare
. . . . . . . . . . . . . . . . .
Comprehensive income, net of tax . . . .
Common
Stock
$ 30,~17
—
Additional
Paid-in
Capital
$13,128
—
—
—
—
—
—
—
(29)
—
Retained
Earnings
$39,320
13,917
Treasury
Stock
$(2,646)
—
(6,422)
–
—
–
—
—
—
—
(170)
1,528
—
(1,288)
—
–
—
17
—
30,217
—
13,099
—
46,815
15,094
—
—
(7,345)
(23,023)
23,023
—
—
7,194
—
—
—
—
—
—
—
36,122
—
54,564
13,101
(1,271)
—
—
—
—
—
(7,415)
—
—
—
–
—
(132)
—
Unallocated
ESOP
Shares
$ —
—
Accumulated
Other
Comprehensive
Income
$ 392
—
1
–
–
—
—
—
—
–
—
—
—
—
—
–
(1,664)
–
—
–
–
—
41
433
—
–
—
—
818
1,251
—
–
–
(;)
Balance, December 31, 1998 . . . . . . . .
$ 7,194
$36,122
$60,250
$(1,403)
$(1,664)
$1,238
See Notes to Consolidated Financial Statements.
27
Notes
to Consolidated
Financial Statements
Notel.
Summary of Significant Accounting
Policies
Basis of Presentation
andreporting
~eaccounting
policies of First Community Bancshares,
Inc. and subsidiaries (First
Community or the Company) conform to generally accepted accounting principles and to predominant
practices within the banking industry. In preparing financial statements, management
estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual
results could differ from those estimates. Assets held in
an agency or fiduciary capacity are not assets of the Company and are not
consolidated balance sheets.
included in the accompanying
is required to make
Principles of Consolidation
The consolidated financial statements of First Community include the accounts of all wholl~owned
subsidiaries. All significant
the Parent Company financial statements,
such subsidiary increased by the unamortized portion of the excess of fair value over the cost of net assets
acquired, where applicable.
intercompany balances and transactions have been eliminated in consolidation.
in subsidiaries is stated at equity in the net assets of
the investment
In
Securities Available for Sale
Securities to be held for indefinite periods of time including securities that management
intends to use as
strategy, and that may be sold in response to changes in interest
part of its asset/liability management
changes in prepayment
risk, or other similar factors are classified as available for sale and are recorded at
market value. Unrealized appreciation or depreciation in market value above or below amortized cost is
Income.”
included in stockholders’ equity net of income taxes which is entitled “Other Comprehensive
Premiums and discounts are amortized to expense or accreted to income over the lives of the securities. Gain
or loss on sale is based on the specific identification method.
rates,
Investment Securities
Investments
in debt securities which management has the ability and intent
to hold to maturity or on a
lon~term basis are carried at cost. Premiums and discounts are amortized to expense and accrued to income
if any, is on the
over the lives of the securities. Gain or loss on the call or maturity of investment
specific identification method. At December 31, 1998 and 1997, no securities were held for trading purposes
and no trading account was maintained.
securities,
Reserve for Loan Losses
(1) analytical
The reserve for loan losses is available to absorb future loan charge-offs. The allowance is increased by
provisions charged to operations and reduced by losses, net of recoveries. The amount charged to operations
based on several factors including
reviews of significant commercial and commercial mortgage
loans and loan loss experience in relationship to outstanding loans to determine an adequate reserve for loan
losses required for outstanding loans; (2) a continuing review of loans evaluated by the loan review process as
less than satisfactory, all non-performing loans and overall portfolio quality (3) regular examinations
appraisals of the loan portfolio conducted by federal and state supervisory authorities; and (4) management’s
judgment with respect
accrual
procedures, changes in lending management,
geographic areas.
loans, trends in the volume and term of loans, anticipated impact from changes in lending policies and
to current and expected economic conditions,
the level of delinquencies and non-
in certain industries or
and any concentration
of credit
and
is
In 1995, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 114,
“Accounting by Creditors for Impairment of a Loan,” which requires an allowance to be established as a
component of the reserve for loan losses for certain loans (using the discounted cash flows or fair value of
collateral) when it is probable that all amounts due pursuant
terms of the loan will not be
collected and the recorded investment
status of all loans designated as non-accrual or which have been classified as “substandard” or “doubtfu~’ by the
Company’s loan review process. Management does not
homogeneous
loans are evaluated on an aggregate basis using a formula-based approach in accordance with the Company’s
policy. All of the loans deemed to be impaired were evaluated using the fair value of the collateral as the
measurement
loans and residential mortgage loans for impairment. These
in the loan exceeds the fair value. Management
individually evaluate certain smaller balance,
loans, such as consumer
reviews the impairment
to contractual
installment
standard.
I
Premises and Equipment
premises and equipment are stated at cost less accumulated depreciation. Depreciation of both buildings
and improvements as well as for equipment
lives. Maintenance
gains and losses are reflected in current operations.
and repairs are charged to current operations while betterments
are capitalized. Disposition
is computed on the straight-line method over estimated useful
Long-lived assets to be held and those to be disposed of and certain intangibles are evaluated for
impairment
for the Impairment of Long-Lived Assets or for Lon&Lived Assets to be Disposed of”.
in accordance with Statement of Financial Accounting Standards (SFAS) No. 121 “Accounting
Income on Loans
Accrual of interest on loans is based generally on the daily amount of principal outstanding.
It is the
Company’s policy to discontinue the accrual of interest on loans based on their payment status and evaluation
of the related collateral and the financial strength of the borrower. The accrual of interest
income is normally
discontinued when a loan becomes 90 days past due as to principal or interest. Management may elect
to
continue the accrual of interest when the loan is well secured and in process of collection. When interest
accruals are discontinued,
accrued and not collected horn prior years is charged to the reserve for possible loan losses. Credit card loans
which become 180 days past due are automatically charged to the reserve for possible loan losses.
interest accrued and not collected in the current year is reversed and interest
Loan Fee Income
Loan origination fees are recorded as a reduction of direct costs associated with loan processing,
salaries, review of legal documents, obtainment of appraisals, and other direct costs. Fees in excess of those
related costs are deferred and amortized over the life of the related loan. Loan commitment
and amortized over the related commitment period.
fees are deferred
including
Other Real Estate Owned
Other
real estate owned and acquired through foreclosure is stated at the lower of cost or fair market
value less estimated costs to sell. Loan losses arising from the acquisition of such properties are charged against
the reserve for possible loan losses. Expenses incurred in connection witi operating the properties, subsequent
write-downs and gains or losses upon sale are included in other non-interest
reserves for loss on the disposition of other real estate are established through charges against current
operations.
income and expense. General
Unallocated
ESOP Shares
The cost of unallocated employee stock ownership plan shares are included as a component of
stockholders’ equity. The plan shares will be allocated to participant
seven years based upon relative employee compensation.
accounts over a period not
to exceed
29
Intangible Assets
The investment
in subsidiaries and branches in excess of amounts attributable
to vangible and identified
intangible assets at dates of acquisition is recorded as goodwill and is being amortized to operations over a
period of fifteen years using the straight-line method. The unamortized balance of goodwill was $23,684,000
and $24,986,000 at December 31, 1998 and 1997, respectively. A portion of the cost of purchased subsidiaries
has been allocated to values associated with the fiture earnings potential of acquired deposits and is being
amortized over the estimated lives of the deposits which range from seven to ten years. The unamortized
balance of identified intangibles associated with acquired deposits was $662,000 and $788,000 at December 31,
1998 and 1997, respectively.
Income Taxes
The Company accounts for taxes using the provisions of SFAS No. 109, “Accounting for Income Taxes,”
which, under the asset and liability method, provides deferred income taxes which are recognized for the Pax
consequences of “temporary differences” by applying enacted statutory tax rates to the differences between the
financial statement carrying amounts and the tax bases of existing assets and liabilities. Under SFAS No. 109,
the effect on deferred taxes of a change in tax rates is recognized in income in the period that
enactment date.
includes the
Reclassifications
Certain amounts included in the 1997 and 1996 financial statements have been reclassified to conform
with the presentation used in preparation of the 1998 financial statements.
Recent Accounting Pronouncements
Statement of Financial Accounting Standard (SFAS) No. 131 was issued in June 1997. SFAS No. 131
information about different operating
established standards for the way that public business enterprises report
segments. This Statement
applied to interim financial statements
currently operates only one segment which represents bank financial services.
is effective for fiscal years beginning after December 15, 1997 and need not be
in the initial year of application. First Community Bancshares, Inc.
Statement of Financial Accounting Standard (SFAS) No. 132 was issued in February 1998. SFAS No. 132
for pensions and other postretirement
and concise. This statement
benefits in order to provide
supersedes the disclosure
in several other Financial Accounting Standards Board statements. The Statement
is effective for
standardizes the disclosure requirements
information that
requirements
fiscaI years beginning after December 15, 1997.
is more comparable, understandable
Statement of Financial Accounting Standard (SFAS) No. 133 was issued in June 1998. SFAS No. 133
sets forth a comprehensive approach to addressing the accounting for derivative instruments,
derivative instruments embedded in other contracts, and hedging activities. This standard addresses the type of
activities which are included within the definition of derivatives and imbedded derivatives and identifies the
methods to be used for valuation and income recognition.
addressed, the standard also allows a one time transfer of securities horn the held-to-maturity
for-sale or the trading category which can only be applied at the date of initial application of the Statement.
This Statement
application of the provisions of this Statement
fiscal quarter
the impact of this Statement.
In addition to the derivative and hedging activities
to the available-
is permitted only as of the beginning of any
is currently in the process of evaluating
is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. Earlier
that begins after issuance of this Statement. Management
is encouraged but
including certain
In October 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 134. This Statement
Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise.
This Statement
amends FASB Statements No. 65 and No. 115. This Statement
addresses the Accounting for Mortgage-Backed
is effective for the first fiscal
~o~~;;ity
Bancshares,
Inc.
quarter beginning after December 15, 1998. The provisions of this Statement
the business or operations of the bank.
are not currently applicable to
Cash Flows
In 1998, 1997 and 1996 for purposes of reporting cash flows, cash and cash equivalents
due from banks, federal funds sold, and interest bearing balances available for immediate withdrawal.
and income taxes paid in 1998, 1997 and 1996 were as follows:
include cash and
Interest
1998
1997
1996
(Amounts in fiousands)
Interest
Income tree
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$38,267
6,744
$32,726
6,433
$26,615
7,911
Supplemental Schedule of Non-Cash Transactions
Transfers of loans to other real estate owned . . . . . . . . .
. .
Unrealized loss (gain) on securities available for sale.
$ 3,588
21
$
862
(1,375)
$2,190
(69)
Note 2. Merger and Acquisitions
On July 3, 1996, First Community acquired Citizens Bank of Tazewell (Citizens), headquartered in
Tazewell, Virginia. As of the merger date, Citizens had approximately $52.2 million in total assets and
$46.2 million in total deposits. Pursuant
3.51 shares of its common stock for each share of Citizens’ common stock, which totaled 263,159 shares upon
consummation.
to the Agreement and Plan of Merger, First Community exchanged
This transaction was accounted for as a pooling of interests. The pooling of interests method requires the
combining of the financial
Consequently,
reflect this combination.
information of the merging companies as though they had always been combined.
the results of operations of First Community and Citizens for 1996 has been restated to properly
On April 9, 1997, the Company acquired 100% of the common stock of Blue Ridge Bank (Blue Ridge),
the Company exchanged cash of $19.50 for each of Blue Ridge’s 1,212,148 common shares. In
headquartered in Sparta, North Carolina. Blue Ridge was a $105 million state-chartered
located in Sparra, Elkin, Hays and Taylorsville, North Carolina. Pursuant
Merger,
conjunction with the acquisition, Blue Ridge canceled outstanding stock options through the payment of
$72’7,948 representing the difference between $19.50 and the respective option prices. Total consideration,
including the payment
approximately $14.1 million which is being amortized over a 15-year period. The acquisition was partially
funded with loan proceeds of $11.5 million which the Company borrowed from an outside source. The
acquisition was accounted for under the purchase method of accounting. Accordingly,
Blue Ridge are included in consolidated results from the date of acquisition. Subsequent
Ridge operates as a wholly-owned subsidiary of First Community.
to the Agreement and Plan of
for cancellation of the options, was $24.4 million and resulted in an intangible asset of
results of operations of
to the merger, Blue
bank with offices
On July 24, 1997, the Company expanded its Virginia operations through the acquisition of three bank
branches located in Fort Chiswell, Pound, and Clintwood. The acquisition of these branches added $44 million
in new deposits and assets to the existing Virginia subsidiary. The branch acquisitions were accounted for
under the purchase method of accounting. Accordingly,
the results of operations of the branches are included
in consolidated results only from the date of acquisition. The excess purchase price of the branches, over the
fair value of tangible assets acquired,
totaled $4.6 million and is being amortized over a 15-year period.
At
the close of business on September 26, 1997, First Community Bank, Inc., a subsidiary of the
Company, acquired the Man, West Virginia branch of Huntington National Bank, West Virginia. The
acquisition of this branch added approximately $51 million in deposits. The intangible value of this transaction
to~aled approximately $4.9 million which is being amortized over a 15-year period. This acquisition was
accounted for under the purchase method of accounting;
included in consolidated results of operations only from the date of acquisition.
the operations of the Man branch are
therefore,
31
The following unaudited proforma financial
information shows the effect of the Blue Ridge acquisition as
if the transaction were consummated on January 1, 1996.
First Community
Bancshares,
Inc.
Proforma Unaudited Supplemental
(Amounts
in thousands
Financial
except per share data)
Information
Net
Interest
Net Income
Basic and diluted Earnings Per Common Share . . . . . . . . . . . . . . . .
Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”.””.”
$43,665.
15,078
2.14
$41,709
13,958
1.98
1997
1996
Note 3. Securities Available for Sale
As of December 31, the amortized cost and market value of securities classified as available for sale are as
follows:
1998
Amortized
cost
Unrealized
Gains
Unrealized
Losses
Market
Value
(Amounts in Thousands)
U.S. Government
agency
securities . . . . . . . . . . . . . . . . . . . . .
. . .
securities . . . . . . . . . . . . . . . . .
States and political subdivisions.
Other
Total
. . . . . . . . . . . . . . . . . . . . . .
$119,236
36,458
35,437
$191,131
$ 713
1,470
915
$3,098
$ (441)
(585)
(9)
$(1,035)
$119,508
37,343
36,343
$193,194
.,, ,
\
1997
Amortized
cost
Unrealized
Gains
Unrealized
Losses
Market
Value
(Amounts in Thousands)
U.S. Government
and agency
securities . . . . . . . . . . . . . . . . . . . . .
States and political
. . .
Other securities . . . . . . . . . . . . . . . . .
subdivisions.
Total
. . . . . . . . . . . . . . . . . . . . . .
$131,892
21,668
6,151
$159,711
$1,127
926
322
$2,375
$ (273)
(18)
—
$ (291)
$132,746
22,576
6,473
$161,795
Securities available for sale with market values of $65,421,000 and $64,454,000 at December 31, 1998 and
1997, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and
other short-term borrowings and for other purposes.
The amortized cost and market value of securities available for sale at December 31, 1998, by contractual
maturity, are shown below. Expected maturities will differ from contractual maturities because issuers may have
to call or prepay obligations with or without call or prepayment penalties. During 1997, sales of
the right
securities available for sale resulted in gains of $6,000. During 1996, the sale of securities available for sale
resulted in gains of $90,000 and losses of $225,000. There were no sales of securities available for sale during
1998. During 1998, calls of securities available for sale resulted in a gain of approximately $4,000. The
proceeds from sales of securities available for sale were $18,000 and $15,868,000 for 1997 and 1996,
respectively. The basis for evaluating the gain or loss realized is the amortized cost. The following table
m.
ComX;kity
Banahares,Inc.
presents maturities of investments
value basis at December 31, 1998:
securities available for sale by type on both an amortized cost and market
Us.
Government
Agencies &
Corporations
States
and
Political
Other
Subdivisions
Securities
_ Total
(Amounts in Thousands)
Tax
Equivalent
Purchase
Yield
Amortized Cost
Maturi~.
. . . . . . . . . . . . . . . . . . . . . . . .
Within one year
After one year through five years
After five years through ten years . . . . . . . . . .
After
ten years.............”.””””
. . . . . ...1.
. ..””””
Total book value . . . . . . . . . . . . . . . . . . . . . .
Tax equivalent purchase yield . . . . . . . . . . . . . . .
Average maturity (in years)
. . . . . . . . . . . . . . . . .
Market Value
Maturity
. . . . . . . . . . . . . . . . . . . . . . . .
Within one year
After one year through five years
. . . . . . . . . .
After five years through ten years . . . . . . . . . .
ten years . . . . . . . . . . . . . . . . . . . . . . . . . .
After
Total market value . . . . . . . . . . . . . . . . . . . .
Note 4.
Investment Securities
$
2,000
10,416
26,343
80,477
—
$119,236
$
280
1,616
9,931
24,631
$36,458
$
–
—
29,073
6,364
$
2,280
12,032
65,347
111,472
$35,437
$191>131
6.42%
6.06%
6.79%
6.49%
6.30%
17.21
8.05%
13.25
5.94%
12.52
6.56%
15.59
$
2,012
10,402
26,813
80,281
$119,508
$
284
1,663
10,622
24,774
$37,343
$ — $
—
29,360
6,983
2,296
12,065
66,795
112,038
$36,343
$193,194
The amortized cost and approximate market values of investment
securities as of December 31 are as
follows:
U. S. Treasury securities . . . . . . . . . . . . . . . .
U.S. Government
corporations
. . . . . . . . . . . . . . . . . . ...””
agencies and
States and political
Other
securities
subdivisions . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
1998
Amortized
cost
Unrealized
Gains
Unrealized
Losses
Market
Value
(Amounts in Thousands)
$
100
$
1
$–
7,546
75,009
1,361
50
4,191
14
(16)
—
—
$
101
7,580
79,200
1,375
Total
. . . . . . . . . . . . . . . . . . . . . . . ...”
$84,016
$4,256
$ (16)
$88,256
U.S. Treasury securities . . . . . . . . . . . . . . . .
U.S. Government
colorations
agencies and
States and political
Other
securities
. . . . . . . . . . . . . . . . . . . . . . .
subdivisions . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . ...”””
1997
Amortized
cost
Unrealized
Gains
Unrealized
Losses
Market
Value
(Amounts in Thousands)
$
4,098
$
1
26,377
77,641
1,058
_
$109,174
115
3,081
18
_
$3,215
$
(8)
$
4,091
(114)
(2)
(2)
_
$ (126)
26,378
80,720
1,074
$112,263
33
Various investment
securities with an amortized cost of approximately $27,875,000 and $34,871,000,
respectively, were pledged at December 31, 1998 and 1997 to secure public deposits and for other purposes
required by law. During 1998, calls of held-to-maturity
were no gains from calls of investment
to-maturity investment
following table presents maturities of investments by type on both an amortized cost and market value basis at
December 31, 1998:
securities resulted in gains of $21,000. There
during 1997. Proceeds from the calls of held-
securities were $1,020,700 and $1,950,000 during 1998 and 1997, respectively. The
securities held-to-maturity
investment
Us.
Government
Agencies &
Corporations
Us.
Treasury
States &
Political
Subdivisions
Other
Securities
Total
(Amounts in Thousands)
Tax
Equivalent
—,
Purchase
Yield
Amortized Cost
Maturity:
Within one year . . . . . . . . . . . . . . . . . .
After one year through five years . . . .
. . .
After five years through ten years.
After ten years . . . . . . . . . . . . . . . . . . .
Total amortized cost.
. . . . . . . . . . . .
$–
100
—
—
$100
$2,524
3,151
1,417
454
$7,546
$1,377
$ — $3,901
2,516
25,538
45,578
1,061
300
—
6,828
27,255
46,032
$75,009
$1,361
$84,016
7.43%
6.79%
8.22%
8.79%
Tax equivalent purchase yield . . . . . . . . .
. . . . . . . . . .
Average maturity (in years).
6.01%
1.5
6.00%
3.00
8.63%
10.86
7.76%
5.02
8.38%
10.05
Market Value
Maturity:
Within one year . . . . . . . . . . . . . . . . . .
After one year through five years . . . .
After five years through ten years.
. . .
After ten years . . . . . . . . . . . . . . . . . . .
Total market value . . . . . . . . . . . . . .
$–
101
—
—
$101
$2,530
3,157
1,427
466
$7,580
$1,399
2,567
26,970
48,264
$79,200
$ — $3,929
1,075
300
—
$1,375
6,900
28,697
48,730
$88,256
I
Note 5. Loans
Loans consist of the following at December 31:
. . . . . . . . . . . . .
Real estate — commercial
Real estate —construction
Real estate -residential
Commercial,
Loans to individuals for household and other consumer
. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
financial and agricultural
expenditures
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other
1998
1997
(Amounts in Thousands]
$170,669
8,988
228,218
77,233
125,491
894
$611,493
$202,625
9,612
227,465
82,445
148,485
1,185
$671,817
Banking subsidiaries of the Company are parties to financial
instruments with off-balance sheet risk in the
normal course of business to meet
commitments
varying degrees, elements of credit and interest
sheet. The contractual
particular classes of financial
instruments.
to extend credit, standby letters of credit and financial guarantees. These instruments
the financing needs of their customers. These financial
instruments
include
amounts of those instmments
reflect the extent of involvement
rate risk in excess of the amount
involve,
recognized on the balance
the Company has in
to
CoRE~kity
Bartcsharm,
Inc.
The Company’s exposure to credit
loss in the event of non-performance
by the other party to the
instrument
financial
written is represented by the contractual
policies in making commitments
for commitments
to extend credit and standby letters of credit and financial guarantees
amount of those instruments. The Company uses the same credit
and conditional obligations as it does for on-balance sheet
instruments.
Commitments
to extend credit are agreements to lend to a customer as long as there is not a violation
of any condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the commitments
expire without being drawn upon,
requirements. The Company evaluates each customer’s creditworthiness on a case-by.case basis. The amount of
collateral obtained,
credit evaluation of the counterparts. Collateral held varies but may include accounts receivable,
property, plant and equipment, and income-producing
if deemed necessary by the Company, upon extension of credit
amounts do not necessarily represent
is based on management’s
commercial properties.
the total commitment
are expected to
future cash
inventory,
Standby letters of credit and financial guarantees written are conditional
Company to guarantee the performance of a customer
involved in extending loan facilities to customers. To the extent
letters of credit
deemed necessary, collateral of varying types and amounts is held to secure customer performance under certain
of those letters of credit outstanding at December 31, 1998.
is essentially the same as that
issued by the
to a third party. The credit risk involved in issuing
commitments
instruments whose contract amounts represent credit risk at December 31, 1998 are
to extend credit
Financial
commitments
$85.9 million, and standby letters of credit and financial guarantees written — $2.8 million. At December31,
1998, neither
exchange contracts or interest swaps.
the Company nor its subsidiaries have any amounts outstanding representing futures, forward
(including availability of lines of credit and undrawn credit card availability) —
In the normal course of business, the Company originates loan commitments. Loan commitments generally
expiration dates or other
have bed
evaluates each customer’s creditworthiness on a case-b~case basis. The amount of collateral deemed necessary
by the Company is based on management’s credit evaluation and underwriting guidelines for the particular
loan. The total commitments outstanding at December 31, 1998 are summarized as follows:
1998
termination clauses and may require payment of a fee. The Company
Real estate —commercial
Real estate — commercial
Real estate —construction
Real estate — construction
Real estate presidential
Real estate — residential
Commercial,
Commercial,
Loans to individuals
(fixed)
(variable)
financial, agricultural
financial, agricultural
. . . . . . . . . . . . . . . . . . . . . .
(fixed)
(variable)
. . . . . . . . . . . . . . . . . . . .
(fixed) . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
(variable)
. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
(fixed)
. . . . . . . . . . . . .
(variable)
for household and other consumer
(fixed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
expenditures
Notional
Amount
Rate
(Amounts in Thousands)
$3,159
15,986
2,145
2,327
2,241
6,611
6,660
18,632
7.50- 10.50%
5.75- 12.00%
9.50%
8.49-
9.75%
7.75-
12.50%
7.00-
12.75%
7.75-
16.00%
6.05-
13.00%
5.75-
29,584
6.30- 18.00%
Loans to individuals for household and other consumer
expenditures
(fixed)
Other
(variable)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,326
30
7.41-
7.11-
14.50%
9.50%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$88,701
Presently,
the Company has no significant concentrations
of credit risk other
than geographic
concentrations. Most loans in the current portfolio are made and collateralized in West Virginia and the
surrounding Mid Atlantic area. Although portions of the West Virginia economy are closely related to coal and
timber,
they are supplemented by service industries. The current economies of the Company’s markets are seen
as relatively stable and are not seen as highly subject
to volatile economic change. The Company’s wholly
35
owned subsidiaries, Blue Ridge Bank in North Carolina and First Community Bank of Southwest Virginia,
provide additional geographic diversification against concentrations
of credit risk.
In the normal course of business, the banking subsidiaries of the Company have made loans to directors
loans and commitments made to such officers
and executive officers of the Company and its subsidiaries. All
and directors and to companies in which they are officers or have significant ownership interest have been
made on substantially the same terms,
comparable transactions with other persons. The aggregate dollar amount of such loans was $9.8 million and
$11.3 million at December 31, 1998 and 1997, respectively. New loans and payments attributable
change from 1997 to 1998 total $3.0 million and $4.5 million,
rates and collateral, as those prevailing at the time for
including interest
respectively.
to the
Note 6. Reserve for Loan Losses
Activity in the reserve for loan losses was as follows:
1998
1997
1996
(Amounts in Thousands)
Balance, January l . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Recoveries credited to reserve
Provision for the year charged to operations.
. . . . .
. . . . . . . . . . . . . . .
Reserve acquired in acquisitions.
Loans charged-off . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11>406
736
6,250
—
18,392
6,988
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . .
$11,404
$8,987
673
4,963
1,981
16,604
5,198
$11,406
$8,321
574
2,273
—
11,168
2,181
$8,987
The following table presents the Company’s investment
in loans considered to be impaired and related
information on those impaired loans (in thousands):
Recorded investment
Loans considered to be impaired that were on a
in loans considered to impaired . . . . . . . . . . .
1998
$5,266
non-accrual basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”
Allowance for loan losses related to loans considered to be
. ..””-
5,266
impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ” ” ” .”””.”-””
““
. . . . . . . . . . . . . . . .
income recognized on impaired loans . . . . . . . . . . . . .
income on impaired loans recognized on a cash basis . . . . .
Average recorded investment
Total
Interest
in impaired loans
interest
1,019
5,023
148
—
1997
$7,508
7,321
1,575
5,226
115
—
Note 7. Premises and Equipment
Premises and equipment are comprised of the following as of December 31:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”.”””.”-””””.
Bank premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...-””-”.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ” . . ” . ””.”.”.””
Equipment
Less: accumulated depreciation and amortization
. . . . . . . . . . . . .
1998
1997
(Amounts in Thousands)
$4,624
$4,552
20,124
13,906
38,582
20,596
20,197
14,705
39,526
20,393
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”””.””
$17,986
$19,133
v
@
.
Com%;kity
Bancshares,Inc.
I
Note 8. Long-Term Debt
Lon~term debt consists of a $7.9 million note to a commercial bank with principal
repayments of
I
through April 1, 2007. The note accrues interest at a fluctuating rate of interest equal to
$300,000 per quarter,
one hundred thirty basis points in excess of the LIBOR Rate. The loan agreement contains certain covenants
that may restrict
in the event of default along with other customary
borrowing provisions.
the payment of dividends to stockholders
Two of the Company’s subsidiaries are members of the Federal Home Loan Bank (“FHLB”) of Pittsburgh,
Pennsylvania. Long-term advances from the FHLB and principal payments on lon~term debt as of
December 31, 1998 and 1997 mature as follows:
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998
1997
Amount
Weighted
Average Rate
Amount
Weighted
Average Rate
$––
1,200
1,200
1,200
1,200
9,200
1,200
700
2,000
$17,900
(Amounts in Thousands)
$6,200
6.61%
6.61%
6.61%
6.61%
6.04%
6.61%
6.61%
6.27%
=%
.
1,200
1,200
1,200
1,200
9,200
1,200
700
2,000
$24,100
5.74%
6.90%
6.90%
6.90%
6.90%
6.07%
6.90%
6.90%
6.27%
G%
The acquisition loan used to acquire Blue Ridge Bank is secured by 1.2 million outstanding shares of
common stock of Blue Ridge Bank. Advances from the FHLB are securedby stock in the FHLB of Pittsburgh,
qualifying first mortgage loans, mortgage-backed securities mdcertain
advances are subject
to restrictions or penalties
the Company totaled $276,000 at December 31, 1998 and $344,000 at December 31, 1997.
in the event of prepayment. Other various debt obligations of
securities. Certain of these
investment
Note9.
Deposits
At December 31, 1998, thescheduled maturities ofcertificates
ofdeposits
areas
follows:
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . ........$........
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 and thereafter
(Amounfsin
Thousands)
$336,937
77,498
24,900
12,771
14,268
$466,374
Time deposits include Certificates of Deposit
issued in denominations
of $100,000 or more which
amounted to $113.4 million and $117.4 million at December 31, 1998 and 1997, respectively.
on these certificates was $6.5 million, $5.5 million, and $3.1 million for 1998, 1997, and 1996, respectively.
Interest expense
Note lO.
Per Share Amounts
Basic earnings per share is based upon the weighted average number ofshares ofcommon
stock
outstanding during the year. In February 1997, the FASB issued Statement No. 128, “Earnings Per Share.”
Statement No. 128requires
hasnodilutive
December 31, 1997, mdallprior
No. 128. The Company’s common stock was split five shares for four on March 31, 1997 and five shares for
securities or stock arrangements. First Community adopted Statement No. 128 effective
period amounts presented have been restated tocomply with Statement
earnings pershare. The Company currently
of basic anddiluted
thepresentation
37
four again on March 31, 1998. All share and per share data have been retroactively adjusted to reflect these
stock splits. The following rable sets forth the net
the applicable years:
income used to determine net
income per common share for
income
Net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic and diluted earnings per common share . . . . . . . . .
$13,101
1.86
$15,094
2.14
$13,917
1.98
Note 11. Employee Benefits
1998
1997
1996
(Amountsin Thousands,
Except Per Share Data)
Through 1995, the Company and its subsidiaries maintained three qualified employee benefit plans. On
January 1, 1996, the 401(k) and ESOP plans were merged into a single plan. In October 1996, the third of
these three plans, a noncontributory
curtailment gain for the pending termination
in the first quarter of 1998, after distributing all participant
on the dissolution of the defined benefit plan, an additional $1,062,000 termination
Benefits under the plan were based on length of service and qualifying compensation. The Company’s funding
policy was to contribute pension costs accrued. There was no pension cost for the 1998 year. Net periodic
pension expense in 1997 and 1996 is as follows:
of the defined benefit pension plan of $1,450,000. Additionally,
accrued benefits and paying required excise taxes
defined benefit pension plan was terminated and the Company recorded a
gain was recognized.
. . . . . . . . . . . . . . . .
Service cost — benefits earned during the year.
Interest expense on projected benefit obligation.
. . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
and deferral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Netamortization
Net periodic pension (income) expense . . . . . . . . . . . . . . . . . . . . . .
$ —
496
(879)
(56)
$(439)
$
326
607
(1,390)
622
$
165
1997
1996
(Amounts in Thousands)
The following table sets forth the plan’s funded status and amounts recognized in the Company’s
consolidated balance sheets at December 31, 1997, based upon a measurement date of December 31. The plan
was fully liquidated at December 31, 1998.
1997
(Amounts in Thousands)
Accumulated benefit obligation..
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,038
Vested benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan assets in excess of projected benefit obligation . . . . . . . . . . . .
Unrecognized net gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,038
7,038
12,854
5,816
(2,638)
—
Prepaid pension expense
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,178
The weighted average discount
rate and the rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation was 7.25% and 6.0% respectively.
Employee Stock ownership
Plan
The Company maintains an Employee Stock Ownership Plan. Coverage under the plan is provided to all
employees meeting minimum eligibility requirements. Annual contributions
discretion of the Board of Directors, and are allocated to plan participants on the basis of relative
compensation. Substantially all plan assets are invested in common stock of the Company. Total expense
to the plan are made at the
&*&.
ComK;kity
Bancshar=,Inc.
recognized by the Company related to the Employee Stock Ownership Plan was $947,000, $767,000 and
$454,000 in 1998, 1997 and 1996, respectively.
Employee Savings Plan
The Company provides a 401(k) Savings Plan available to substantially all employees meeting minimum
eligibility requirements. This plan was merged with the Employee Stock Ownership Plan on January 1, 1996
creating a KSOP. The cost of Company contributions under the Savings Plan was $99,000, $116,000, and
$59,000 in 1998, 1997 and 1996, respectively. The Company’s matching contributions
are at the discretion of
the Board up to 50% of elective deferrals of no more than 6% of compensation. The Company matching rate
was 25% for 1998, 1997 and 1996.
Employee Welfare Plan
The Company provides various medical, dental,
life, accidental death and dismemberment
and lon~term
disability insurance benefits to all full-time employees who elect coverage under
accidental death and dismemberment,
and long-term disability coverage is automatic).
this program (basic life,
During 1998, the Company adopted the First Community Bancshares Employee Insurance Plan and Trust,
(TPA). Monthly employer and employee contributions
a partially self-funded medical, dental and prescription welfare plan. The health plan is managed by a third
party administrator
employee welfare trust, against which,
the Company’s funding requirements and risk of loss to $50,000 and $863,000 for individual and aggregate
claims, respectively.
the
Company is funding additional contributions
are made to the newly established
the TPA processes and pays claims. Stop loss insurance coverage limits
In order to establish a reserve for run-off claims, in the event of plan termination,
to 25% of expected annual claims.
to the trust equivalent
The Company adopted Financial Accounting Standards Board Statement
Postretirement Benefits Other Than Pensions” as of January 1, 1993. The adoption of Statement
benefit obligation at the date of adoption (transition obligation). The
in the recognition of a postretirement
Company elected to recognize the obligation over the average remaining life expectancy of the participants.
The transition obligation totaled $634,000 and will be recognized over 17 years. This obligation only applies to
a selected group of retirees as retiree benefits were phased out
through 1993.
106 “Employers Accounting for
106 resulted
Deferred Compensation
Plan
liability at December 31, 1998 was approximately $858,000. The expenses associated with this plan for
A subsidiary of the Company has deferred compensation agreements with certain current and former
officers providing for benefit payments over various periods commencing upon retirement or death. The balance
sheet
1998, 1997 and 1996 were $(11,000), $58,000 and $32,000, respectively. As a result of an actuarial adjustment
to the life expectancies and the discount
current period reflected a reduction in total benefit cost.
rate used in computing the present value of the future benefits,
the
Note 12. Compensating Balances
Pursuant
to agreements with the Federal Reserve Bank, the Company is required to maintain cash
balances of approximately $1.3 million in lieu of charges for check clearing and other services.
Note 13. Litigation
In the normal course of business, there are various outstanding commitments
and contingent
liabilities
such as threatened legal action and legal proceedings in which the Company and its subsidiaries are
defendants.
The most significant matter of litigation which is currently active involves a civil suit filed by heirs of one
of the Company’s trust customers which seeks to overturn the establishment of a private foundation for which
the Company’s trust and financial services division serves as Tmstee. This suit seeks a total of $6 million in
compensatory and punitive damages as well as the termination of the foundation. The Company and the
Trustee believe the creation and operation of the foundation represent
the intent and will of the donor,
39
the Court
requested that
the Company has entered a vigorous defense of this suit and the continuation
accordingly,
of the foundation’s
purpose. On October 15, 1998, the plaintiffs in the matter
In a hearing
file a motion for summary dismissal and
the Company, as defendant,
on this motion,
firther ordered that discovery in this case be halted pending receipt of the motion for summary dismissal. The
motion for summary dismissal was filed with the Court on January 14, 1999, and in a subsequent
Court partially granted the bank’s motion for summary judgment
discretionary use of principal
opinion that
adverse impact on the Company’s financial condition or results of operations.
the
finding no wrongdoing by the bank in its
in this matter. Both management and the Company’s legal counsel are of the
the remainder of this suit is without merit and will be successfully defended with no material
filed a motion for summary judgment.
ruling,
Other
legal actions have arisen primarily out of commercial
lending transactions and collection activities.
Each of these actions involving significant damage allegations or material disputes of issues are detailed in
Item 3, Legal Proceedings,
in the Company’s 1998 Report on Form 1O-K.
Additionally,
the Company is also subject
to certain asserted and unassorted potential claims encountered
in the normal course of business. In the opinion of management, neither
funding of credit commitments will have a material effect on the Company’s financial position or results of
operations.
the resolution of these claims nor the
Note 14. Dividends
The primary source of funds for dividends paid by First Community is dividends received from its
to restrictions by banking regulations and a loan
subsidiary banks. Dividends paid by the banks are subject
agreement with a commercial bank. The loan agreement with the bank restricts dividends in the event of
default on the note. The most restrictive provision requires approval by regulatory bodies if dividends declared
in any year exceed the year’s net
income, as defined, plus retained net profit of the two preceding years. At
December 31, 1998, subsidiary earnings available for distribution as dividends to the Company without prior
approval were $1.5 million.
Note 15. Regulatory Capital Requirements
and Restrictions
First Community Bancshares,
to various regulatory capital requirements administered by the federal banking agencies.
Inc., First Community Bank, Inc., First Community Bank of Mercer County,
Inc., First Community Bank of Southwest Virginia, Inc., and Blue Ridge Bank (collectively referred to as “the
Banks”) are subject
Failure to meet minimum capital requirements can initiate certain mandatory-and
discretionary—actions
financial statements. Under
action, which applies only to the Banks, the banks must meet specific capital guidelines that
quantitative measures of the entities’ assets, liabilities, and certain off-balance sheet
regulatory accounting practices. The entities’ capital amounts and classifications are also subject
judgments by the regulators about components,
involve
items as calculated under
to qualitative
the capital adequacy guidelines and the regulatory framework for prompt corrective
could have a direct material effect on the Company’s
possibly additional
by regulators that,
and other factors.
risk weighings,
if undertaken,
Quantitative measures established by regulation to ensure capital adequacy require First Community
Bancshares, Inc. and the Banks to maintain minimum amounts and ratios (set forth in the table on page 41 )
for total and Tier I capital
capital
Company meets all capital adequacy requirements
to risk-weighted assets (as defined), and of Tier I
the
(as defined) to average assets (as defined). Management believes, as of December 31, 1998, that
(as defined in the regulations)
to which it is subject.
As of December 31, 1998 and 1997, the most recent notifications
from the Federal Reserve Board
categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized,
leverage ratios as set forth in the table. There are no conditions or events since those notifications
management believes have changed the institutions category.
the Banks must maintain minimum total risk-based, Tier I risk-based, and Tier I
that
COg$;;iti
Bancshares,Inc.
to Risk-Weighted Assets:
Total Capital
. . . . . . . . . . . . . . .
First Community Bancshares, Inc.
First Community Bank, Inc . . . . . . . . . . . . . . . . . . . . .
First Community Bank of Mercer County,
. . . .
First Community Bank of Southwest Virginia, Inc.
Blue Ridge Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inc.
to Risk-Weighted Assets:
Tier 1 Capital
First Community Bancshares, Inc.
. . . . . . . . . . . . . . .
First Community Bank, Inc . . . . . . . . . . . . . . . . . . . . .
. . . .
First Community Bank of Mercer County,
First Community Bank of Southwest Virginia, Inc.
Blue Ridge Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inc.
to Average Assets (Leverage):
Tier 1 Capital
First Community Bancshares, Inc.
. . . . . . . . . . . . . . .
First Community Bank, Inc . . . . . . . . . . . . . . . . . . . . .
First Community Bank of Mercer County,
. . . .
First Community Bank of Southwest Virginia, Inc.
Blue Ridge Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inc.
to Risk-Weighted Assets:
Total Capital
First Community Bancshares, Inc.
. . . . . . . . . . . . . . .
First Community Bank, Inc . . . . . . . . . . . . . . . . . . . . .
First Community Bank of Mercer County,
. . . .
First Community Bank of Southwest Virginia, Inc.
Blue Ridge Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inc.
to Risk.Weighted Assets:
Tier 1 Capital
. . . . . . . . . . . . . . .
First Community Bancshares, Inc.
First Community Bankj Inc . . . . . . . . . . . . . . . . . . . . .
First Community Bank of Mercer County,
. . . .
First Community Bank of Southwest Virginia, Inc.
Blue Ridge Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inc.
to Average Assets (Leverage):
Tier 1 Capital
First Community Bancshares, Inc.
. . . . . . ~. . . . . . . .
First Community Bank, Inc . . . . . . . . . . . . . . . . . . . . .
. . . .
First Community Bank of Mercer County,
First Community Bank of Southwest Virginia, Inc.
Blue Ridge Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inc.
December
31, 1998
Actual
For Capital
Adequaq
Purposes
To Be Well
Capitalized Under
Prompt
Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$84,130
27,985
45,279
6,777
11,705
13.25% $50,782
12.62%
17,741
23,447
15.45%
12.39%
4,377
16.10%
5,817
8.00% $ N/A
22,177
8.00%
29,309
8.00%
5,471
8.00%
8.00%
7,272
N/A
10.00%
10.00%
10.00%
10.00%
$76,153
25,196
41,592
6,093
10,795
12.00% $25,391
11.36%
8,871
11,724
14.19%
11.14%
2,188
14.85%
2,909
4.00% $ N/A
13,306
4.00%
17,585
4.00%
4.00%
3,283
4.00%
4,363
$76,153
25,196
41,592
6,093
10,795
7.37% $30,998
11,770
6.42%
13,981
8.92%
3,988
6.11%
9.69%
4,454
3.00% $ N/A
3.00%
19,616
23,302
3.00%
4.00%
4,985
5,567
4.00%
December
31, 1997
N/A
6.00%
6.00%
6.00%
6.00%
N/A
5.00%
5.00%
5.00%
5.00%
Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized Under
Prompt
Corrective
Action Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$79,178
22,911
43,541
6,793
11,167
11.96% $52,975
10.78%
17,009
25,399
13.71%
12.11%
4,486
12.22%
7,308
8.00% $ N/A
8.00%
21,262
8.00%
31,748
5,608
8.00%
9,135
8.00%
NJA
10.00%
10.00%
10.00%
10.00%
$70,862
20,232
39,557
6,093
10,068
10.70% $26,488
8,505
9.52%
12.46%
12,699
10.86%
2,243
11.02%
3,654
4.00% $ N/A
12,757
4.00%
4.00%
19,049
3,365
4.00%
4.00%
5,481
$70,862
20,232
39,557
6,093
10,068
6.96% $30,549
5.26%
11,542
13,481
8.80%
5.97%
4,084
9.15%
4,042
3.00% $ NIA
3.00%
19,237
22,468
3.00%
5,105
4.00%
5,503
4.00%
N/A
6.00%
6.00%
6.00%
6.00%
N/A
5.00%
5.00%
5+00%
5.00%
41
Note 16.
Income Taxes
Income
taxes are as follows:
Income exclusive of securities gains (losses).
Netsecurities
gains (losses)........,..
. . . . . . . . . . .
. . . . . . . . . . . . . .
Income tax provisions consists of:
Current
Deferred tax(benefit)
tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
expense . . . . . . . . . . . . . . . . . . . . . . .
Years Ended December
31
1998
1997
1996
(Amounts
in Thousands)
$6,154
10
$6,874
2
$6,581
(51)
$6,164
$6,876
$6,530
Years Ended December31
1998
1997
1996
(Amounts in Thousands)
$6,605
(441)
$6,164
$6,520
356
$6,876
$6,143
387
=.
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts deducted for income tax purposes. The
tax effects of significant
are as follows:
items comprising the Company’s net deferred tax asset of December 31, 1998 and 1997
1998
1997
(Amounts in Thousands)
Deferred tax assets:
Reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized asset losses . . . . . . . . . . . . . . . . . . . . . . . . . . ...””””””
Deferred compensation
Deferred insurance premiums
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Purchase accounting adjustmen~.
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . ..”” ”” s.”””””””””.
Gain on pension termination
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on securities available for sale . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .-.....””””.”-””””-”.”
Other
. . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,463
248
956
344
$6,011
2,306
331
497
825
592
4,551
$4,448
229
892
399
$5,968
2,072
374
565
833
347
4,191
Netdeferred
tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,460
$1,777
~ereconciliation
be~eenthe
federal statuto~t=
rate and the effective income taxrate
is as follows:
Taxat
statutory
rate
Increases (reductions)
. . . . . . . . . . . . . . . . . . . . . . . . . . . ..””””.””
resulting from.
interest on investment
Tax-exempt
State income taxes, net of federal benefit.
Amortization of purchase accounting adjustments
Other, net
securities and loans . . . . .
. . . . . . . . . . . . . . . .
. . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . ...-””””””.””””””
Effective t= rate . . . . . . . . . . . . . . . . . . “.””””””.”.”””””””””.
BancsharesZInc.
Years Ended December31
1998
35.0%
1997
1996
35.0%
35.0%
(9.6%)
1.3%
2.3%
3.0%
—
32.0%
=
(6.7%)
1.1%
1.6%
.3%
—
31.3%
=
(6.7%)
1.0%
.5%
2.1%
G%
=
Note 17. Other Comprehensive
Income
In June 1997, the Financial Accounting Standards Board (“FASB”)
Income,” which requires businesses to disclose comprehensive
Comprehensive
their general purpose financial statements. This statement
income in a financial statement
statement
financial statements and is applicable to interim periods. The Company currently has one component of other
comprehensive
income which includes unrealized gains or losses on securities available for sale-and is detailed
as follows:
in
requires the reporting of all items of comprehensive
is effective for fiscal years beginning after December 15, 1997, with reclassification of comparative
is displayed with the same prominence
as other financial statements. This
that
issued SFAS No. 130, “Reporting
income and its components
1998
1997
—
1996
—
(Amounts in Thousands)
Other Comprehensive
Holding (losses) gains arising during the period . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax benefit or (expense)
Income:
$
Holding (losses) gains arising during the period, net of tax . . .
Reclassification adjustment
for (gains) losses realized in net
income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . .
Tax expense (benefit) of reclassifications
Other comprehensive
Beginning accumulated other comprehensive
income . . . . . . . . . . . . . . . . . . . . . . . . . . .
income . . . . . . . .
Ending accumulated other comprehensive
income . . . . . . . . . .
$1,381
(559)
$(66)
~
822
(40)
(17)
6
(11)
(4)
2
(6)
2
135
~)
41
392
—
$433
—
(13)
1,251
$1,238
818
433
—
$1,251
—
Note 18. Other Operating
Expenses
Included in other operating expenses are certain functional costs, the total of which exceeds one percent
of combined interest
income and non-interest
income. Following are such costs for the years indicated:
Years Ended December
31
1998
1997
—
1996
—
Credit card fees paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplies cost
* Cost did not exceed one percent
for the reported period.
Note 19.
Fair Value of Financial
Instruments
(Amounts in Thousands)
$1,671
*
$1,315
959
$1,149
*
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 107,
Instruments”
(SFAS 107). The pronouncement
instruments, whether or not recognized on the balance sheet, for
requires disclosure
“Disclosures About Fair Value of Financial
of fair value information about financial
which it is practical
ownership in an entity, or a contract hat
to either receive or deliver cash for another
a financial
forced sale or liquidation, and is best evidenced by a quoted market price if one exists.
to estimate the value. SFAS 107 defines a financial
instrument could be exchanged in a current
financial
conveys or imposes on an entity that contractual
right or obligation
instrument. Fair value is defined as the amount at which
transaction between willing parties, other
than in a
instrument as cash, evidence of
The following summary presents the methodologies and assumptions used to estimate the fair value of the
instruments presented below. The information used to determine fair value is highly
Company’s financial
subjective and judgmental
therefore,
among other things, estimates of cash flows, risk characteristics, credit quality, and interest
are subject
the results may not be precise. Subjective factors include,
rates all of which
the amounts which will
to change. Since the fair value is estimated as of the balance sheet date,
in nature and,
43
actually be realized or paid upon settlement or maturity on these various instruments could be significantly
different.
Assets:
from banks . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash anddue
Securities available for sake . . . . . . . . . . . . . . . . . . . . . . . . .
Investment
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . .
Loans (net ofreserve
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest
for loan losses)..
Liabilities:
Demand deposits
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest-bearing demand deposits . . . . . . . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase . . . . . . . . .
. . . . . . . . . . . . . . . . .
Interest,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
taxesando therobligations
indebtedness
1998
1997
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
(Amountsin
Thousands)
$91,484
$91,484
$34,762
$34,762
193,194
84,016
25,630
600,089
7,030
123,992
137,169
148,461
466,374
47,680
10,417
18,176
193,194
88,256
25,630
601,205
7,030
123,992
137,169
148,461
467,054
47,680
10,417
18,179
161,795
109,174
12,406
660,441
7,688
103,846
127,541
149,407
472,713
52,351
11,455
24,444
161,795
112)263
12,406
661,396
7,688
103,846
127,541
149,407
472,589
52,351
11,455
24,517
Financial
Instruments with Book Value Equal
to Fair Value
The book values of cash and due from banks, federal funds sold and purchased, securities sold under
agreements to repurchase,
to fair value as a result of the short-term nature of these items.
receivable, and”interest,
interest
taxes and othe~ liabilities are considered to be equal
Securities Available
for Sale
For securities available for sale, fair value is based on current market quotations, where available.
If quoted
market prices are not available, fair value has been based on the quoted price of similar instruments.
Investment Securities
For investment
securities, fair value has been based on current market quotations, where available.
If
quoted market prices are not available, fair value has been based on&e
quoted price ofsimilar
instmments.
Loans
For all categories of loans, such as some residential mortgages, fair value is estimated by discounting the
future cash flows using the current
rates for similar loans.
Deposits
Deposits without a stated maturity,
including demand,
interest-bearing demand, and savings accounts, are
reported at their carrying value in accordance with SFAS 107. No value has been assigned to the franchise
value of these deposits. For other
types of deposits with fixed maturities,
discounting fiture cash flows based on interest
characteristics and maturities.
rates currently being offered on deposits with similar
fair value has been estimated by
Other
Indebtedness
Fair value has been estimated based on interest
rates currently available to the Company for borrowings
with similar characteristics and maturities.
xv
.wC~m&hhity
Bancshares,
inc.
Commitments
to Extend Credit, Stand-by Letters of Credit, and Financial Guarantees
I
The amount of off-balance sheet commitments
to extend credit, stand-by letters of credit, and financial
is considered equal to fair value. Because of the uncertainty involved in attempting to assess the
guarantees,
likelihood and timing of commitments being drawn upon, coupled with the lack of an established market and
the wide diversity of fee structures,
to provide an estimate of
fair value that differs from the given value of the commitment.
the Company does not believe it is meanin~l
Note
20.
Parent Company Financial
Information
Condensed financial
information related to First Community Bancshares, Inc. as of December 31, 1998
and 1997, and for the years ended December 31, 1998, 1997 and 1996 are as follows:
Condensed Balance Sheets
(Amounts
in Thousands)
December
31
1998
1997
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...
Investment
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .........
in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Assets
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
832
108,889
1,506
$111,227
Other
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9~490
LIABILITIES
STOCKHOLDERS’ EQUITY
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...”....
. . . . . . . . .
Unallocated ESOP shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,194
36,122
61,488
(1,403)
(1,664)
101,737
$111,227
$
1,353
102,781
3,260
$107,394
$
9,534
7,194
36,122
55,815
(1,271)
—
97,860
$107,394
Condensed Statements of Income
(Amounts
in Thousands, Except Per Share Data)
Cash dividends received from subsidiary banks . . . . . . . . . . . . . . . . . . . .
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense)
Equity in undistributed earnings (loss) of subsidiaries
(Dividends in excess of earnings of subsidiaries).
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...
Basic and Diluted Earnings Per Share . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998
$7,500
112
(1,143)
6,469
331
6,301
$13,101
$
1.86
December
31
1997
1996
$25,050
148
(779)
24,419
210
(9,535)
$15,094
$
2.14
$9,825
123
(267)
9,681
51
4,185
$13,917
$
1.98
45
Condensed Statements of Cash Flows
(Amounts
in Thousands)
Cash flows from operating activities
Net
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...””-
income to net cash provided by
to reconcile net
Adjustments
operating activities:
Equity inundistributed
earnings of subsidiaries (Dividendsin
Increase (decrease)
(Decrease)
excess of earnings ofsubsidiaries)
. . . . . . . . . . . . . . . . . . . . . .
in other assets . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
increase in other
liabilities.
Other, net
Net cash provided by operating activities
. . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Purchase ofother
Proceeds fi-omsale ofsecurities
Payments for investments
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
available for sale . . . . . . . . . . . . . . .
to subsidiaries . . . . . . . .
inandadvances
Netcash
used in investing activities
. . . . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities
Proceeds from issuance oflong-term debt
. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment oflongterm debt
Acquisition oftreasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Net cash (used in) provided by financing activities
. . . . . . . . . . .
(decrease)
Net
Cash and cash equivalents at beginning ofyear
increase in cash and cash equivalents . . . . . . . . . . . .
. . . . . . . . . . . . . . . .
Cash and cash equivalents atendof
year
. . . . . . . . . . . . . . . . . . . . .
Note 21. Subsequent Events
Years Ending December
31
1998
IYY7
1 YYO
$13,101
$15,094
$13,917
(6,301)
271
(194)
—
6,877
—
—
—
3,000
(2,851)
(132)
(7,415)
—
(7,398)
(521)
1,353
832
$
9,535
(136)
98
—
24,591
—
(27,6;;)
(27,683)
11,730
(2,400)
(7,3Z)
(6)
1,979
(1,113)
2,466
$
1,353
$
(4,185)
(890)
(54)
49
8,837
(1,745)
—
—
(1,745)
—
(1;)
(6,422)
1,499
(5,093)
1,999
467
2,466
EarlYin 1999, the Company anditsfour
affiliate banks entered into aMerger
and Reorganization
Agreement which provides for the merger of the four affiliate banks into a single national bank under the
charter of First Community Bank, Inc. which was converted to a national association as part of the
reorganization. From the effective date of the merger (expected completion on April 30, 1999), all banking
operations will be conducted under the charter and title of First Community Bank, N .A., a national association
supervised by the Comptroller of the Currency.
*
*a
First.
Community
Bancshares,Inc.
r
Independent Auditors’ Report
Deloitte&
ToucheLLp
2500OnePPG Place
Pittsburgh,Pennsylvania
15Z22-5401
&
To the Board of Directors
and Stockholders
of First Community Bancshares,
Inc.
We have audited the accompanying consolidated balance sheets of First Community Bancshares, Inc. and
income, changes in stockholders’ equity and cash flows for each of the three years in the period
subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income and
comprehensive
ended December 31, 1998. These financial statements are the responsibility of First Community Bancshares
Inc.’s management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit
financial statements are free of material misstatement. An audit
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management,
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
to obtain reasonable assurance about whether
includes examining, on a test basis, evidence
as well as evaluating the overall
the consolidated
In our opinion, such consolidated financial statements present fairly, in all material
respects,
the financial
position of First Community Bancshares, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
)/;L,-k’.A:A
Pittsburgh, Pennsylvania
January 29, 1999
47
!
I
Report on Management’s Responsibilities
The management of First Community Bancshares, Inc. is responsible for the integrity of its financial
statements and their preparation in accordance with generally accepted accounting principles. To fulfill this
of a sound accounting system supported by strong internal controls.
responsibility requires the maintenance
The Company believes it has a high level of internal control which is maintained by the recruitment
and
training of qualified personnel, appropriate divisions of responsibility,
and communication
internal audits.
accounting and other procedures, and comprehensive
the development
of
Our independent
auditors (Deloitte & Touche LLP) are engaged to examine, and render an opinion on,
the fairness of our consolidated financial statements
principles. Our independent
review selected transactions and carry out other auditing procedures before expressing their opinion on our
consolidated financial statements.
auditors obtain an understanding of our internal accounting control systems,
in conformity with generally accepted accounting
The Board of Directors has appointed an Audit Committee
composed of outside directors which
periodically meets with the independent
the work of each. The independent
access to meet with the Audit Committee without management’s presence.
auditors, bank examiners, management
auditors, bank examiners and the Company’s internal auditors have free
and internal auditors to review
James L. Harrison, Sr.
President & Chief Executive Officer
John M. Mendez
Vice President & Chief Financial Officer
Board of Directors, First Community Bancshares,
inc.
A. A. Modena
Past Executive Vice President and Secretary, First
Community Bancshares, Inc.; Past President & Chief
Executive Officer, The Flat Top National Bank of
Bluefield; Member Executive Committee
Robert E. Perkinson, Jr.
Vice President — Operations, MAPCO Coal, Inc. —
Virginia Region
William P. Stafford
President, Princeton Machinery Service, Inc.; Chair-
man, First Community Bancshares,
Executive Committee
and Audit Committee
Inc.; Member
William P. Stafford,
AttorneTat-Law, Brewster, Morhous &
Cameron, PLLC
II
W. W. Tinder, Jr.
Chairman of the Board and Chief Executive Officer,
Tinder Enterprises,
Corporation
tive Committee
(Real Estate Holdings); Member Execu-
Inc.; President, Tlnco Leasing
and Audit Committee
Sam Clark
Agent, State Farm Insurance
A[len T. Hamner
Professor of Chemistry, West Virginia Wesleyan
College; Member Executive Committee
James L. Harrison, Sr.
President and Chief Executive Officer, First Commu-
nity Bancshares, Inc.; Member Executive Committee;
President, First Community Bank, Inc., First Commu-
nity Bank of Mercer County,
Inc., and First Commu-
nity Bank of Southwest Virginia, Inc.; Executive Vice
President, Blue Ridge Bank
B. W. Harvey
President, Highlands Real Estate Management,
Member Executive Committee
Inc.;
1. Norris Kantor
Partner, Katz, Kantor & Perkins, Attorneys-at-Law
John M. Mendez
Vice President, Chief Financial Officer and Secretary,
First Community Bancshares, Inc.; Vice President —
Finance & Chief Administrative Officer, First Com-
munity Bank, Inc., First Community Bank of Mercer
County,
west Virginia, Inc.; Assistant Corporate Secreeary,
Blue Ridge Bank
Inc., and First Community Bank of South-
Officers, First Community Bancshares,
Inc.
James L. Harrison, Sr.
President and Chief Executive Officer
John M. Mendez
Vice President, Chief Financial Officer and Secretary
Robert L. Buzzo
Vice President
49
Directors
Nick Ameli, Jr., CLU, ChFC
Sales Manager, New York Life Insurance
K. A. Ammar, Jr.*
President and Chief Executive Officer,
Ammar’s Inc. and Magic Mart
Dr. James P. Bailey*
Veterinarian, Veterinary Associates, Inc.
Paul Barkley
Self Employed Accountant
Jack Bebber
Retired Manager, Carolina Tire
Clint F. BedsaulZ
President, BBC, Inc.; President, Tmline Truss, Inc.
Claude Billings
Retired North Carolina House of Representatives;
Poultry Farmer
Bill Blackburn
Owner, B & D Auto Supply
Claude E. Blankenship
Officer, C and R Furniture;
Former Mercer County Commissioner
Jr.t
W. C. Blankenship,
Chairman of the Board,
First Community Bank of Southwest Virginia, Inc.;
Agent, State Farm Insurance
F. K. Blizzard
Retired, Blizzard’s Inc.
G. Ross Boyce
Retired Senior Vice President,
The Flat Top National Bank of Bluefield
D. L. Bowling, Jr.*
President, True Energy, Inc.
Robert L. BUZZO*
Vice President, First Community Bancshares,
Inc.;
Chief Executive Officer, First Community Bank —
Bluefield
Juanita G. Bryan*
Homemaker
Sam Clark**
Agent, State Farm Insurance
Henry Church
Owner, H & N Polled Hereford Farms
L. M. Compton
President, Compton Enterprises
Lillian S. Cooke
Private Investor
George R. Crouse, Jr.*
Farming
C. William Davis*
Attorney at Law, Richardson & Davis
H. R. Davis
Auctioneer
Mark T. Davis
Attorney
Thomas E. Douglas*
Town Manager, Sparta, NC
Frank Ferrante*
Retired Owner of Frankie’s LaSalute
Lloyd D. Feuchtenberger,
Retired Bakery Executive
Jr.
Chester H. Friedlt
Pharmacist
H. A. Goodykoontz,
Retired Pharmacist
Jr.
Jr.
Owen R. Griffith,
Retired President and Chief Executive Officer,
First Community Bank, Inc.
Anthony A. Gum
Professor, Business and Economics,
West Virginia Wesleyan College
Allen T. Hamner, Ph.D.**
Professor of Chemistry,
West Virginia Wesleyan College
W. T. Hancock
Of Counsel, Richardson & Davis
.
@
Com%J;ity
Bancshares,Inc.
James L. Harrison, Sr.** i’ $
President and Chief Executive Officer,
First Community Bancshares, Inc.; President, First
Community Bank, Inc., First Community Bank of
Mercer County,
Southwest Virginia, Inc.; Executive Vice President,
Blue Ridge Bank
Inc., and First Community Bank of
B. W. Harvey**
President, Highlands Real Estate Management,
Inc.
Steve lcenhour
Owner, Trucking Company and Icenhour’s Garage
and Tire Service
Chapman 1. ]ohnston, Jr.
Retired Chairman of the Board,
Bluefield Supply Company
1. Norris Kantor**
Partner, Katz, Kantor & Perkins,
Attorneys-at-Law
Walden M. Keenet
Retired Coal Operator
Dr. John S. Lambert, Jr.
Dentist
M. Neil Lohr
Pharmacist, Princeton Pharmacy
Richard L. Lowry
President, Murphy Insurance Agency
Dr. B. J. Martin, D.M.D.
Martin Dental Associates
John P. McCabe
Retired Vice Chairman of the Board,
First Community Bank
A. Herbert McClaugherty
President, The Dean Company
John T. McGlamery
Retired Merchant
Keith Meadows
Plant Manager, Leviton Manufacturing/Southern
Devices
David Mecimore
Owner, Taylorsville Precast Molds
t X
John M. Mendez””
Vice President, Chief Financial Officer and Secretary,
First Community Bancshares, Inc.; Vice President —
Finance and Chief Administrative Officer, First
Community Bank, Inc., First Community Bank of
Mercer County,
Inc.; and First Community Bank of
Southwest Virginia, Inc.; Assistant Corporate Secre-
tary, Blue Ridge Bank
Edgar L. Miller, Sr.
Owner, Edgar’s Exxon Service Station
A. A. Modena**
Past Executive Vice President and Secretary,
First Community Bancshares, Inc.;
Past President and Chief Executive Officer,
The Flat Top National Bank of Bluefield
Wayne V. Moore*
Chief Executive Officer, Blue Ridge Bank
Dr. Samuel A. Muscari, Sr.
Physician
Charles C. Myers
Owner, Cash & Carry Wholesale Grocery
Avery Neaves
CPA, Kemp & Neaves, PLLC
Fred Norman
Retired Realtor & Businessman
Gary B. ParlierX
Owner, Custom Wall and Floor Covering
Nora Belle Pasley
Retired, Peoples Bank of Bluewell
Robert E. Perkinson, Jr.**
Vice President — Operations,
MAPCO Coal, Inc. — Virginia Region
Dr. Eduardo D. Plagata+
Physician
Claudetta Potts
Retired Owner, Radio Station
Robert Prevette
Poultry Farmer; Contractor
Bernie Queen
Retirecl, Amherst Coal Company
51
I
Clyde B. Ratlifft
President, Gasco Drilling, Inc.
Jimmie Lee Reavis
Rural Carrier, U. S. Postal Service
Joe H. RobertsX
Farming
M. M. Shumate
Retired
E. T. Smith
President, Smith Services, Inc.
Jack D. Stafford, P.E.
President, Stafford Consultants,
Inc.
Ron Roseman
Partner, Alexvale Furniture Manufacturing
William P. Stafford**
President, Princeton Machinery Service, Inc.
Michael Ross
President, Ross and Wharton Gas Co.
Richard G. Rundle*
Attorney at Law, Rundle and Rundle, LC
Larry Schronce
Owner, Larry Schronce Ford, Inc.
Giles D. Scott
Retired Restaurant Owner
Guy L. Scott, Jr.$
President and Chairman of the Board,
Blue Ridge Bank
George L. SheetsX
President and Manager, Alleghany Cablevision,
Owner, Sheets Jewelry
William P. Stafford,
Attorney at Law, Brewster, Morhous and
Cameron, PLLC
II**
William D. Starlingf
Retired Coal Operator
Dr. Theodore S. Stern*
Chairman Emeritus, Blue Ridge Bank
Robert R. Stuart, Jr.
Retired Bakery Executive
W. W. Tinder, Jr.**
Chairman and Chief Executive Officer,
Tinder Enterprises,
Inc.
Robert J. Wallace
Attorney at Law, Coleman & Wallace
William C. ShellX
President, Shell Brothers Distributors,
Inc.
Dale F. Woody*
President, Woody Lumber Company
Herman Shook
Retired Furniture Manufacturer
* Denotes Members of First Community Bank, Inc. & First Communiry Bank of Mercer County,
Inc. Boards
** Denotes Members of First Communiw Bancshares, IIIC., First Community Bank) Inc. and First CommunitY
Bank of Mercer County,
Inc. Boards
t Denotes Members of First Community Bank of Southwest Virginia, Inc. Board
~ Denotes Members of Blue Ridge Bank Board
First Community Bank of Mercer County,
,
Inc.
(A WEST VIRGINIA
CORPORATION
MEMBER FDIC)
1001 Mercer Street
Princeton, West Virginia
24740-5939
(304) 487-9000 or (304) 327-5175
Pine Plaza Branch (304) 425-7523
Matoaka Branch (304) 467-8860
211 Federal Street
Bluefield, West Virginia 24701-0950
(304) 325-7151
Mercer Mall Branch (304) 327-0431
Blue Prince Road, Green Valley
Bluefield, West Virginia 24701-6160
(304) 325-3641
Highway 52
Bluefield, West Virginia 24701-3068
(304) 589-3301
First Community Bank, Inc.
(A WEST VIRGINIA
CORPORATION — MEMBER FDIC)
Corner of Bank and Cedar Streets
Pineville, West Virginia 24874-0269
(304) 732.7011
East PineviIle Branch
(304) 732-7011
600 Guyandotte Avenue
Mullens, West Virginia 25882-1024
(304) 294-0700
Route 10, Cook Parkway
Oceana, West Virginia 24870-1680
(304) 682-8244
2 West Main Street
Buckhannon, West Virginia 26201-0280
(304) 472.1112
Tennerton
Route 20 South Tennerton
Buckhannon, West Virginia 26201
(304) 472-1112
100 Market Street
Man, West Virginia 25635
(304) 583-6525
77 North Morgan Boulevard
Logan, West Virginia 25601
(304) 752-8102
Corner of Main and Latrobe Streets
Grafton, West Virginia 26354.0278
(304) 265-1111
216 Lincoln Street
Grafton, West Virginia 26354-1442
(304) 265.5111
Main Street
Rowlesburg, West Virginia 26425
(304) 454-2431
16 West Main Street
Richwood, West Virginia 26261
(304) 846-2641
874 Broad Street
Summersville, West Virginia 26651
(304) 872-4402
Route 20 and Williams River Road
Cowen, West Virginia 26206
(304) 226-5924
Route 55, Red Oak Plaza
Craigsville, West Virginia 26205
(304) 742-5101
I
53
First Community Bank of Southwest Virginia,
Inc.
(A VIRGINIA
CORPORATION — MEMBER FDIC)
643 E. Riverside Drive
Tazewell, Virginia 24651
(540) 988.5577
302 Washington Square
Richlands, Virginia 24641
(540) 964-7454
Chase Street & Alley 7
Clintwood, Virginia 24228
(540) 926-4671
Blue Ridge Bank
Rt. 1, Box 408
Max Meadows, Virginia 24360
(540) 637-3122
8044 Main Street
Pound, Virginia 24279
(540) 796-5431
910 East Main Street
Wytheville, Virginia 24382
(540) 228-1901
(A NORTH CAROLINA
CORPORATION — MEMBER FDIC)
101 Brookfall Dairy Road
Elkin, North Carolina 28621
(336) 835-2265
5519 Mountain View Road
Hays, North Carolina 28635
(910) 696-2265
Financial
Information
57 N. Main Street
Sparra, North Carolina 28675
(336) 372.2265
150 N. Center Street
Taylorsville, North Carolina 28681
(828) 632-2265
Corporate Headquarters
Financial Contact
John M. Mendez
Vice President &
Chief Financial Officer,
First Community Bancshares, Inc.
P. O. Box 5909
Princeton, West Virginia
24740-5909
(304) 487-9000
Internet Access
www.fcbinc.com
fcbcorp@aol.com
1001 Mercer Street
P. O. Box 5909
Princeton, West Virginia
24740-5909
(304) 487-9000
Stock Registrar and Transfer Agent
First Community Bank of Mercer County,
Tmst and Financial Services Division
P. O. Box 950
Bluefield, West Virginia
24701-0950
(304) 325-7151
Inc.
Form 10-K
The Annual Report on Form 1O-K, filed with the
Securities and Exchange Commission,
shareholders upon request
to the Vice President &
Chief Financial Officer of First Community Banc-
shares, Inc.
is available to
w.
#
Com%Jhty
Bancshares,
lnc,