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