First Community Bancshares, Inc.
Annual Report 2004

Plain-text annual report

BUILDING ON OUR STRENGTH MarlcPt Positioning through Srviurt Investmrnt and Wdl- Planried Growth y o u r f i r s t f i n a n c i a l r e s o u r c e First Community Bank has a rich history and a strong tradition of service and profitability that has earned the loyalty and trust of our customers and shareholders. We have positioned the company to offer large bank resources and competitive products with service delivered in a very personal way. When customers bank with us, they see and feel the difference. Local decision making is the foundation on which our success was built and continues to differentiate our company. This principle ensures that customers will continue to receive the personal service they expect from First Community Bank. Who We Are Prnvinq our value everyddy LO our (iic,torii('r~; by v i p p o r t i n q their needs rndkes First Community Hank your tirst financial r e w u r w North Carolina and leiinessee Wc opriate 57 tianhiny lo( d~ioiic, m t l thrcc trust and investment rri,-lri,-lyc~mcnt offices in t h e lour-state r q o r i of Virqinin Wcst Virginia, iricludiriy our riewec,t Corrirneicidl Loati O f f i r r s in ( i n r l o t t e and Mount Airy. North Carolina and Eld~ksbury d r i t i Norfolk VllcJllild d l l d B r i d g q i o i t Wrst Virginia Fit st (~orrimuntty Bank is the pdierit (ornpdny of Stnno Cdriitdl M d r i a y i ~ m r n t . Inc , an 5EC r e g i s h e t i investirietiL advisoiy firtii First Cornrriiiriity Eancsharcs, Inc , IS traded uii the NASDAQ Ndtiorial Marhct iinrlcr t h r sytnibol "rmc $ 8 Executive Management Officers, First Community Bank Samuel L. Elmore. Chief Credit Officer Robert L. Buzzo, Prederit, First Comnwnity Bank N A Vice President & Secretaly First Coinrnuriity Baricshares Inr, John M. Mender, President Chief Executive Officer First Corvirriurrity Bdri( shares Inc Executive Vice President First Community Bank N A Robert: L. Schumacher, C h i d Financial Officer Firs1 Coruirriunity Banrshares Inc Senior Vice Piesident-Finmre. First Community Bank, N A E. Stephen Lilly, Chief Operating Officer First Lorrirriunity Bancshares Inc Senior Vice President & Chiof Operating Offirer, First Community Bank, N A CHARTING A COURSE FOR GROWTH Slrong Financid Services y o u r f i r s t f i n a n c i a l r e s o u r c e Financial strength is a hallmark of First Community Bank and our performance in 2004 continued that tradition. Dividends to shareholders have increased for the last 20 years and once again the market value of FCBC stock increased. Assets and capital resources continue to grow - providing the financial foundation for future growth and the transition of our company to a regional financial services provider -Your First Financial Resource. First Community Bank maintained our strong financial footing through steady improvement in asset quality and attention to cost control. Credit services continue to be a building block and a core competency that serves as a foundation for growth. Charting the course for growth requires the strategic alignment of all facets of our business. By strategically identifying opportunities, we have positioned First Community Bank to grow. Commercial Loan Offices were established in targeted areas to lead the growth of our franchise in metropolitan markets in the Southeast. A renewed focus on service as a differentiating factor will ensure that trust and loyalty are earned as we build financial relationships and grow market share. Our re-energized vision of customer focus expressed as “The First Community Way” guides employee behavior to deliver a customer experience that sets us apart from all other financial institutions. This customer service initiative began in 2004 with the implementation and testing of customer engagement standards in our branches. The research from the pilot branches was used to refine the standards of engagement to ensure that we fulfill our mission of delivering “impeccable service”. Redefining the branch as a financial services center, First Community Bank opened another prototype center in Princeton, West Virginia, in 2004. This concept was designed with many amenities and the convenience of one location for a variety of financial needs to welcome our customers back to thc local bank branch. ALIGNING OUR MARKETS N w directions y o u r f i r s t f i n a n c i a l resource First Community Bank continued our growth in 2004 through the acquisition of People's Community Bank, headquartered in Johnson City, Tennessee. The culture and banking philosophy of People's, with its talented staff of carnmunity bankers connected to their community, aligned perfectly with our community banking network. To maintain and grow its *! outstanding reputation in the East Tennessee market, our Tennessee branches will continue to operate as People's Community Bank, a division of First Community Bank. Newest location at Boorie's Creek, Johnson City, TN ... . .. . . Interior of People's Community Bank, Boone's Creek location, Johrisorr City, TN I Headquarters of P~ople's Commiinity Bmk, Johnson City, 1 N % FCBC Headquarters Current Locations Stone Capital Management TRANSFORMING THE BRANCH EXPERIENCE A collnborutivr eflort y o u r f t r s t financial r e s o u r c e To become your first financial resource, we have developed an innovative approach to delivering retail and financial services. The first office of this type, located at Stafford Commons in Princeton, WestVirginia, opened in 2004. In addition to delivering traditional banking services, this community branch also houses an office of the 'rkzist and Financial Services Division and an office of our wealth management firm, Stone Capital Management. With a renewed focus on customers, this branch provides a meeting place for the community where customers can relax and enjoy a cup of coffee from the coffee bar, navigate the Web through a wireless connection and access their accounts on line at www.fcbresource.com. The comfortable atmosphere welcomes our customers to the branch and provides a full array of financial services in one convenient location. Cusiomers take pleasure in a relaxed atmosphere A N INNOVATIVE APPROACH TO DELIVERING RETAIL AND FINANCIAL SERVICES Inferior of lobby, Stafford Commons, Princeton, WV Enjoy a cup of coffee while surfing the Web through wireless conriection OUR COMMITMENT y o u r f i r s t f i n a n c i a l r e s o u r c e From our start as a community bank in 1874, financial strength and customer-focused commitment have been our hallmarks. Our strength as a community bank has allowed us to expand and grow - adding new markets, new products and services, and new ideas - from that first office to 57 locations in a four-state region. We have positioned First Community Bank as a growing entity with the strategic identification of opportunities - the acquisition of People’s Community Bank, the opening of Commercial Loan Offices in targeted areas, and the development of innovative delivery of retail and financial services with our prototype office in Princeton, West Virginia. We continue to keep our focus on customer service with the development of our customer service initiatives, “The First Community Way,” to ensure that we continue to earn the trust and loyalty of those we serve. First Community has enjoyed increased earnings from the community banking segment and has provided a strong financial foundation for future growth as a truly regional financial services provider. Total Shareholder R+rn /I I t I I I I I 300 * 250 * 200 + 150 * 100 * 50 * 0 4 1999 + 2000 4 2001 + 2002 4 2003 + 2004 First Community Bancshares. Inr. Source CRSP, Center tor Research i f 1 Security Prir e:;, Graduate School of Biisincss The University of Chicago 2005 llsed with permission All rights reserved crsp coin * * The Asset Size & REgional Peer Group coribists of hanks that are traded on the NASDAQ, pink sheet, and bulletin board exchanges have total assets hetwoen $ I n and $5B. and are in the Southeast region Financial Information Corporate Headquarters One Coinirniinity Place P O Box 989 Bluefield. Virginia 24605 0989 1-800-425-0839 (2761 326-9000 Fax (276) 326 901 0 Stock Registrar and ‘ltansfer Agent Registrar and Transfer Company 10 Commerce Drive Crantord, New .lersoy Of01 6-3572 (800) 368-5948 Financial Contact Robell L Schurriacher Chief Financial Officer First Conirrrunlty Rancshares, Inc. P.0 Box989 Blueficld. Virginia 24605-0989 Phone: (2761 326-9000 Internet Access Websito www.fcbinc.com E-mail: ir@fcbiric com Wehsite www.fcbresource.com E-rnail. marketrngOfchiiic.corri DEAR STOCKHOLDERS AND FRIEND lolin M. Mwidez, President and CEO nployees and tho Board of rnunity Bancshares, lnc., 1 alii lis report on the operations of 1. We arc very proud of the were able to sustain our financial track record despite con1 h u e d low interest rates and the associated effect on net interest margins and while rnaking significant i nvcsl rnents in the future of our company. l L s u l ( s of Operatioris Net Tucomc for 2004 was $22.4 million and compares with $25.2 million in 2003. While consolidated earnings decreased for thc year, it is important to note that the majority or this decrease was due to the discontinuance of operations in mortgagc banking. Income from conhuing operations remained at $26 milljon, ncar thc $26.7 million in 2003. During the 2004 fiscal year, rnanager-ncnt a n d thc board of directors macle a strategic decision to exit the mortgage brokerage linc of business to allow greatcr focus on thc cornpaiiy's core business of comrniunity banking. We believe this was a very important decision, which paves the way for further growih and increascd efficiency in the company's cominunjty ban king and financial services segmcnl. The vastly different, transactional culture of the mortgage brokerage husincss did not provide the relational benefits sought in our strategic plan and with the expectation of rising intercst rates, it no longcr provided a predictable nowinterest rcvenuc strean. In August 3104, wc completed the transfer of this business through the sale of the Uriitcd First Mortgage, Tnc. subsidiary and with that sale, eliminated a largc degrce ofthe earnings volatility which had been expcrienccd throughout latc 2003 and in the first threc quartcrs of 2004. When looking at thc cornniunity banking segment only, assets at $[;.ti million, or 26% of total assets. Loan delinquencies rcniaincd low throughout the year decreasing from I ,04% at year-cnd 2003 to .83% at year-end 2004. Total 11011-accrual loans at December 31, 2004, weie $5.2 million, up $2.2 million from the $3.0 million at the preceding year-end. Other real estate owned, however, was rcducc from $2.1 million at year-end 2003 to $1.4 million at thc close of 2004. Loans ninety days past due and still accruing were rnainlained at or near zero throughout 2004 and, when condined with non-accrual loans, resulted in a non- performing loan to total loan ratio of .42‘%. Net charge-offs for 2004, as a percentage of average loans, were .24%, down significaritly from ,49% in 200.7 and at their lowest levels in recent history The rcsci-vc for possible loan losses stood at $16.3 million at ycar-end 2004 and represents 1.32% of outstanding loans held for investment and 316% of non-performing loans at thc cnd of tlie most recent fiscal year. Each of these nieasurcs reflect strong asset quality, which is maintained through solid loan underwriting and loan administration and further buoyed by lower interest rates and improving economic conditions. Dividcnds and Total Return 2004 marked the 20th ycar of consecutive increases in regular dividends. Total dividends paid in 2004 reached $1.00 per share and represented a 3.02% yield on thc beginning of year market value of oiir common stock. The market value of FCHC stock increased hy $2.92 per share and ended the year at $33.08. This represents an 8.0% increase and combines with the dividend yield to create an 11.82% total return on our common stock for the recently completed year. ‘llie five-year cumulative total return through Dccomber 31,2004, reached 288.9% equating to a 57.8% five year compound annual return. Customcr Engagemenl l’liese results can only be achieved through a commitment to excellence in customer service. We believe our staff dclivcrs this service and works hard to maintain customer confidencr. However, the linancial services marketplace is crowded nnd new competitors apprar on a frrqucnt basis. To maintain our competitive advantage, wc need to continue to hone our customer scrvice skills and increase staff awareness of the importance of the quality 01 the customer experience. To this end, we have involved our company and frontline pcrsonnrl in a collaborative eftort dcsigncd to elevate the customer experience and increase customer retention and satisfaction. We call it “Customer Fngagement.” This progiarn is part of our “Breakaway Performance” objective which, if successful, will propcl the company to a new level of performance and lead to truc competitive advantage. Acluiowlerlgernenls As wc closc another successful year of operations at First Community Bancshxes, we would like to acknowlcdgc thc tremendous contribution by a cast of over 800 dedicated and extremely talented arid loyal ernployees, without whom, none of these results would have been acliicvcd. We also cxtcnd our thanla to oiir insightful and very supportive board of directors and to you, our investors, whose confidence in First Cornrnunity Hancsharcs forms the foundation of this great company Sincercly, P”r”d John M. Mendez President arid Chief Executive Officer we arc pleased to report continued strength of financial perlorrnance with income from continuing operations of $26 inillion led hy a $122 rnillion growth in earning assets and a 9.4% increase in nct interest income. Diluted earriings per share for 2004 were $1.99 versus $2.27 in 2003, d11c primarily to the operations of the mortgage brokerage segment. Diluted earnings per share from continuing operations were $2.32, down $.09 from $2.41 per share for 2003. Return on average equity frorn continuing operations in 2004 was 14.58% down from 16.02% in 2003. beyond. We havc assembled a very talented team in this new Piedmont Division, which has since added Commercial I.oan Offices in Charlotte and Mount Airy, North Carolina. Additional Commercial Loan Offices have since becn eslablishcd in Norfolk arid Blacksburg, Virginia, and in Clarksburg, West Virginia. The use of Commercial 1,oan Ofiices has been identified as a Icad strategy in the continued expansion of the company wilhin designated markets. ‘[his is a vcry elflicient method of cstahlishing a presence in a targeted market arid a rcveiiiie strcam to support fiiturr growth. Growth m r l Development A number of exciting growth initiativrs were achirved during 2004. Foremost in the area of growth was the successful acquisiliori and integration of People’s Corrirnunity Bank in Johnson City, Tennessee, This transaction announcrd on Ilcceinher 31, 2003, was consummated on March 31, 2001, and resulted in the addilion ot five filll-scrvice operating locations jn cast Tennessee, and growth in t o l d resources ol $170 million. People’s has proven to be a perfect cornplcineiil to our community ban king organimtion with its personal approach and talented staff of retail and colrirnercial hmkers. 1)eoplc:c has sirice opened its sixth hrmcli on Route 1 1 between Johnson City and Bristol, Tennessee. I)c Novo and Commercial I.om Offices In 2003, kirst Community launched an aggressive de novo expansion stratrgy in Winston-Salem, North Carolina, wilh the acquisition of two branchrs (IJriiversity and Waughtown), and the opening ot a third branch arid administrative officec on First Street. In thr first full year of operations, this group of de novo blanches has achieved inoiitlily profitabilily and is poised to contrihute l o growth and profitability in 2005 and Kraiich Develnpmenl In-market dcvuloprrierit also continuccl in 2004 with the opening of our new Stafford Commons branch in the Princeton, West Virginia, markel. This is a new concept, 12,000 squarc foot financial crnter designrd to deliver relail banking and financial services in an environment h a t allows customers the comfort and convenience of a coffee lounge, wide-scrcrn financial monitors, wireless Intcrnet access and on-linr banking. It also houses a Stone Capital Management office which offers brokerage and wealth management, as well as personal trust account services through our Trust and Financial Services Division. In Decenihor 2004, we conipleted the acqiisition of hid in l)aniels, West Virginia, wllich will be h e sitc, pending final regulatory approvals, of our next in- market expailsion branch to augment om rriarkct presence in the Becklq/lIalcigh County, WestVirginia, market. Thisbranch will be similar indesign to theriew l’rinccton, West Virginia, branch and will serve mstomers in the eastern portion of kdcigh Coiuity Rsse 1 Q LI alit y In 2004, we continued to report strong measures in ovurall asset quality with total nun-performing 

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