FCFT, Inc.
P O Box 5909
Princeton, West Virginia 24740
May 6, 1997
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10K/A.
Sincerely,
FCFT, Inc.
Vivian Perry
Financial Accountant
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
[X] Annual Report Pursuant to Section
13 or 15(d)
of the Securities Exchange Act of 1934
(Fee Required)
For the Fiscal Year Ended December
31, 1996
or
[ ] Transition Report Pursuant to
Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee
Required)
For the transition period from -------------------------- Commission
File Number 0-19297
FCFT, Inc.
(Exact name of Registrant as specified
in its charter)
Delaware
55-0694814
(State or other jurisdiction
(IRS Employer Identification No.)
of incorporation or organization)
1001 Mercer Street, Princeton, West Virginia
24740-5909
(Address of principal executive offices)
( Zip Code)
Registrant's telephone number, including area
code: (304) 487-9000
Securities registered pursuant to Section
12(b) of the Act:
Title of each class Name of
each exchange on which registered
NONE
NONE
Securities registered pursuant to Section
12(g) of the Act:
Common stock, par value $5 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X
No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not
contained herein and will not be contained, to the best of Registrant's
knowledge, in definitive proxy or
information statement incorporated by reference in Part III of this Form
10-K or any amendment to this
Form 10-K. __X__
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 27, 1997.
$136,787,738 based on the sales price
at that date
Common Stock, $5 par value
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 10, 1997.
Common Stock, $5 par value- 4,604,423
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the FCFT, Inc. 1996 Annual Report to Security Holders are
incorporated by reference in Part I
and II hereof.
Portions of the FCFT, Inc. 1996 Annual Proxy Statement are incorporated by
reference in Part III.
Form 10-K A Information
Table of Contents
1996 Form 10-K A Annual Report
Part I Page
Item 1. Business 2
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 16
Part III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners and Management 16
Item 13. Certain Relationships and Related Transactions 16
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 16
Signatures 18
1
Part I
Item 1. Business
FCFT, Inc. (Registrant) was incorporated in November 1989, under the laws of
the State of Delaware to serve as the holding company for and to facilitate
the merger of First Community Bancshares, Inc. (First) and Flat Top
Bankshares, Inc. (Flat Top). First was a Delaware bank holding company
with one wholly-owned subsidiary, First Community Bank, Inc. (FCB), a
state-chartered West Virginia bank headquartered in Princeton, West Virginia.
Flat Top was a West Virginia bank holding company headquartered in Bluefield,
West Virginia, with two wholly-owned subsidiaries, The Flat Top National Bank
of Bluefield (FTNB), a National Association, and Peoples Bank of Bluewell
(PBB), a state-chartered West Virginia bank. On May 9, 1990, the
shareholders of First and Flat Top approved the Agreement and Plan of
Merger providing for the acquisition by merger of First and Flat Top by FCFT,
Inc. The mergers were accomplished through the exchange of the Registrant's
common stock on a 1 for 1 basis for First shares and on a 1.65
for 1 basis for Flat Top shares. First shareholders also received a one-time
special dividend of $.58 in cash for each share of First common stock. The
combination has been accounted for similar to a pooling as to First and as a
purchase transaction as to Flat Top with Flat Top treated as the acquiree for
accounting purposes. After the mergers, FCFT, Inc. operated as the surviving
holding company for the three constituent banks described above as well as
First Federal Savings Bank (FFSB) which was acquired in November 1990.
On December 30, 1994, FFSB was merged into FCB. Subsequently on January 4,
1995, FTNB and PBB were also merged into FCB.
On December 29, 1995, FCFT, Inc. reorganized its existing bank subsidiary,
First Community Bank, Inc., Princeton, West Virginia, by splitting it into two
separate banks. This was accomplished by chartering a second, affiliated,
Federal Deposit Insurance Corporation (FDIC) insured state commercial bank
formed through the acquisition of assets and assumption of the liabilities of
six of First Community Bank, Inc.'s operating divisions and branches located
within Mercer County, West Virginia. This new bank, First Community Bank
of Mercer County, Inc., headquartered in Princeton, West Virginia, consists of
six divisions with offices in Princeton, Bluefield, and Bluewell, as well as
the Credit Card Division, Trust Division, and Corporate/Administrative
Division. The main office of the reorganized First Community Bank, Inc.,
was relocated to Buckhannon, West Virginia.
At the close of business on July 3, 1996, FCFT, Inc. acquired Citizens Bank
of Tazewell (Citizens), headquartered in Tazewell, Virginia. Pursuant to the
Agreement and Plan of merger, FCFT exchanged 3.51 shares of its common stock
for each share of Citizen's common stock. Accordingly, 263,159 shares of
FCFT, Inc. common stock were issued to holders of Citizens common stock.
The merger was accounted for under the pooling of interests method.
Accordingly, all financial reporting periods presented have
been restated to properly reflect this business combination. Subsequent to
the merger, Citizens operates as a wholly-owned subsidiary of FCFT, Inc.
At the close of business on
September 26, 1996, First Community Bank, Inc. acquired the Grafton and
Rowlesburg, West Virginia branches of Huntington National Bank West Virginia.
The acquisition of these branches added approximately $21 million in deposits.
The intangible value of this transaction totaled approximately $1 million
which will be amortized over a 15 year period. This acquisition was
accounted for under the purchase method of accounting. Accordingly, the
consolidated results in periods after September 26, 1996 will include
the operations of the Grafton and Rowlesburg branches only from the date of
acquisition.
The Registrant's Board of Directors declared a five for four stock split which
will be effected in the form of a 25% stock dividend and paid to shareholders
of record March 31, 1997. New shares will be mailed to stockholders on or
about April 2, 1997. The restated outstanding shares were 5,649,995 and $2.48
at December 31, 1996; 5,594,083 and $2.28 at December 31, 1995; and 5,628,598
and $2.03 at December 31, 1994.
FCFT, Inc. has entered into a Definitive Agreement with Blue Ridge Bank,
Sparta, North Carolina, which provides for Blue Ridge to become a separate
subsidiary of FCFT, Inc. Blue Ridge, with total resources of $103 million at
September 30, 1996, is headquartered in Sparta, North Carolina and was formed in 1987.
Blue Ridge operates, in addition to its main office in Sparta, branches in
Elkin, Taylorsville, and Hays, North Carolina. There are no changes
anticipated in officers or employees, members of the Board of Directors, or
name of Blue Ridge Bank resulting from this affiliation. The transaction
was approved by Blue Ridge shareholders on March 26, 1997 and is anticipated
to close in early April, 1997. The shareholders of Blue Ridge will receive
cash or notes equal to $19.50 per share for each share of Blue Ridge held by
them with the transaction valued at over $24 million. This acquisition will
be accounted for under the purchase method of accounting. Accordingly, the
consolidated results will include the operations of Blue Ridge only from the
date of acquisition. The combination of the two companies will result in
a $925 million bank holding company with 27 full-service banking locations.
Citizens Bank of Tazewell, Inc., the Virginia subsidiary of FCFT, Inc.,
anticipates the opening of a branch in Wytheville, Virginia, to be located
at 910 E. Main Street.
Currently, the Registrant is a multi-bank holding company and the banking
operations are expected to remain the principal business and major source of
revenue. The Registrant provides a mechanism for ownership of the
subsidiaries banking operations, provides capital funds as required and
serves as a conduit for distribution of dividends to stockholders. The
Registrant also considers and evaluates options for growth and expansion of
the existing subsidiaries' banking operations.
The Registrant currently derives substantially all of its revenues from
dividends paid by the subsidiary banks. Dividend payments by the banks
are determined in relation to earnings, asset growth and capital position and
are subject to certain restrictions by regulatory agencies as described more
fully under Supervision and Regulation of this item.
2
First Community Bank of Mercer County, Inc.
First Community Bank of Mercer County, Inc. (FCB, Mercer) is a state chartered
bank organized under the banking laws of the State of West Virginia. FCB,
Mercer engages in general commercial and retail banking business in Mercer
County, West Virginia. It provides safe deposit services and makes all types
of loans, including commercial, mortgage and personal loans. FCB, Mercer also
provides trust services and its deposits are insured by the FDIC. FCB, Mercer
is a member of the Federal Reserve System.
First Community Bank, Inc.
First Community Bank, Inc. (FCB, Inc.) is a state chartered bank organized
under the banking laws of the State of West Virginia. FCB, Inc. engages in
general commercial and retail banking business in Upshur, Wyoming, Taylor,
Nicholas, Preston, and Webster Counties, West Virginia. It provides safe
deposit services and makes all types of loans, including commercial, mortgage
and personal loans. FCB, Inc. deposits are insured by the FDIC. FCB, Inc.
is a member of the Federal Reserve System.
Citizens Bank of Tazewell, Inc.
Citizens Bank of Tazewell, Inc. (Citizens) is a state chartered bank organized
under the banking laws of the State of Virginia. Citizens engages in general
commercial and retail banking business in Tazewell County, Virginia. It
provides safe deposit services and makes all types of loans including
commercial, mortgage and personal loans. Citizens deposits are insured by the
FDIC. Citizens is a member of the Federal Reserve System.
Lending Activities
The Company's banking subsidiaries generate revenues primarily through the
investment of borrowed and deposited funds in earning assets. These assets
are comprised of securities available for sale, investment securities,
short-term investment vehicles and loans to businesses and individuals. Loans
represent approximately 70% of earning assets and present a greater level of
credit risk to the Company when contrasted with investment securities.
The principal lending activities of the banks are concentrated primarily
within the market areas immediately surrounding their banking operations. These
are areas with which bank personnel are most acquainted and are within
reasonable distances of the banks which allows for timely communications with
customers as well as periodic inspections of collateral.
Loan portfolios total 547.7 million at December 31, 1996 and are comprised of
commercial, real estate and consumer loans including credit cards and home
equity loans. Commercial and commercial real estate loans comprise 45% of
the total loan portfolio. Commercial loans include loans to small to mid-size
industrial and commercial companies, coal mining companies, electronics
manufacturers, automobile dealers, as well as retail and wholesale merchants.
Collateral securing these loans include equipment, machinery, inventory,
receivables, vehicles and commercial real estate. Commercial loans are
considered to contain a higher level of risk than other loan types although
care is taken to minimize these risks. Underwriting standards require a
comprehensive review and independent evaluation of virtually all commercial
loans by Credit Administration and Discount Committees prior to approval
with updates performed annually.
Real estate mortgage loans comprise 33% of the total loan portfolio.
Mortgage loans to consumers are secured primarily by first lien deeds of
trust. These loans generally do not exceed an 80% loan to value ratio at the
loan origination date and are considered to contain normal risk. Loans in
the real estate mortgage category have historically yielded the lowest loss
ratio of all loan types.
Consumer loans comprise 22% of the total loan portfolio. Collateral for
these loans include automobiles, boats, recreational vehicles, and other
personal property. Personal loans, home equity and unsecured credit card
receivables are also included as consumer loans. Historically, losses on
these types of loans have been minimal.
The average yield on a tax equivalent basis on all loans in 1996 was 9.78% and
average loans expressed as a percentage of average deposits were 84% in 1996.
This represents an increase in average outstanding loans when compared with
historical loan to deposit ratios of 79% in 1995 and 69% in 1994.
3
Employees
The Registrant and its subsidiaries had 365 employees at December 31, 1996.
Management considers employee relations to be excellent.
Competition
The Company's subsidiaries have been able to compete effectively with other
financial institutions in their respective market areas. The subsidiaries
emphasize customer service in an effort to establish long-term customer
relationships and build customer loyalty. The Company has
consolidated services such as data processing, accounting, loan review
and compliance, and internal audit services to enhance the ability to compete
effectively in its respective markets.
Supervision and Regulation
The Registrant is a bank holding company within the meaning of the Bank
Holding Act of 1956 (Act), as amended, and is registered as such with the
Board of Governors of the Federal Reserve System. The Registrant is required
to file with the Board of Governors quarterly reports of the Registrant and
its subsidiaries and such other information as the Board of Governors may
require. The Federal Reserve makes periodic examinations of the Registrant
typically on an annual basis. The Act requires every bank holding company to
obtain prior approval of the Board of Governors before acquiring
substantially all the assets or direct or indirect ownership or control of
more than 5% of the voting shares of any bank which is not already
majority-owned. The Act also prohibits a bank holding company, with certain
exceptions, from engaging in, or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in non-banking
activities.
Bank holding companies and their subsidiary banks are also subject to the
provisions of the Community Reinvestment Act of 1977 ("CRA"). Under the
CRA, the Federal Reserve Board (or other appropriate bank regulatory agency)
is required, in connection with its examination of a bank, to assess such
bank's record in meeting the credit needs of the communities served by that
bank, including low and moderate income neighborhoods. Further, such
assessment is also required of any bank holding company which has applied to
(i) charter a National bank, (ii) obtain deposit insurance coverage for a
newly chartered institution, (iii) establish a new branch office that will
accept deposits, (iv) relocate an office, or (v) merge or consolidate with,
or acquire the assets or assume the liabilities of a federally-regulated
financial institution. In the case of a banking holding company applying for
approval to acquire a bank or other bank holding company, the Federal Reserve
Board will assess the record of each subsidiary of the applicant bank holding
company, and such records may be the basis for denying the application or
imposing conditions in connection with approval of the application. On July
1, 1995, the federal bank regulators amended the CRA regulations to simplify
enforcement of the CRA by substituting the prior twelve assessment categories
with three performance categories for use in calculating CRA ratings. The
federal bank regulators will evaluate banks under the lending, investment, and
service tests. The effective date for compliance with the amended CRA
depends on the size of the institution, but no later than July 1, 1997.
Additional data collection and reporting requirements have been imposed on
larger institutions.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") was enacted by Congress on August 9, 1989. Among the more
significant consequences of FIRREA with respect to bank holding companies is
the impact of the "cross-guarantee" provision and the significantly expanded
enforcement powers of bank regulatory agencies. Under the cross-guarantee
provision, if one depository institution subsidiary of a multi-unit holding
company fails or requires FDIC assistance, the FDIC may assess a commonly
controlled depository institution for the estimated losses suffered by the
FDIC. While the FDIC's claim is junior to the claims of non-affiliated
depositors, holders of secured liabilities, general creditors, and
subordinated creditors, it is superior to the claims of shareholders. Among
the significantly expanded enforcement powers of the bank regulatory agencies
are the powers to (i) obtain cease and desist orders, (ii) remove officers and
directors, (iii) approve new directors and senior executive officers of
certain depository institutions, and (iv) assess criminal and civil money
penalties for violations of law, regulations. or conditions imposed by, or
agreements with, regulatory agencies.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 was passed. This legislation significantly changes the
laws governing interstate banking. Beginning on September 29, 1995, bank
holding companies may acquire banks located in any state, despite former
prohibitive state statutes, subject to certain conditions. Beginning on June
1, 1997, banks may merge or consolidate on an interstate basis. States may
elect to "opt-out" of this provision by expressly prohibiting interstate bank
mergers. This Act also permits banks to branch into other states on a de
novo basis provided that the state has enacted a law that permits de novo
interstate branch banking.
4
The banking subsidiaries of the Registrant are subject to certain restrictions
by regulatory bodies which limit the amounts and the manner in which it may
loan funds to the Registrant. The banks are further subject to restrictions
on the amount of dividends that can be paid to the Registrant in any one
calendar year without prior approval by primary regulators. Payment of
dividends by the subsidiary banks to the Registrant cannot exceed net
profits, as defined, for the current year combined with net profits for the
two preceding years. In addition, any distribution which might reduce the
bank's equity capital to unsafe levels or which, in the opinion of regulatory
agencies, is not in the best interests of the public, could be prohibited.
(For additional information concerning these restrictions, see Note 14 of the
Notes to Consolidated Financial Statements incorporated by reference in Part
II of this report.)
Governmental Monetary Policies and Economic Controls
The earnings of the Registrant and its subsidiaries are affected by the
monetary policies of the Federal Reserve System. An important function
of the Federal Reserve System is to regulate the National supply of credit
in order to deal with economic conditions. The instruments employed by
the Federal Reserve are open market operations of U.S. Government securities,
changes in the discount rate on member bank borrowings, changes in Federal
Funds rates and changes in reserve requirements. These policies influence, in
various ways, the level of investments, loans and deposits and rates earned
on earning assets and interest rates paid on liabilities.
6
1. Distribution of Assets, Liabilities and Stockholders' Equity, Interest Rates and
Interest Differential
A. & B. Average Balance Sheets--Net Interest Income Analysis
1996 1995 1994
(Amounts in Thousands, Average Interest Yield/Rate Average Interest Yield/Rate
Average Interest Yield/Rate
except %) Balance (1) (1) Balance (1) (1)
Balance (1) (1)
Earning Assets:
Loans (2)
Taxable $507,554 $49,443 9.74% $428,242 $41,451 9.68% $386,510
$35,248 9.12%
Tax-Exempt 15,401 1,708 11.09% 16,755 1,866 11.14%
18,768 1,993 10.62%
Total 522,955 51,151 9.78% 444,997 43,317 9.73% 405,278
37,241 9.19%
Reserve for Possible
Loan Losses (8,797) ______ ______ (8,238) ______ ______ (9,467)
______ ______
Net Total 514,158 51,151 9.95% 436,759 43,317 9.92% 395,811
37,241 9.41%
Securities Available For
Sale:
Taxable 104,112 6,690 6.43% 92,550 5,925 6.40%
96,856 6,326 6.53%
Tax-Exempt 15,472 1,333 8.61% 156 12 7.69%
0 0 0%
Total 119,584 8,023 6.71% 92,706 5,937 6.40% 96,856
6,326 6.53%
Investment Securities:
Taxable 65,857 4,233 6.43% 112,021 7,043 6.29%
124,357 7,469 6.01%
Tax-Exempt 47,026 3,776 8.03% 55,216 4,659 8.44%
52,170 4,345 8.33%
Total 112,883 8,009 7.09% 167,237 11,702 7.00%
176,527 11,814 6.69%
Interest-Bearing
Deposits 750 28 3.73% 388 22 5.67%
3,501 216 6.17%
Federal Funds Sold 2,188 117 5.35% 4,473 263 5.88%
8,737 343 3.93%
Total Earning Assets 749,563 67,328 8.98% 701,563 61,241 8.73%
681,432 55,940 8.21%
Other Assets 54,758 ______ ______ 52,114 ______ ______
57,092 ______ ______
Total $804,321 $753,677 $738,524
====== ====== ======
Interest-Bearing
Liabilities:
Interest-Bearing
Demand $ 92,857 2,519 2.71% $ 98,405 2,656 2.70%
$108,407 2,960 2.73%
Savings Deposits 134,178 4,150 3.09% 140,810 4,352 3.09%
153,325 4,760 3.10%
Time Deposits 313,899 16,501 5.26% 290,725 13,913 4.79%
276,896 10,571 3.82%
Short-Term Borrowings 64,933 2,886 4.44% 45,868 1,945 4.24%
31,779 890 2.80%
Long-Term Borrowings 15,130 877 5.80% 10,401 616 5.92%
11,554 665 5.76%
Total Interest-Bearing
Liabilities 620,997 26,933 4.34% 586,209 23,482 4.01% 581,961
19,846 3.41%
Demand Deposits 84,265 80,447 77,132
Other Liabilities 13,465 10,761 9,293
Stockholders' Equity 85,594 76,260 70,138
_______ _______ _______
Total $804,321 $753,677 $738,524
====== ====== ======
Net Interest Income $40,395 $37,759 $36,094
==== ======
=====
Net Interest Rate Spread (3) 4.64% 4.72% 4.80%
Net Interest Margin (4) 5.39% 5.38% 5.30%
===== ===== =====
(1) Fully Taxable Equivalent-Using the Federal statutory rate of 35% as
applied to non-taxable loans and securities in periods in
which related tax benefits arise.
(2) Non-accrual loans are included in average balances outstanding but with
no related interest income.
(3) Represents the difference between the yield on earning assets and costs
of funds.
(4) Represents tax equivalent net interest income divided by average
interest earning assets.
7
C. Rate and Volume Analysis of Interest (1)
(Amounts in Thousands)
1996 Compared to 1995 1995 Compared to 1994
Increase/(Decrease) due to Increase/(Decrease) due to
Volume Rate Total Volume Rate Total
Interest Earned On:
Loans $7,574 $260 $7,834 $3,734 $2,342 $6,076
Investment securities available
for sale 2,062 24 2,086 (269) (120) (389)
Investment securities
held to maturity (3,630) (63) (3,693) (508) 396
(112)
Interest bearing deposits
with other banks 15 (9) 6 (178) (16)
(194)
Federal funds sold (124) (22) (146) (209) 129
(80)
______ ______ ______ ______ ______ ______
Total interest earning
assets 5,897 190 6,087 2,570 2,731 5,301
Interest Paid On:
Demand deposits (150) 13 (137) (270) (34)
(304)
Savings deposits (205) 3 (202) (387) (21)
(408)
Time deposits 1,158 1,430 2,588 550 2,792 3,342
Short-term borrowings 843 98 941 489 566 1,055
Long-term debt 274 (13) 261 (68) 19
(49)
______ ______ ______ ______ ______ ______
Total interest bearing
liabilities 1,920 1,531 3,451 314 3,322 3,636
______ ______ ______ ______ ______ ______
Change in net interest
income $3,977 $(1,341) $2,636 $2,256 $(591) $1,665
===== ===== ===== ===== ===== ====
(1) Fully Taxable Equivalent-using the federal statutory rate of 35% as applied
to non-taxable loans and securities in periods in which related tax benefits
arise.
The preceding table sets forth a summary of the changes in interest earned and
paid resulting from changes in volume of earning assets and paying
liabilities and changes in rates thereon. For purposes of this analysis, the
change in interest due to both rate and volume has been allocated to volume
and rate changes in proportion to the relationship of the absolute dollar
amounts.
Evaluation of Interest Rate Risk
As discussed on page 32 of the 1996 Annual Report, the Company uses an
earnings simulation model to measure interest rate risk. Using the simulation
model, net interest income forecasts are prepared based on projections of
interest rate environments and cash flows of earning assets and paying
liabilities. The net interest income forecasts are prepared principally for
evaluation of interest rate risk, accordingly, the forecasts ignore
mitigating factors such as projected and budgeted growth, changes in the
balance sheet mix of earning assets and paying liabilities, implementation
of new business strategies for improvement of net interest income, as well
as the potential impact of external growth through acquisition of banks and/or
new portfolios. Based upon the Company's most recent earnings simulation,
results indicate that net interest income in the most likely rising interest
rate scenario (projects a 50 basis point increase in the prime lending rate)
would increase by 4.62%. Assessment of interest rate risk in the event of a
relatively flat interest rate environment, net interest income would increase
by 4.28%. Lastly, assuming a declining interest rate environment (which
projects, among other things, a possible 25 basis point decrease in the
Prime lending rate) indicates net interest income would increase by 4.40%.
Each of these variations in net interest income exclude the impact of
mitigating factors discussed above and are designed purely for identification
of interest rate risk and for use in establishing the most appropriate
balance sheet profile for given interest rate environments. The Company
has positioned itself for the most likely environment and under those
circumstances expects a nominal impact on net interest.
8
II. Investment Portfolio
A. Book Value of Investment Securities Held to Maturity:
December 31
(Amounts in Thousands) 1996 1995 1994
U.S. Treasury securities $ 8,247 $16,563 $16,766
U.S. Government agencies and corporations 43,494 59,792 109,301
States and political subdivisions 47,532 47,975 53,202
Other securities 1,055 1,055 5,901
_______ _______ _______
$100,328 $125,385 $185,170
====== ====== ======
Book Value of Investment Securities Available for Sale:
December 31
(Amounts in Thousands) 1996 1995 1994
U.S. Treasury securities $ 1,005 $ 1,217 $ 9,184
U.S. Government agencies and corporations110,967 100,184 74,507
States and political subdivisions 16,037 16,345 -
Other securities 8,104 3,447 45
_______ _______ _______
$136,113 $121,193 $83,736
====== ====== ======
B. Maturity and Yields
The required information is incorporated by reference to pages 42 and 43 of
the 1996 Annual Report.
C. There are no issues included in obligations of states and political
subdivisions or other securities which
exceed ten percent of stockholders' equity.
9
III. Loan Portfolio
A. Loan Summary and Non-Performing Assets:
December 31
(Amounts in Thousands) 1996 1995 1994 1993 1992
Commercial, Financial and
Agricultural $ 79,278 $ 71,441 $ 61,691 $ 58,060 $ 53,324
Real Estate- Commercial 166,787 152,579 129,672 121,599
119,131
Real Estate- Construction 10,589 5,608 2,406 2,783
3,058
Real Estate- Residential 171,455 155,282 143,350 133,477 127,440
Consumer 120,720 100,843 84,453 81,035 86,868
Other 552 519 501 738
264
_______ _______ _______ _______ ________
Total 549,381 486,272 422,073 397,692
390,085
Less : Unearned Income 1,678 1,121 883
888 1,083
547,703 485,151 421,190 396,804
389,002
Less: Reserve for Possible
Loan Losses 8,987 8,321 8,479 9,568
7,803
Net Loans $ 538,716 $ 476,830 $ 412,711 $ 387,236 $ 381,199
======= ======= ======= ======= =======
Non-Performing Loans:
Non-accruing Loans $5,476 $4,371 $6,909 $11,269
$12,736
Loans Past Due Over 90
Days 780 673 968
1,393 790
Restructured Loans Per-
forming in Accordance
With Modified Terms 401 440 640
1,400 664
Gross Interest Income Which
Would Have Been Recorded
Under Original Terms of
Non-Accruing and Re-
Structured Loans 416
Actual Interest Income During
the Period 121
Commitments to Lend
Additional Funds on Non-
Performing Assets - - -
- - -
Other Real Estate Owned 2,225 929 919 1,997
3,304
Included in the Company's loan portfolio at December 31, 1996 is one
relationship totaling $3.6 million, which was over 30 days past due. This
relationship, a local furniture manufacturing firm with several investors
has struggled to date because they failed to meet projected sales goals.
Recent increases in sales and ongoing negotiations with new customers lead
management to believe that in the near future, sales will be sufficient to
meet payment obligations.
Management believes that the extent of problem loans at December 31,
1996 is disclosed as non-performing assets or delinquent loans in the
preceding charts. However, there can be no assurance that future
circumstances, such as further erosion of economic conditions and the related
potential effect that such erosion may have on certain borrowers' ability to
continue to meet payment obligations, will not lead to an increase in problem
loan totals. Management believes that the non-performing asset carrying
values will be substantially recoverable, taking into consideration the
adequacy of the applicable collateral and, in certain cases, partial
write-downs which have been taken and allowances that have been established.
It is the Registrant'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 is normally
discontinued when a loan becomes 90 days past due as to principal or interest.
At December 31, 1996, and at the present time, the Company does not have any
concentrations of loans to borrowers engaged in similar activities exceeding
10% of total loans, net of unearned income.
10
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. Although portions of the West
Virginia economy are closely related to coal and timber, they are supplemented
by service industries. The current economy of the Company's market is
relatively stable and is not seen as highly subject to volatile economic
change.
B. Maturities and Rate Sensitivity of Loan Portfolio at December
31, 1996:
Remaining Maturities
(Amounts in Thousands)
Over One Over
One Year Year to Five
and Less Five Years Years Total Percent
Commercial, Financial and
Agricultural $ 38,426 $ 32,699 $ 8,153 $ 79,278 14.48%
Real Estate- Commercial 34,760 67,878 64,149 166,787
30.45%
Real Estate- Construction 3,750 2,552 4,287 10,589
1.93%
Real Estate- Mortgage 20,072 99,148 52,238 171,458
31.31%
Consumer 30,676 78,201 10,420 119,297
21.78%
Other 26 251 17
294 .05%
$127,710 $280,729 $139,264 $547,703
100.00%
Rate Sensitivity: ======= ======== ======== ======== ========
Pre-determined Rate $ 70,326 $237,322 $ 87,202 $394,850 72.09%
Floating or Adjustable Rate 57,384 43,407 52,062 152,853
27.91%
$127,710 $280,729 $139,264 $547,703 100.00%
======= ======= ======= ======= =======
23.32% 51.25% 25.43% 100.00%
======= ======= ======= =======
C. The required information for risk elements is on page 9 of this
report and incorporated by reference to pages
28 through 30 of the 1996 Annual Report.
D. The following table presents the Company's investment in loans
considered to be impaired (in thousands):
December 31
1996 1995
Commercial, financial and agricultural $3,377 $2,642
Real estate-mortgage 149 547
______ ______
Total investment in loans considered to be impaired $3,526 $3,189
===== =====
The Company has not presented impaired loan information for periods prior
to the effective date of FAS 114, "Accounting by Creditors for the Impairment
of a Loan", as amended, which was effective in 1995. All of the loans
deemed to be impaired were evaluated using the fair value of the collateral as
the measurement standard.
11
IV. Summary of Loan Loss Experience
A. 1. Summary of Loan Loss Experience:
Years Ended December 31
(Amounts in Thousands, Except Percent Data) 1996 1995 1994 19931992
Balance of reserve at beginning of period $8,321 $8,479 $9,568 $7,803 $7,193
Reserve of subsidiaries at date of acquisition - - -
1,387 -
Charge-offs:
Commercial, financial and agricultural 369 1,875 2,237 815
1,134
Real estate- residential 275 109 163 289
454
Installment 1,537 899 963 1,137
1,397
Total Charge-offs 2,181 2,883 3,363 2,241
2,985
Recoveries:
Commercial, financial and agricultural 249 126 83 311
383
Real estate-residential 26 35 7 83
49
Installment 299 329 420 338
279
Total Recoveries 574 490 510 732
711
Net charge-offs 1,607 2,393 2,853 1,509
2,274
Provision charged to operations 2,273 2,235 1,764 1,887
2,884
Balance of reserve at end of period $8,987 $8,321 $8,479 $9,568 $7,803
===== ===== ===== ===== =====
Ratio of net charge-offs to average loans
outstanding .31% .54% .70% .38% .60%
===== ===== ===== ===== =====
Ratio of reserve to total loans outstanding 1.64% 1.72% 2.01% 2.41%
2.02%
===== ===== ===== ===== =====
A. 2. The required information is incorporated by reference to page 29
of the 1996 Annual Report.
B. Allocation of Reserve for Possible Loan Losses:
(Amounts in Thousands, Except Percent Data) December 31
1996 1995 1994 1993 1992
Commercial, Financial
and Agricultural $3,167 45% $3,465 46% $3,327 45% $4,671
45% $4,124 44%
Real Estate- Mortgage 1,956 33% 1,751 33% 747 35% 828
34% 798 34%
Consumer 1,567 22% 1,280 21% 1,099 20% 1,587 21%
1,347 22%
Unallocated 2,297 N/A 1,825 N/A 3,306 N/A 2,482 N/A 1,534 N/A
Total $8,987 100% $8,321 100% $8,479 100% $9,568 100% $7,803 100%
===== ==== ===== ==== ===== ==== ===== ==== ===== ====
The percentages in the table above represent the percent of loans in each
category of total loans.
12
V. Deposits
A. The required information for average deposits and rates paid by type
is on page 8 of this report.
B. Not applicable.
C. Not applicable.
D. The required information is incorporated by reference to page 47
of the 1996 Annual Report.
E. Not applicable.
VI. Return on Equity and Assets
A. The required information is incorporated by reference to page 23 of
the 1996 Annual Report.
VII. Short-Term Borrowings
A. Securities Sold Under Agreements to Repurchase and Other Short-Term
Borrowings:
The Company uses various short-term funding sources including term repurchase
agreements, customer repurchase agreements and Federal funds purchased. The
Company's short-term borrowings and rates paid are summarized as follows
(Amounts in Thousands, Except Percent Data):
1996 1995 1994
Amount Rate Amount Rate Amount Rate
At year-end $53,031 4.02% $50,205 4.16% $36,3082.77%
Average during year 64,933 4.44% 45,868 4.24% 31,779 2.80%
Maximum month-end 54,833 61,068 38,597
balance
B. Long-Term Advances From the Federal Home Loan Bank (FHLB) and
Long-Term Debt
Two subsidiaries of the Company are members of the FHLB and as such have the
ability to obtain advances from the FHLB. At December 31, 1996 and 1995, the
Company had long-term advances from the FHLB ( original maturities in excess
of one year) of $15 million with a weighted average rate of 5.83%. The
advances from the FHLB are secured by certain qualifying first mortgage loans,
stock in the FHLB, mortgage-backed securities and certain investment
securities.
Item 2. Properties
FIRST COMMUNITY BANK OF MERCER COUNTY, INC.
The offices of the Registrant are located within First Community Bank of
Mercer County, Inc. at 1001 Mercer Street, Princeton, West Virginia.
Principal properties owned by the subsidiary banks consist of modern single
purpose facilities described as follows:
13
Princeton- Two-story, 30,000 square foot banking offices with detached
drive-up/walk-in facility in Princeton, West Virginia, completed in 1976;
Pine Plaza branch office with drive-up located in Princeton, West Virginia,
constructed in 1986 on leased land with initial lease term plus renewal
options totaling twenty years; moveable, modular branch office with
drive-up/walk-in located in Matoaka, West Virginia, constructed in 1983
on leased land; two-story, 6,000 square foot banking office with drive-up
located in Green Valley, West Virginia, constructed in 1978, 10 automated
teller machines located throughout Mercer County.
Bluefield- Three-story, 37,000 square foot banking offices located on Federal
Street with detached drive-up facility, completed in 1972 and walk-up
automated teller machine located on premises; one off-site automated teller
machine on leased land in Bluefield Plaza.
Bluewell- Two-story, 8,200 square foot banking offices with drive-up facility
located in Bluewell, West Virginia completed in 1965; one drive-up automated
teller machine located on premises.
Green Valley- Branch office leased in Mercer Mall; one walk-up automated
teller machine located on premises.
FIRST COMMUNITY BANK, INC.
Wyoming County- Two-story banking offices with an off-premise drive-up
facility located in Pineville, West Virginia, acquired in 1961;
two-story banking offices with drive-up located in Oceana,
West Virginia, constructed in 1984; branch office with drive-up located in
Mullens, West Virginia, constructed in 1984; moveable, modular branch office
with drive-up/walk-in located in Pineville, West Virginia, constructed in
1984; three automated teller machines.
Upshur County- Three-story banking offices with an off-premise
drive-up/walk-in facility located in Buckhannon, West Virginia, acquired in
1937; branch office with drive-up located in Tennerton, West Virginia,
constructed in 1980; two automated teller machines.
Taylor County- Two-story banking offices with an attached drive-up/walk-in
facility located in Grafton, West Virginia, constructed in 1966; one automated
teller machine; one-story, 1,200 square foot banking offices with an attached
drive-up facility, located in the Blueville area of Grafton, West Virginia,
constructed in 1968.
Nicholas County- Two story banking offices and office addition with drive-up
located in Richwood, West Virginia; off-premises facility with drive-up
located in Richwood, West Virginia, constructed in 1977 on leased land; one
and one-half story branch office with drive-up located in Summersville,
West Virginia, constructed in 1984; one and one-half story branch office with
drive-up located in Craigsville, West Virginia, constructed in 1984; two
automated teller machines.
Webster County- Branch office with drive-up located in Cowen, West Virginia,
constructed in 1988.
Preston County- One-story, 4,000 square foot banking offices with an
attached drive-up facility located in Rowlesburg, West Virginia, constructed
in the early 1920's and remodeled in 1981.
CITIZENS BANK OF TAZEWELL, INC.
Tazewell County- Bi-level , 6,500 square foot banking offices with attached
drive-up facility located in Tazewell, Virginia, constructed in 1978,
remodeled in 1981 and 1995; one-story, 2,500 square foot banking offices with
an attached drive-up facility, located in Richlands, Virginia, constructed in
1989 and remodeled in 1995.
Item 3. Legal Proceedings
The Registrant and its subsidiaries (Company) are plaintiffs and defendants
in lawsuits arising out of the normal course of business, in which claims for
monetary damages are asserted. Management, after consulting with legal
counsel handling the respective matters, is of the opinion that the ultimate
outcome of such pending actions will not have a material effect upon the
consolidated results of operations or financial condition of the Registrant.
Following is a summary of significant proceedings along with recent
developments, where applicable.
On December 31, 1992, the Company was named as a defendant in Civil Action
No. 92-CV-1696-K, styled Four Winds Development, Inc., W. Stephen Melcher,
and E.T. Boggess, plaintiffs, vs. First Community Bank of Princeton and Dave
Shields Company, Inc., defendants. The lawsuit was filed against the Company
by loan customers who claimed breach of implied duty of good faith and fair
dealing, breach of fiduciary duty and breach of implied contract in connection
with allegations that the Company failed to lend plaintiffs appropriate sums
to complete construction and development of a condominium project. This
action which sought $30 million in compensatory damages for plaintiffs was
concluded in a civil trial in May 1995 with the plaintiffs being awarded a
verdict of approximately $513,000. The Company filed motions seeking
abatement of portions of the verdict and received a reduction of $128,000.
The remaining verdict of $385,000 was ordered with prejudgment interest
totaling $248,000. Amounts due plaintiffs under the verdict along with an
estimate of prejudgment interest was provided for in the Company's results
of operations in the second and fourth quarters of 1995. All of the
plaintiffs have now filed bankruptcy. The Company has asserted its right to
set off the judgment against the other judgments which are due to the
Company by the plaintiffs as a result of defaulted loans earlier made by the
Company to plaintiffs. In September, the Company and the plaintiff, with
court approval, agreed to stay proceedings against the Company to permit
negotiation and/or litigation in the plaintiffs' bankruptcy cases of these
offset issues.
On February 2, 1990, the Company and an officer were named defendants in
Civil Action No. 89-C-1156-F styled Commercial Bank of Bluefield
("Commercial"), plaintiff vs. Allied Refrigeration, Inc., defendant and third
party plaintiff vs. Dan Shortridge, Four Winds Development, Inc., W. Stephen
Melcher, E.T. Boggess, Robert W. Culler, and First Community Bank, third
party defendants. The lawsuit alleges a former officer of the Company
collaborated with another bank, where he was previously employed, in the
extension of a $200,000 loan to the defendant. The plaintiff in this
matter is the Bank which extended the credit and sought collection from the
borrower/defendant. The defendant and third-party plaintiff in the above
referenced matter are also seeking enforcement of a mechanic's lien in
relation to the development of a long-term care facility in Bluefield,
Virginia. The Company is the beneficiary of a deed of trust on this care
facility which secures the note in which the Company has a participation
interest. The care facility was sold to a third party in December 1993. Due
to the interrelationship of these matters and the civil matter in the
preceding paragraph, these matters have been included in the previously
discussed settlement and compromise and are expected to be dismissed as
part of the pending settlement and court orders.
Settlement negotiations commenced in the fourth quarter of
1996 and have yielded an agreement in principal providing for the settlement
of all outstanding issues relating to the judgment, including the offset
claims, and in two related pending litigations (one, a civil matter in state
court and the other, a mechanics' lien assertion in Federal Bankruptcy
Court). The significant provisions of the proposed compromise, which is
expected to be finalized in the First Quarter of 1997, are as follows: In
the settlement of the judgment against the Company, and the two related
litigations, the Company and third parties, including its insurance carrier,
have agreed to pay sums aggregating $733,000 to the judgment plaintiffs and
to the plaintiffs in the related civil matters including the sum of $228,000
to plaintiffs' counsel. Payment of the settlement by the Company will result
in full settlement of the judgment and the two related civil matters. A
third party bank and co-defendant in one of the related civil matters has
agreed to forgive indebtedness under a $200,000 note made by the third party
plaintiff in that matter. The Company will also forgive indebtedness of
plaintiffs totaling $62,500 and refinance secured notes of $573,610 owed by
one of the judgment plaintiffs, on current market terms. The net settlement
cost to the Company of settlement of all the litigations discussed above is
expected to be $468,000 and has been fully provided for in the Company's
statement of condition. In March of 1997, the proposed settlement and
compromise was agreed to by all parties to the litigation, signed and
submitted to the respective courts of jurisdiction where they now await final
order and approval.
The Company was named as one of the defendants in a $2,370,000 lawsuit, Civil
Action No. 82-C-610, styled Rhondal L. Toler, et al vs. The Castle Rock Bank
of Pineville, filed on December 2, 1982 in the Circuit Court of Wyoming
County, West Virginia, in which Rhondal L. and Annette Toler and Vern and
Henrietta Ellison, plaintiffs, claimed that former representatives of
Registrant's subsidiary misrepresented the condition of a company at the time
the plaintiffs borrowed money to purchase the company. The Company filed
an answer denying all pertinent allegations made by the plaintiffs and
counterclaimed seeking $322,000 plus costs
which represents the plaintiff's outstanding indebtedness to the Company.
This case was recently dismissed because it had been on the docket for more
than one year and the plaintiff had failed to prosecute. The plaintiff filed
a motion to reinstate. The Company has filed a motion objecting to the
reinstatement
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
14
Part II.
Item 5. Market for Registrant's Common Equity and Related Matters
Market Price of Common Stock
The common stock of FCFT, Inc. is traded over-the-counter and is listed on the
NASDAQ (Level III) Electronic Billboard. The following table shows the
approximate high and low bids as known to FCFT or reported by local brokers
for each quarter in 1995 and 1996. Management has been advised that such
quotations primarily represent actual transactions. Also, presented below is
the book value and cash dividends paid per share as of and for each quarter of
1995 and 1996. The number of common stockholders of record on December 31,
1996 was 2,067 and outstanding shares totaled 4,519,996.
Bid Book Value Cash
1995 High Low Per Share Dividends
First Quarter $29.50 $29.25 $16.38 $.26
Second Quarter 29.75 29.25 16.97 .27
Third Quarter 29.75 29.50 17.43 .28
Fourth Quarter 34.00 30.50 17.98 .42
$1.23
====
1996
First Quarter $34.00 $29.50 $18.38 $.28
Second Quarter 33.00 32.00 18.78 .30
Third Quarter 32.25 31.00 19.38 .35
Fourth Quarter 36.00 32.25 19.76 .50
$1.43
====
The holders of shares of common stock of the Company are entitled to such
dividends as the Board of Directors, in its discretion, may declare out of
funds legally available thereof.
The Company has historically paid dividends on a quarterly basis and currently
intends to continue to pay such dividends in the foreseeable future. However,
there can be no assurance that dividends will be paid in the future. The
declaration and payment of future dividends will depend upon, among other
things, the Company's earnings and financial condition, the general economic
and regulatory climate.
The Company's ability to pay dividends to its shareholders depends to a large
extent upon the dividends the Company receives from its subsidiaries.
Dividends paid by its banking subsidiaries are subject to restrictions under
various Federal banking laws. In addition, the banking subsidiaries must
maintain certain capital levels which may restrict their ability to pay
dividends to the Company. As of December 31, 1996, the net profits available
for distribution to the shareholders as dividends without regulatory approval
were approximately $13.9 million; however the regulators of the banking
subsidiaries could administratively impose stricter limits on the ability of
the banking subsidiaries to distribute net profits to the Company.
Item 6. Selected Financial Data
The required information is incorporated by reference to page 23 of the 1996
Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The required information is incorporated by reference to pages 21 through 32
of the 1996 Annual Report.
15
Item 8. Financial Statements and Supplementary Data
The required information is incorporated by reference to pages 34 through 59
of the 1996 Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The required information concerning directors has been omitted in accordance
with General Instruction G. Such information regarding directors appears on
pages 3, 4, 5, and 6 of the Proxy Statement relating to the 1997 Annual
Meeting of Stockholders and is incorporated herein by reference.
A portion of the information relating to executive officers has been omitted
in accordance with General Instruction G. Such information regarding
executive officers appears on pages 6, 7, and 8 of the Proxy Statement
relating to the 1997 Annual Meeting of Stockholders and is incorporated herein
by reference.
Item 11. Executive Compensation
The required information concerning management remuneration has been omitted
in accordance with General Instruction G. Such information appearing on pages
7, 8, 10, and 11 of the Proxy Statement relating to the 1997 Annual Meeting
of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The required information concerning security ownership of certain beneficial
owners and management has been omitted in accordance with General
Instruction G. Such information appearing on pages 5 and 6 of the Proxy
Statement relating to the 1997 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The required information concerning certain relationships and related
transactions have been omitted in accordance with General Instruction G.
Such information appearing on pages 5 and 6 of the Proxy Statement relating
to the 1997 Annual Meeting of Stockholders is incorporated herein by
reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The Consolidated Financial Statements of FCFT, Inc. and
subsidiaries together with the Independent
Auditors' Report dated January 30, 1997 are incorporated by
reference to pages 34 through 58 of
the 1996 Annual Report which is included herein as Exhibit 13.
(2) Financial Statement Schedules
All applicable financial statement schedules required by
Regulation S-X are included in the Notes to
Consolidated Financial Statements.
(b) No reports were filed on Form 8-K during the fourth quarter of
1996.
(c) Exhibits:
16
(2) 8-K filing of Blue Ridge Definitive Agreement is pending.
(3) Articles of Incorporation and Bylaws
The Registrant's Articles of Incorporation and By-laws were
previously filed in a Registration Statement
on Form S-4, Registration No. 33-32894 and are incorporated by
reference in this Form 10-K.
(11) Statement Regarding Computation of Per Share Earnings
The statement regarding computation of per share earnings is
included as Note 9 of the Notes to Consolidated.
Financial Statements in the 1996 Annual Report to Stockholders
and is incorporated herein by reference.
(13) Annual Report to Security Holders
(21) Subsidiaries of Registrant:
First Community Bank, Inc. ( a West Virginia Corporation)
First Community Bank of Mercer County, Inc. ( a West
Virginia Corporation)
Citizens Bank of Tazewell, Inc. ( a Virginia Corporation)
(23) Independent Auditors' Consent
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BY: _______________________________________________
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
BY: _______________________________________________
Vice President and Chief Financial Officer
(Principal Accounting Officer)
Signature Title
Date
/S/ Sam Clark Director March 31, 1997
(Sam Clark)
/S/ Allen T. Hamner DirectorMarch 31, 1997
(Allen T. Hamner)
/S/ James L. Harrison, Sr. President, Chief Executive Officer
March 31, 1997
(James L. Harrison, Sr.) and Director (Principal Executive
Officer)
/S/ B.W. Harvey DirectorMarch 31, 1997
(B.W. Harvey)
/S/ I. Norris Kantor DirectorMarch 31, 1997
(I. Norris Kantor)
/S/ John M. Mendez Vice President, Chief Financial March
31, 1997
(John M. Mendez) Officer and Director
/S/ A.A. Modena DirectorMarch 31, 1997
(A.A. Modena)
/S/ Robert E. Perkinson, Jr. DirectorMarch 31, 1997
(Robert E. Perkinson, Jr.)
/S/ William P. Stafford Chairman of the Board and Director
March 31, 1997
(William P. Stafford)
/S/ William P. Stafford, II DirectorMarch 31, 1997
(William P. Stafford, II)
/S/ W.W. Tinder, Jr. Director March 31, 1997
(W.W. Tinder, Jr.)
/S/ Harold M. Wood DirectorMarch 31, 1997
(Harold M. Wood)
18
FCFT 1996 ANNUAL REPORT
Financial highlights
(Amounts in Thousands, Except Percent and Per Share Data)
Earnings and Dividends 1996 1995 1994
Net income $13,917 $12,789 $11,454
Net income per share 3.09 2.85 2.53
Cash dividends per share 1.43 1.23 1.05
Return on average equity 16.26% 16.77% 16.33%
Return on average assets 1.73% 1.70% 1.55%
Balance Sheet Data At Year-End 1996 1995 1994
Total assets $837,664 $780,302 $744,735
Earning assets 775,244 723,616 684,630
Deposits 643,497 622,723 616,226
Securities sold under agreements to repurchase 53,031 50,205 36,308
Stockholders' equity 89,325 80,460 70,198
1
Table of Contents
Message to Stockholders 3
Management's Discussion and Analysis 20
Consolidated Financial Statements 33
Board of Directors 60
About SNL Securities, Inc. SNL is the leading provider of financial,
merger and market share information to banks, thrifts, investment
bankers, Wall Street analysts and leading investors. Based in
Charlottesville, Virginia,
the company provides the most timely, accurate and complete information
through databases and direct consulting.
The SNL comparative financial data represents 1996 year-end data for FCFT
and September 30, 1996 data for the six-bank Peer Group and all banks in the
SNL universe (600 banks). The six-bank Peer Group consists of
WesBanco, Inc., City Holding Company, One Valley Bancorp of WV, Inc.,
Horizon Bancorp, Inc., and United Bankshares, Inc. in West Virginia and
Premier Bankshares Corporation in Virginia.
Glossary of Terms
Return on Average Equity 3
Income before extraordinary items as a percentage of
average stockholders' equity for the period.
Return on Average Assets 5
Income before extraordinary items as a percentage of
average total assets for the period.
Net Interest Margin 7
Net interest income, on a fully-taxable equivalent basis, as
a percentage of average earning assets for the period.
Price/Book Value 9
Stock price as a percentage of book value per outstanding
share of common stock.
Price/Earnings Per Share 11
Stock price as a multiple of last 12 months fully diluted
earnings per share (after extraordinary items).
Overall Satisfaction: Norm Comparison 12
Overall service quality as compared with others in the
financial services industry.
Net Operating Expense/Average Assets 13
Operating expenses less noninterest income as a percent-
age of average total assets. Foreclosed property, amortization
and non-recurring expenses are excluded.
Assets/Employee 15
Assets in millions as a multiple of full-time equivalent
employees.
Equity/Assets 17
Total stockholders' equity as a percentage of
total assets.
2
Message to Stockholders
TO OUR STOCKHOLDERS:
Through the hard work and dedication of your Board of Directors and employees
and with the support and loyalty of our family of stockholders and customers,
FCFT, Inc. is pleased to announce another exceptional, record setting year.
It is with pleasure that your Board of Directors, management and members
of the staff provide you with this report on the strong financial performance
of FCFT, Inc. for 1996 and a review of other activities for the year.
Throughout this Message to Stockholders, we have included information
pertaining to the performance of your Company as prepared by SNL
Securities, a leading firm in the financial securities research and
analysis industry (Graph 1).
Peer data is used to benchmark performance and identify opportunities
in which returns can be
3
improved. The continual use of this benchmarking process has enabled your
Company to set new records year after year and hopefully will continue to
provide us information and opportunities to extend these
successes. While comparison with peers never tells the complete story,
it is a good indication of the strengths of your Company. We
encourage you to review FCFT's performance compared with its peers as
presented herein (Graphs 2 - 9).
Earnings performance is not only an evaluation of how well a company has
performed in the past year, but is also a strong indicator of future
performance. Our Company's net income for 1996 was $13.917 million, an
8.82% increase over the $12.789 million reported in 1995. Since our Company
was formed in 1990, net income has nearly tripled representing an average
increase of 27.66% per year. Strong performance in terms of net income
provides for growth of stockholder value through increases in dividends and
book value and provides the resources needed to support new activities
and projects directed at continuing your Company's leadership role in the
banking industry.
Net income may be communicated more effectively as Earnings Per Share which
were $3.09 in 1996 as compared with $2.85 in 1995.
The strong earnings performance of our Company is the prime factor
supporting the substantial increase in dividends per share
which were $1.43 for 1996, a 16.26% increase over the $1.23 declared and paid
in 1995. Return on Average Equity and Return on Average Assets indicate your
Company's ability to utilize capital and assets to produce net
income. This analysis places FCFT as a
4
leader among its peers. The effective use of assets to produce net income is
measured by Return on Average Assets, which at 1.73%, produced another 2%
increase over the record 1.70% reported in 1995. Return on Average Equity,
which is generally thought of as a measure of the stewardship of stockholders'
investment, decreased to 16.26% from 16.77% in 1995. The decrease in Return
on Average Assets from that reported through the Third Quarter of 1996 and
Return on Average Equity from both that reported through the Third Quarter
of 1996 and for the year ended December 31, 1995 was due to a "payments
system fraud" (commonly referred to as a "kite") experienced by the Company
which resulted in a charge against income of $3.365 million during the Fourth
Quarter. Although repayment of the loss is anticipated from the principals
and their numerous business interests, the entire amount was charged against
1996's operations. Partially offsetting
5
the loss was a curtailment gain of $1.450 million resulting from the freeze
and pending termination of the Company's Defined Benefit
Pension Plan. The after tax net income impact of these two unusual items
was $1.149 million or $.26 per share reducing Return on
Average Assets by 14% and Return on Average Equity by 1.34%. The Pension Plan
termination is part of a simplification of retirement benefits the Company
offers to its employees moving from three separate plans
to a single plan which is more responsive to today's work force and which
provides benefits in relation to the success of the
Company from a stockholder's perspective.
Total resources of our Company increased 7.4% to a record level of $838
million at the end of 1996 as compared with $780 million at
the end of 1995. As significant as the growth in total resources was the
$62.5 million increase in outstanding loans to a new record
of $548 million. Loans, which provide our principal source of earnings,
experienced growth in all major categories allowing us to
maintain a consistent risk profile while creating additional earning assets.
With careful attention to loan underwriting standards and credit quality, an
increase in outstanding loans should positively impact net income in the
future as our Company continues to grow.
Reversing a five-year trend, non-performing assets experienced an increase
in 1996 to $8.5 million or 1.54% of total loans and other real
estate owned compared with $6.0 million or 1.20% at December 31, 1995. One
relationship, originated in 1983 totaling approximately $2 million, was
converted to non-accrual in 1996 as cash flow from rental activities fell
short of that required to service the
6
debt. The underlying collateral value together with the strength of the
several guarantors of this debt should ensure no loss of either principal
or interest as this problem is resolved in 1997. Much attention is being
directed toward the creation of earning assets from non-performing assets
as this will strengthen the overall composition of the balance sheet and
incrementally add to the earnings of your Company.
Our Trust and Financial Services Division, with total resources of $441
million at cost and a market value exceeding $580 million, provides a highly
demanded quality professional service throughout the geographic areas served
by FCFT, Inc. Quality trust services include agency accounts, trusts, estate
management and settlement, as well as custodial services allowing us to
provide the full range of financial services for customers whose needs exceed
7
what is offered by many competing financial institutions. The Trust and
Financial Services Division allows our Company to add value in many of our
existing banking relationships as well as create avenues for obtaining new
relationships by providing a high standard of quality service delivered on a
personal basis.
The market for your stock continued to recognize the financial successes
of our Company in 1996 with an average of high and low bids of $34.50 per
share at year-end. Year-end average prices represent a multiple on earnings
of 11.2X placing us conservatively in line with our peers. Expressed as a
multiple of book value, the year-end average price represents 175% of book
value, as compared with the 184% of book value reported for the end of 1995.
Dividends of $1.43 per share for 1996 represent a cash yield on current
market of 4.2%, substantially in line with many other financial instruments
which, unlike our stock, do not possess potential for future appreciation.
April 26,1996 marked the day FCFT moved into "Cyberspace" and went
"world-wide," as First Community Bank's site was established on the World
Wide Web. Our new location, http://www.fcbinc.com, has attracted more than
18,000 visitors including those from Spain, Australia, Japan, Croatia, the
Czech Republic and the United Kingdom. On October 28,1996, employees and
customers realized the benefits of our new computer system, an IBM Model 510
Risc processor. This upgrade provides much quicker response time, a shorter
daily processing cycle, and greatly enhances our ability to add new features,
products and ser-
8
vices which were not supportable prior to the upgrade.
Technology is changing not only the delivery channels available to customers
for products and services but the very products and services themselves. Our
original plans were to upgrade our internal computer system and add imaging
and several other new technology driven services by the end of 1996. Our
cautious approach to select not only the newest but indeed the best products
available has added time to our original schedule as better and more effective
products emerge daily. Our Technology Services Division is preparing for
24-hour access to customer information through IVR (Interactive Voice
Response) and telephone banking by mid-year. PC banking for both retail
and commercial customers is to be on-line by September with customer
check imaging technology in place by Third Quarter 1997. We view technology
as creating opportunity in two areas. First, customer
9
convenience can be greatly enhanced as access to their accounts on a real-time
basis will literally be around-the-clock. Secondly, new technology will
allow us to manage operational costs and increase stockholder returns while
raising the level of customer service. This truly creates a win-win situation
and one that excites us greatly.
Projected near-term economic indicators reflect a rather stable economy with
relatively low unemployment, managed levels of inflation and a
continuing robust stock market. These conditions support growth and create
an environment in which the financial services industry should
prosper. However, competition in our industry is increasing daily from
organizations which have unbundled financial services and which are
attempting to provide a low cost alternative to the more traditional
community bank. Relationship banking, built upon mutual trust and respect
and based upon doing what is right for the customer, has served your Company
and its stockholders well for almost 125 years. We plan to continue that
primary approach to our markets greatly enhanced by new personnel
capabilities, new access channels for customers and a broadened array of
products and services. We must grow closer to our customers and better
understand their needs and their expectations, becoming constantly aware of
changes and more responsive to those changes. In the past, even the best
traditional community bank was product driven. To be successful in the years
ahead, we must become fully customer or client driven with renewed emphasis
in market competencies. New competition will
10
demand this development and a great portion of our future success will depend
upon our abilities in customer responsiveness and satisfaction.
The "Q-Word" is simply about customer expectations and our ability to meet
them. Business Week in a special issue entitled "The Quality Imperative"
stated that service quality was one of the major challenges facing bankers in
the 1990's. We think the emphasis on the "Q-Word" has only begun as customer
expectations are dynamic and our efforts to meet and exceed those expectations
must also be as dynamic. We continually measure customer satisfaction
through surveys and focus groups as well as through use of "mystery shoppers"
who evaluate each of our offices on a frequent basis. In addition, during
1996, we employed an independent market research firm which asked about
4,000 customers to share with us what was important to them and then to
evaluate our service
11
against their expectations. We were most pleased that 69.6% of the customers
surveyed gave us a 9 or 10 (with 10 the highest) in Overall Satisfaction with
only 6. 1 % rating their level of Overall Satisfaction a 5 or lower. When
asked if they would recommend our banks to others, 63.3% said they
"Definitely Would Recommend" and 31.5% said they "Possibly Would
Recommend" our banks to others. The comparison of our banks with
others in the financial services industry is presented below. The results
of this survey also provide us with substantial information for further
improvement in service quality to better meet and exceed customer needs
and expectations. Awareness of the "Q-Word" and emphasis on service
quality throughout our organization will allow us to continue to meet and
exceed customer expectations, underwriting future successful economic
performance and enhanced value for you, our stockholders.
12
Regulations have historically provided non-banks the ability to out-service
the local community bank. Limitations on products such as brokerage and
insurance services have handicapped even the most progressive banks. In
recent months, regulations governing National banks have greatly broadened
their powers. The political process is a slow one but Congress must be
encouraged to move toward a universal charter for all members of the financial
services community and laws enacted during the Great Depression to protect
banks and bank customers must be modernized to give banks access to the same
financial services field enjoyed by many organizations which look and act like
a bank but which do not suffer similar regulatory burden. Credit unions
represent a major competitive force for America's banks as many have
completely breached the "common bond" requirement and are open to virtually
all customers in the markets they serve. Banks do not oppose
13
credit unions which have honored the "common bond" required by their enabling
legislation. Banks do oppose the fact that many credit unions have chosen to
ignore the requirement that customers have a real "common bond" and have
become full service financial providers while paying neither State nor Federal
income taxes. Congress must enact legislation which will make full service
credit unions subject to certain regulation and further require these credit
unions to be subject to Federal and State income tax. This will not be an
easy political battle but it is imperative that the issues are raised and
objective judgment used to either require the "common bond" clauses be adhered
to or to regulate full service credit unions similar to commercial banks.
We must all work together to see that desired legislative reform is
accomplished in 1997.
Leadership is a precious commodity not possessed by all but very necessary
for success. We were saddened in 1996 by the loss of two individuals
who not only possessed the qualities of leadership but contributed it to
your Company in abundance. On April 8, 1996, W.K. "Bill" Bentley, Past
President and Chief Executive Officer of the Company and a member of the
Board of Directors, departed this life. Bill was a person of incredible
strength both in his personal and professional life. His active role in the
Company greatly complimented its direction, growth, strength and
solidarity. His humor and wit added pleasurable moments and his willingness
to intellectually challenge issues under discussion always improved
the decisions reached. On September 7, 1996, French A. See, a long-time
14
supporter of the Company and its efforts, passed away. French was an employee
of the Bank of Adrian in Upshur County when it was robbed in 1934, joined the
Board of Directors in 1956 and served on various Boards of Directors and
Committees until his death. Our Company will always be indebted to French
for his interest in our success and his incessant efforts to always do his
part.
On July 3, 1996, the Company's affiliation with Citizens Bank of Tazewell,
Inc. was finalized establishing FCFT as a multi-state bank holding company
Citizens is a $50 million bank with offices in
Tazewell and Richlands, Virginia, immediately adjacent to our
Mercer County, West Virginia markets. The addition of Citizens to our Company
is a strategic advancement which allowed a strong and successful entry
into western Virginia. On September 26, 1996, FCFT completed its acquisition
of the Grafton and Rowlesburg branches of Huntington National Bank West
Virginia. The addition
15
of these four branches to our Company will improve convenience for our
customers as well as add to stockholder value in the future. The accounting
treatment for the Citizens affiliation was on a pooling-of-interests basis
and, therefore, the historic financial statements included herein have all
been restated to include Citizens for all periods presented.
On December 26, 1996, FCFT entered a Definitive Agreement with Blue Ridge Bank
of Sparta, North Carolina. Blue Ridge is a $105 million bank with offices
located in Sparta, Taylorsville, Elkin and Hays, North Carolina. The
addition of Blue Ridge extends FCFT into its third state and enhances the
geographic diversity of your Company. The affiliation with Blue Ridge will
bring total banking resources to in excess of $940 million and improve
customer convenience and enhance stockholder value.
The success that your Company has enjoyed is the result of the efforts of
many individuals substantially all of whom are stockholders themselves who,
working as a team, share a common vision for the Company, an
understanding of its goals and direction, and who continue with unwavering
commitment toward that vision. Our world is experiencing
change at an unprecedented pace. We are indebted to the many employees of
the Company who working together, not only accept change, but create it, who
not only reach goals, but exceed them, and who are not satisfied to sustain
stockholder value and customer satisfaction but seek to improve them.
To these individuals, we indeed owe our thanks. To the members of the Boards
of Directors, regardless of whether
16
they serve as Directors of the Company, its subsidiaries, or as members of
Advisory Boards, we say thank you for your continued support, your guidance
and your unfailing encouragement. The names of these individuals are listed
in the back of this Annual Report and we hope you, as stockholders of the
Company, will share with them your appreciation for a job well done. To
you, the loyal members of our family of stockholders and customers, we
continue to offer our appreciation for your ongoing support and to welcome
your input.
Many of the paragraphs above discuss change - change in society and its
impact on the lives of those we serve, change in technology and its impact
on how we provide service and even the nature of the products and
services themselves, change in our competition, the economy, regulation
and generally the environment in which we provide services. Richard R.
Bilkell in his book, "A
17
Day in the Country", defines change as "the impetuous forward motion of
history" and Cass Bettinger in High Performance in the '90's goes on to say
change "is, after all, neither good nor bad; it is simply inevitable. The
challenge, of course, is quite clear: either we master the dynamics of the
change process and use it to our advantage, or we become its victims." During
recent years, great efforts have been focused internally to restructure our
organization and its people to create a more flexible, dynamic organization,
resilient in times of rapid change. This new organization, much less
structured in appearance, encourages participation in decision making by
all our people and rewards those who display a spirit of ownership and a
passion for excellence. Our emphasis on education has and will continue to
increase as education is the key to the future and we think a well educated
and empowered staff of carefully selected employees is key to our future
success. Tom Peters in his best seller "Thriving on Chaos" says " If the
word 'excellence' is to be applicable in the future, it requires wholesale
redefinition. Perhaps: Excellent firms don't believe in excellence - only
in constant improvement and constant change." We strive to be that
organization, driven by continual improvement in everything we do and
accepting change as new opportunity.
With the record setting performance established by your Company in 1996
come new and greater challenges and opportunities for 1997 and beyond. We
hope you share in our feelings of Corporate pride and excitement about FCFT's
performance and its bright future. Our report to you on the activities of
your Company
18
in 1996 is most respectfully presented in the pages which follow.
Sincerely,
James L. Harrison, Sr.
President & Chief Executive Officer
(Picture)
The Officers of FCFT from left to right: John M. Mendez,
Vice President and Chief Financial Officer; Robert L
Buzzo, Vice President; James L. Harrison, Sr.,
President and Chief Executive Officer.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS
Introduction 21
Summary Financial Results 21
Five-Year Selected Financial Data 23
Common Stock and Dividends 24
Net Interest Margin 25
Net Interest Income 25
Provision for Possible Loan Losses 25
Non-Interest Income 26
Non-Interest Expense 26
Income Tax Expense 27
Investment Securities 27
Securities Available for Sale 28
Loan Portfolio 28
Reserve for Possible Loan Losses 29
Non-Performing Assets 30
Deposits 31
Stockholders' Equity 31
Liquidity 32
Interest Rate Sensitivity 32
20
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
FCFT, Inc. (FCFT) is a multi-bank holding company headquartered in Princeton,
Mercer County, West Virginia. With total resources of $838 million, FCFT
provides financial and trust services to individuals and commercial customers
through 23 full-service banking locations in West Virginia and Virginia.
During 1996, FCFT, Inc. merged with Citizens Bank of Tazewell (Citizens).
This transaction was accounted for as a pooling of interests. The pooling of
interests method requires the combining of the financial information as
though they had always been combined. Consequently, the financial position
and results of operations of FCFT and Citizens for 1996 and all prior periods
presented have been restated to properly reflect this combination.
Summary Financial
Results
New records of financial performance were achieved by FCFT in 1996 as a result
of significant loan growth coupled with a strong net interest margin.
Net income of $13.9 million in 1996 represented a $1.1 million increase over
1995 earnings of $12.8 million (Graph 10). Record earnings per share of $3.09
in 1996 resulted in an 8.4% increase over the $2.85 reported in 1995. This
follows a 12.6% increase between 1994 and 1995 (Graph 13).
Two profitability ratios commonly used in the evaluation of earnings
performance are Return on Average Assets (ROA) and Return on Average Equity
(ROE) (Graphs 11 & 12). ROA measures net income in relation to total average
assets and portrays the organization's ability to profitably employ its
resources. ROA of 1.73% was produced in 1996 as compared with 1.70% and
1.55% in 1995 and 1994, respectively. ROE is the primary measurement of a
stockholder's return on investment. ROE for 1996 totaled 16.26%, as compared
with 16.77% and 16.33% in 1995 and 1994, respectively. The 3% reduction
in ROE for 1996 was produced primarily by the capitalization of earnings
in 1996 with average equity increasing $9.3 million during the year.
21
Key factors in FCFT's earnings performance were:
* An 18.5% increase in interest and fees on loans as a result of significant
growth in the loan portfolio and increased asset yield,
* A 25.7% increase in noninterest income which included a pension curtailment
gain of $1.5 million.
* A 12.4% decrease in other operating expenses as a result of the 1996
reduced FDIC deposit insurance premiums and litigation contingencies recorded
in 1995.
* Check collection losses totalling $3.4 million.
Led by loan growth of $62.6 million during 1996, FCFT assets as of December
31, 1996 totaled $837.7 million. This is compared with $780.3 million at
December 31,1995.
The net interest spread remained strong during 1996 despite a 33 basis point
increase in funding costs. A 25 basis point increase in asset yield supported
by a $48.0 million increase in average earning assets during 1996 sustained
an already strong net interest margin. At 5.39%, the net interest margin
is substantially unchanged from the previous year. The Company's strong
and improving asset yield served to lessen the impact of the increase in the
cost of funds during 1996.
22
Five-Year Selected Financial Data
(Amounts in Thousands, Except Percent and Per Share Data)
1996 1995 1994 1993 1992
Balance Sheet Summary
(end of period)
Loans, net of unearned income $547,703 $485,151 $421,189 $396,804 $386,672
Reserve for possible loan losses 8,987 8,321 8,479 9,568 7,803
Securities 236,441 246,578 268,906 269,386 219,584
Total assets 837,664 780,302 744,735 726,460 681,140
Deposits 643,497 622,723 616,226 607,685 579,734
Long-term debt 15,000 15,000 10,000 12,000 2,000
Stockholders' Equity 89,325 80,460 70,198 67,738 61,585
Summary of Earnings
Total interest income $64,941 $58,954 $53,723 $52,883 $54,314
Total interest expense 26,933 23,482 19,846 20,292 23,856
Provision for possible loan losses 2,273 2,235 1,764 1,888 2,884
Non-interest income 9,070 7,214 7,035 6,004 5,810
Non-interest expense 24,358 22,694 23,238 22,681 22,350
Income tax expense 6,530 4,968 4,456 4,431 3,559
Net Income 13,917 12,789 11,454 9,595 7,475
Per Share Data
Net income $ 3.09 $ 2.85 $ 2.53 $2.12 $1.65
Cash dividends 1.43 1.23 1.05 .79 .61
Book value at year-end 19.76 17.98 15.59 14.98 13.65
Selected Ratios
Return on average assets 1.73% 1.70% 1.55% 1.34% 1.11%
Return on average equity 16.26% 16.77% 16.33% 14.72% 12.59%
Dividend payout 46.22% 43.16% 41.45% 37.22% 36.97%
Equity to year-end assets 10.67% 10.31% 9.43% 9.32% 9.04%
Risk-based capital to risk-adjusted assets 17.02% 17.29% 17.22% 15.59% 14.71%
Leverage ratio 10.33% 9.86% 9.49% 8.98% 8.49%
23
Common Stock and Dividends
On December 31,1996, FCFT's common stock price was $34.50, an increase
of 4.54% from the December 31, 1995 closing price of $33.00. This market
performance follows a substantial increase in 1995 of 11.86%.
Book value per common share was $19.76 at December 31, 1996 as compared
with $17.98 and $15.59 at December 31, 1995 and 1994, respectively. The
year-end common stock price of $34.50 represented 175% of book value.
Total market capitalization at December 31, 1996 was $156 million. On the
basis of 1996 earnings per share of $3.09 and the year-end market price
of $34.50, the December 31, 1996 price/earnings multiple was 11.17 times.
Dividends declared in 1996 totaled $1.43 per share, compared with $1.23 per
share in 1995 (Graph 14). The Company's objective is to pay 30% to 50% of
earnings. Dividends declared were 46.2% and 43.2% of net income available to
stockholders in 1996 and 1995, respectively.
Market Price and Dividends
Bid Book Value Cash Dividends
1996 High LOW Per Share Per Share
First Quarter $34.00 $29.50 $18.38 $ .28
Second Quarter 33.00 32.00 18.78 .30
Third Quarter 32.25 31.00 19.38 .35
Fourth Quarter 36.00 32.25 19.76 .50
$1.43
1995
First Quarter $29.50 $29.25 $16.38 $ .26
Second Quarter 29.75 29.25 16.97 .27
Third Quarter 29.75 29.50 17.43 .28
Fourth Quarter 34.00 30.50 17.98 .42
$1.23
24
Net Interest Margin
Net interest margin measures the net interest income earned as a percentage
of average earning assets. In 1996, the Company sustained its favorable net
interest margin position ending the year at 5.39% (Graph 15). Although cost
of funds increased 33 basis points during 1996, positive changes in the
composition of balance sheet earning assets and a 25 basis point increase
in asset yield supported the net interest margin despite the higher cost of
funds.
The increase in average loans contributed to the increase in the asset yield
in 1996. The noted increase in asset yield was primarily driven by an
increase in the average yield on securities available for sale of 30 basis
points.
Net Interest Income
The fundamental source of the Company's earnings, net interest income,
is defined as the difference 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 portion of interest-bearing liabilities. The level of
net interest income is impacted primarily by variations in the volume and
mix of these assets and liabilities, as well as changes in the level of
interest rates.
On a tax equivalent basis, net interest income increased $2.6 million or
7.0% in 1996 following a $1.7 million or 4.6% increase in 1995. (Graph 16)
Average earning assets increased 6.8% in 1996 and 3.0% in 1995. This increase
was complemented by a change in the asset mix with a $62.9 million increase in
the higher yielding loan portfolio.
Provision for Possible Loan Losses
The provision for possible loan losses represents charges against
operations to establish reserves for possible loan losses inherent in the
Company's loan portfolio. The level of expense, as well as the required
level of reserves, is dependent upon a number of factors including
historical loss ratios by loan type, assessment of specific credit weaknesses
within the portfolio, concentrations of credit, assessment of the prevailing
economic climate, and other factors which may affect the overall condition
of the loan portfolio.
The provision for possible loan losses was $2.3 million in 1996 $2.2
million in 1995 and $1.8 million in 1994.
25
Non-Interest Income
Non-interest income consists primarily of fiduciary income produced from
trust services and service charges on deposit accounts. Increasing
non-interest income produces higher returns on average assets and average
equity without incremental capital. Non-interest income totaled $9.1 million
in 1996, a $1.9 million increase or 25.7% from the $7.2 million in 1995 and
a $2.0 million or 28.9% improvement over the 1994 totals of $7.0 million.
Non-interest income for 1996 includes a $1.5 million gain recognized in the
fourth quarter as a result of the Company's curtailment of its Defined
Benefit Pension Plan. Other income totaling $295,000 was recognized by the
Company during 1996 from life insurance proceeds. Net securities losses on
the sale of securities available for sale of $128,000 were recorded during
1996 as the Company repositioned a portion of its investment portfolio for
improved performance. This follows gains of $457,000 in 1995 due principally
to the sale of stock in a West Virginia bank holding company.
During 1994, a storage building owned by a subsidiary of the Company was
destroyed by fire. Insurance proceeds over and above the carrying value of
the building were recorded as a gain on involuntary conversion. The net gain
from involuntary conversion was $890,000.
Service charges on deposit accounts continued to be the largest source of
non-interest income in 1996. Service charge income totaled $3 million in
1996, an increase of $314,000 or 11.8% over 1995. This compares with a 14.8%
increase or $343,000 in 1995. Other services charges, commissions and fees
also experienced an increase in 1996 of $190,000 or 9.1% over 1995. This
compares with a 13.6% increase in 1995 of $250,000 over 1994 levels.
(Graph 17).
Fiduciary income in 1996 totaled $1.7 million, an increase of $110,000 or
6.8% over 1995. This represents the second consecutive year of growth in
trust income, with 1995 experiencing a 7.3% increase or $110,000 over 1994.
Non-Interest Expense
Non-interest expense consists of salaries and benefits, occupancy, equipment
and other expenses necessary for the operation of the Company.
Non-interest expense totaled $24.4 million in 1996, as compared with $22.7
million and $23.2 million in 1995 and 1994, respectively. The increase in
1996 was entirely attributable to check collection losses sustained by the
Company in the fourth quarter. On November 18, 1996, the Company detected a
"payments system fraud" perpetrated by a business customer and certain of its
principals, all of whom are long-term customers of a subsidiary of the
Company. The transaction commonly referred to as a "kite" involved the
transfer of non-existent funds between a subsidiary bank of the Company and a
third party bank to cover existing overdrafts. The Company recorded the check
collection losses in December of 1996 which totaled $3.4 million and are
reflected in non-interest expenses as a separate item. The customers
involved have executed a note providing for repayment and have secured the
note with various parcels of real estate. The Company anticipates repayment
from this arrangement, although immediate total restitution is not expected.
Other operating expenses decreased $1.2 million from 1995 and 1994 levels,
reflecting a reduction in this non-interest expense category in excess of 12%.
This decrease was primarily attributable to $905,000 in litigation
contingencies recorded in 1995 which were non-recurring in 1996 and
a $662,000 decrease in
26
FDIC insurance premium expense for the year as a result of the FDIC's
reduction of premium rates in June 1995 and a further reduction in January
1996.
Salaries and employee benefits decreased $464,000 or 4.6% when comparing
1996 with 1995. This decrease followed a 3.2% or $335,000 reduction between
1995 and 1994. The primary contributors to this reduction were a $137,000
decrease in pension expense as a result of the Company's termination of its
Defined Benefit Pension Plan, a $148,000 adjustment in deferred compensation,
and a $134,000 decrease in employee overtime expense.
Occupancy expense decreased $84,000 or 5% between 1996 and 1995. This
decrease followed a 4.3% reduction between 1995 and 1994 of $76,000.
Furniture and equipment expense incurred an increase of $68,000 or 5.9%
between 1996 and 1995, following a 13.3% or $176,000 decrease between 1995
and 1994.
Other real estate expenses, as a component of non-interest expense, increased
$239,000 between 1996 and 1995 principally due to valuation adjustments on
foreclosed property. Other real estate provisions totaled $60,000, $24,000
and $469,000 in 1996, 1995 and 1994, respectively. The Company continually
evaluates the carrying value of other real estate in light of current
economic conditions and prospects for the liquidation of such properties.
The Company's net overhead ratio (non-interest expense less non-interest
income excluding security gains and non-recurring gains divided by average
earning assets) is a measure of its ability to manage and control costs
(Graph 18). As this ratio decreases, more of the net interest income earned
flows through to net income. The net overhead ratio for 1996, 1995 and 1994
was 2.02%, 2.27% and 2.51 respectively.
Income Tax Expense
Income tax expense totaled $6.5 million in 1996, compared with $5 million in
1995 and $4.5 million in 1994. The major difference between the statutory
tax rate and the effective tax rate results from income which is not taxable
for Federal income tax purposes. The primary nontaxable income is that of
state and municipal securities and industrial revenue bonds or loans. The
effective tax rate reflects the significant increase in pre-tax income and a
decline in the ratio of tax exempt income as a percentage of pre-tax income.
Investment Securities
The investment portfolio totaling $100.3 million decreased $25.1 million
between 1995 and 1996. The decrease in this portfolio is primarily the
result of the reinvestment of maturities into the higher yielding loan
portfolio.
Investment securities are comprised largely of U.S. Agency obligations,
mortgage backed securities and state and municipal securities.
Obligations of States and Political Subdivisions totaling $47.5 million are
comprised of high grade municipal securities generally carrying AAA ratings,
most of which also carry credit enhancement insurance by major insurers of
investment obligations.
The average maturity of the investment portfolio increased from 6.24 years in
1995 to 6.47 years in 1996 with an increase in tax equivalent yield from
7.31% at year-end 1995 to 7.39% at the close of 1996.
27
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 risk, liquidity needs
and other factors. These securities are recorded at market value.
At December 31, 1996, the Company had $136.1 million in
securities available for sale, compared with $121.2 million at year-end 1995.
The market value of securities available for sale exceeded book value at
year-end 1996 by $709,000. The average yield earned on securities available
for sale in 1996 was 7.0% compared with 6.8% in 1995. The average maturity
of the portfolio was 11. 7 years and 12.1 years at December 31, 1996 and
1995, respectively.
Loan Portfolio
Loans, net of unearned income, totaled $547.7 million at December 31, 1996,
reflecting a 12.9% increase over the 1995 year-end total of $485.2 million,
as compared with loan totals at the end of 1994 equaling $421.2 million
(Graph 19).
The loan-to-deposit ratio increased to 85% at December 31, 1996, up from 78%
at December 31, 1995. The increases in loan totals and the loan-to-deposit
ratio reflect the Company's emphasis on loan development.
The loan portfolio continues to be diversified among loan types and industry
segments (Graph 20). Commercial and commercial real estate loans represent
the largest portion of the portfolio and comprise 45% of total loans with
30% of all loans secured by commercial real estate.
Residential real estate loans comprise 31% of the portfolio. During 1996,
loans to individuals experienced the largest increase as a percentage of
total loans and now comprise 22% of the portfolio.
28
Reserve for Possible Loan Losses
The reserve for possible 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 form other
sources, including commitments to extend credit, guarantees, and standby
letters of credit. The reserve for possible 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 added to bring the reserve to a level which, in management's
judgement, is considered adequate to absorb potential losses inherent in the
loan portfolio. Management performs monthly and quarterly assessments to
determine 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 conditions,
changes in credit concentrations or pledged collateral, historical loan loss
experience, and trends in portfolio, volume, maturity, composition,
delinquencies, and non-accruals. While management has allocated reserves to
various portfolio segments, the allowance is general in nature and is
available for the entire portfolio.
The reserve for possible loan losses represented 144% of non-performing loans
at year-end 1996 versus 165% and 108% at December 1995 and 1994,
respectively. When other real estate is combined with non-performing loans,
reserves equal 106% of non-performing assets at the end of 1996 versus 139%
and 96% at December 1995 and 1994, respectively.
The increase in the reserve for possible loan losses in 1996 was the result
of decreases in net charge-offs. Net charge-offs were $1.6 million in 1996,
as compared with $2.4 million in 1995 and $2.9 million in 1994, respectively.
29
Non-Performing Assets
Non-performing assets include loans on which interest accruals have been
ceased, loans contractually past due 90 days or more and still accruing
interest, and other real estate owned (OREO) pursuant to foreclosure
proceedings. The levels of non-performing assets for the last five years
are presented in the table below. Total nonperforming assets were $8.5
million at December 31, 1996.
(Amounts in Thousands) December 31
1996 1995 1994 1993 1992
Non-accruing Loans $5,476 $4,371 $6,909 $11,269 $12,736
Loans 90 Days or more Past Due 780 673 968 1,393 790
Other Real Estate Owned 2,225 929 919 1,997 3,304
$87481 $5,973 $8,796 $14,659 $16,830
Non-performing loans as a
percentage of total loans 1.1% 1.0% 1.9% 3.2% 3.5%
Non-performing assets as a
percentage of total loans
and other real estate owned 1.54% 1.2% 2.1% 3.7% 4.3%
Reserve for loan losses as a
percentage of non-performing loans 143.7% 165% 107.6% 75.6% 57.7%
Reserve for loan losses as a
percentage of non-performing assets 106.0% 139.3% 96.4% 65.3% 46.4%
Non-accruing loans increased slightly in 1996 and represent 1.0% of total
loans. Reductions are expected as collateral securing our largest
non-accruing relationship will be liquidated in 1997.
30
Deposits
Market interest rates on interest bearing deposits continued the increasing
trend from 1995. In 1996, the average rate paid on interest bearing
liabilities was 4.34%, as compared to 4.01 % and 3.41% in 1995 and 1994,
respectively. This increase in the Company's cost of funds is the result of
strong competition among financial institutions, the bond and stock markets,
and other providers of non-bank financial services, coupled with increased
consumer awareness.
Average deposits totaled $625 million for 1996 compared to $610 million
and $616 million for 1995 and 1994, respectively. This increase in
deposits during 1996 was primarily attributable to the acquisition of the
Grafton and Rowlesburg, West Virginia branches of Huntington National
Bank West Virginia. The acquisition of these branches added approximately
$21 million in deposits.
The increase in deposits was experienced in non-interest bearing demand
accounts and certificates of deposit. During 1996, non-interest bearing
demand deposits increased on average 4.7% with an 8% increase being
experienced in average time deposits. Interest-bearing demand deposits
and savings deposits decreased on average 5.6% and 4.7%, respectively,
during 1996.
The Company's short-term borrowings consist primarily of Federal Funds
purchased and securities sold under agreements to repurchase. Short-term
borrowings increased, on average, by $19.1 million or 41.6% from 1995,
following a 44.3% increase between 1995 and 1994. This category of
borrowings is an accessible source of moderately priced funds and has
become an important financing vehicle for the Company during the $125
million loan growth experienced over the last two years.
Average long-term borrowings, which represent long-term advances from
the Federal Home Loan Bank to facilitate the purchase of investment
securities, increased by 45.5% during 1996.
Stockholders' Equity
Risk-based capital ratios are a measure of capital adequacy (Graph 21).
At December 31, 1996, the Company's Tier I capital ratio was 15.77% compared
with 16.04% in 1995. Risk-based capital ratios and the leverage ratio are
used by banking regulators to measure the capital adequacy of banking
institutions. The risk-based capital guidelines weight balance sheet assets
and off balance sheet commitments in determining capital adequacy. The
Company's total risk-based capital-to-assets ratio was 17.02% at the close
of 1996 compared with 17.29% in 1995. Both of these ratios are well above
the current minimum level of 8% prescribed for bank holding companies.
The leverage ratio is the measurement of total tangible equity to total
assets. The Company's leverage ratio at December 31, 1996 was 10.33%
compared to 9.86% at December 31, 1995, both of which are well above the
minimum 3% and the recommended 4% to 5% range prescribed by Federal Reserve
capital guidelines.
31
Liquidity
Liquidity represents the Company's ability to respond to demands for funds
and is usually derived from maturing investment securities, overnight
investments, periodic repayment of loan principal, and from the Company's
ability to generate new deposits. The Company also has the ability to
attract short-term sources of funds and draw on credit lines which have
been established at financial institutions to meet cash needs.
Total liquidity of $350.3 million at December 31, 1996 is comprised of the
following: cash on hand and deposits with other financial institutions
of $27.4 million; securities available for sale of $136.1 million; and
Federal Home Loan Bank credit availability of $186.8 million.
Interest Rate Sensitivity
Net interest income is subject to variation as a result of changes in interest
rate environments in conjunction with unbalanced repricing opportunities in
earning assets and interest-bearing liabilities. In order to mitigate the
effect of changes in the general level of interest rates, the Company manages
repricing opportunities and thus, its interest rate sensitivity. The Company
uses an earnings simulation model to measure interest rate sensitivity.
The model captures all earning assets, interest-bearing liabilities and all
off-balance sheet financial instruments and combines the various factors
affecting rate sensitivity into an earnings outlook. Based on the latest
simulation, the Company believes that it possesses only a moderate level
of interest rate risk, given its current balance sheet profile.
32
Consolidated Financial Statements
Consolidated Balance Sheets 34
Consolidated Statements of Income .... 35
Consolidated Statements of Cash Flow 36
Consolidated Statements of Stockholders' Equity 37
Notes to Consolidated Financial Statements .... 38
Independent Auditors' Report 58
Report on Management's Responsibilities 59
33
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
December 31
1996 1995
Assets Cash and due from banks $ 27,369 $ 23,911
Federal funds sold - 2,360
Securities available for sale (amortized cost
of $135,404, 1996; $120,553, 1995) 136,113 121,193
Investment securities held to maturity:
U.S. Treasury securities 8,247 16,563
U.S. Government agencies and corporations 43,494 59,792
States and political subdivisions 47,532 47,975
Other securities 1,055 1,055
Total investment securities held to maturity
(market value, $101,200, 1996; $126,757, 1995) 100,328 125,385
Total loans, net of unearned income 547,703 485,151
Less reserve for possible loan losses 8,987 8,321
Net loans 538,716 476,830
Premises and equipment 12,334 12,600
Other real estate owned 2,225 929
Interest receivable 6,341 6,620
Other assets 10,122 6,852
Intangible assets 4,116 3,622
Total Assets $837,664 $780,302
Liabilities Deposits:
Demand $ 89,902 86,460
Interest-bearing demand 93,303 93,568
Savings 132,590 136,525
Time 327,702 306,170
Total deposits 643,497 622,723
Interest, taxes and other liabilities 11,217 11,778
Federal funds purchased 25,468 -
Securities sold under agreements to repurchase 53,031 50,205
Other indebtedness 15,126 15,136
Total Liabilities 748,339 699,842
Stockholders' Common stock, $5 par value, 10,000,000 shares
Equity authorized; 4,604,425 shares issued in 1996 and 1995;
4,519,996 shares outstanding in 1996;
and 4,475,267 shares outstanding in 1995 23,022 23,022
Additional paid-in capital 20,343 20,372
Retained earnings 46,815 39,320
Treasury stock, at cost (1,288) (2,646)
Unrealized gain on securities available for sale,
net of taxes 433 392
Total Stockholders' Equity 89,325 80,460
Total Liabilities and
Stockholders' Equity $837,664 $780,302
See Notes to Consolidated Financial Statements.
34
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Share and Per Share Data)
Years Ended December 31
1996 1995 1994
Interest Interest and fees on loans $50,553 $42,664 $36,543
Income Interest on securities available for sale 7,556 5,930 6,326
Interest on investment securities:
U.S. Treasury securities 778 1,061 997
U.S. Government agencies and
corporations 3,307 5,810 6,068
States and political subdivisions 2,520 3,094 2,890
Other securities 82 111 340
Interest on federal funds sold 117 263 343
Interest on deposits in banks 28 21 216
Total interest income 64,941 58,954 53,723
Interest Interest on deposits 23,158 20,921 18,277
Expense Interest on short-term borrowings 2,898 1,945 864
Interest on debt 877 616 705
Total interest expense 26,933 23,482 19,846
Net interest income 38,008 35,472 33,877
Provision for possible loan losses 2,273 2,235 1,764
Net interest income after
provision for possible
loan losses 35,735 33,237 32,113
Non-Interest Fiduciary income 1,731 1,621 1,511
Income Service charges on deposit accounts 2,976 2,662 2,319
Other service charges, commissions
and fees 2,283 2,093 1,843
Net securities (Losses) gains (128) 457 3
Other operating income 758 381 469
Pension curtailment gain 1,450 - -
Gain on involuntary conversion - - 890
Total non-interest income 9,070 7,214 7,035
Non-interest Salaries and employee benefits 9,580 10,044 10,379
Expense Occupancy expense of bank premises 1,596 1,680 1,756
Furniture and equipment expense 1,212 1,144 1,320
Check collection losses 3,365 - -
Other operating expense 8,605 9,826 9,783
Total non-interest expense 24,358 22,694 23,238
Income before income taxes 20,447 17,757 15,910
Income tax expense 6,530 4,968 4,456
Net Income $13,917 $ 12,789 $11,454
Weighted average shares outstanding 4,498,143 4,488,229 4,521,745
Net income per common share $3.09 $2.85 $2.53
See Notes to Consolidated Financial Statements.
35
CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in Thousands)
Years Ended December 31
1996 1995 1994
Operating Cash flows from operating activities:
Activities Net income $ 13,917 $ 12,789 $ 11,454
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 2,273 2,235 1,764
Depreciation of premises and equipment 856 974 935
Amortization of intangibles 625 789 870
Net investment amortization and accretion 271 132 299
Net loss (gain) on the sale of assets 12 (503) (10)
Decrease (increase) in interest receivable 285 (393) (87)
(Increase) decrease in other assets (3,323) 1,120 (1,898)
(Decrease) increase in other liabilities (887) 2,741 1,341
Other, net (274) (240) 281
Net cash provided by operating
activities 13,755 19,644 14,949
Investing Cash flows from investing activities:
Activities Proceeds from sales of securities available
for sale 15,868 9,134 -
Proceeds from maturities of securities
available for sale 14,771 23,721 28,725
Proceeds from maturities of investment
securities 27,723 52,578 30,819
Purchase of securities available for sale (45,641) (37,999) (4,989)
Purchase of investment securities (2,915) (18,522) (56,319)
Net increase in loans made to customers (64,044) (66,122) (26,422)
Cash provided by branch acquisitions 18,735 - -
Purchase of premises and equipment (439) (613) (1,031)
Proceeds from sale of equipment 159 25 69
Net cash used in investing activities (35,783) (37,798) (29,148)
Financing Cash flows from financing activities:
Activities Net (decrease) increase in demand and savings
deposits (10,328) (24,730) 13,285
Net increase (decrease) in time deposits 10,263 31,227 (5,073)
Net increase in short-term debt 28,294 11,123 8,067
Repayment of long-term debt (10) (60) (2,063)
Proceeds from long-term borrowings - 5,000 -
Acquisition of treasury stock (170) (839) (1,104)
Reissuance of treasury stock 1,499 - -
Dividends paid (6,422) (5,525) (4,714)
Net cash provided by
financing activities 23,126 16,196 8,398
Cash and Net increase (decrease) in cash and
Cash cash equivalents 1,098 (1,958) (5,801)
EquivalentsCash and cash equivalents at
beginning of year 26,271 28,229 34,030
Cash and cash equivalents at end of
year $27,369 $26,271 $28,229
See Notes to Consolidated Financial Statements.
36
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Share and Per Share Data)
Unrealized
gain
(loss) on
Additional Unallocated securities
Common Paid-In Retained Stock Treasury available
Stock Capital Earnings ESOP Stock for sale
Balance, December 31, 1993 $23,022 $20,372 $25,316 $(269) $(703) $-
Net income - - 11,454 - - -
Common dividends declared
($1.05 per share) - - (4,714) - - -
Allocation of 18,796 ESOP
shares at $11.95 per
share - - - 269 - -
Purchase of 37,122 treasury shares
at $29.74 per share - - - - (1,104) -
Unrealized loss on securities
available for sale, net of taxes - - - - - (3,445)
Balance, December 31, 1994 23,022 20,372 32,056 - (1,807) (3,445)
Net income - - 12,789 - - -
Common dividends declared
($1.23 per share) - - (5,525) - - -
Purchase of 27,612 treasury shares
at $30.38 per share - - - - (839) -
Unrealized gain on securities
available for sale, net of taxes - - - - - 3,837
Balance, December 31, 1995 23,022 20,372 39,320 - (2,646) 392
Net income - - 13,917 - - -
Common dividends declared
($1.43 per share) - - (6,422) - - -
Purchase of 5,100 treasury shares
at $33.50 per share - - - - (170) -
Reissuance of 49,829 treasury shares
at $30.08 per share - (29) - - 1,528 -
Unrealized gain on securities
available for sale, net of taxes - - - - - 41
Balance, December 31, 1996 $23,022 $20,343 $46,815 $- $(1,288) $433
See Notes to Consolidated Financial Statements.
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation
The accounting and reporting policies of FCFT, Inc. and
subsidiaries (FCFT or the Company) conform to generally
accepted accounting principles and to predominant practices
within the banking industry. In preparing such financial
statements, management is required to make 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. Assets held in an agency or fiduciary
capacity are not assets of the Company and are not included
in the accompanying consolidated balance sheets.
Principles of Consolidation
The consolidated financial statements of FCFT include the accounts of all
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. In the Parent Company
financial statements, the investment in subsidiaries is stated at equity
in the net assets of such subsidiaries increased by the unamortized portion
of the excess of fair value over the cost of net assets acquired, where
applicable.
Securities Available for Sale
Securities to be held for indefinite periods of time including securities
that management intends to use as part of its asset/liability management
strategy, and that may be sold in response to changes in interest rates,
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 included in stockholders' equity net of
income taxes. Premiums and discounts are amortized to expense
or accreted to income over the lives of the securities.
Recognition of a gain or loss on a sale is based on the specific
identification method.
Investment Securities
Investments in debt securities which management has the ability
and intent to hold to maturity or on a long-term basis are carried
at cost. Premiums and discounts are amortized to expense and
accreted to income over the lives of the securities. Gain or loss
on the sale of investment securities, if any, is on the specific
identification method. At December 31, 1996 and 1995, no
securities were held for trading purposes and no trading account
was maintained.
Allowance for Possible Loan Losses
The allowance for possible 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 is based on
several factors including: (1) analytical reviews of significant
commercial and commercial mortgage loans and loan loss
experience in relationship to outstanding loans to determine an
adequate allowance for possible loan losses required for
outstanding loans: (2) a continuing review of loans evaluated by
the loan review process as less than satisfactory, all
nonperforming loans and overall portfolio quality: (3) regular
examinations and appraisals of the loan portfolio conducted by
federal and state supervisory authorities: and (4) management's
judgment with respect to current and expected economic
conditions, the level of delinquencies and nonaccrual loans,
trends in the volume and term of loans, anticipated impact from
changes in lending policies and procedures, changes in lending
management, and any concentration of credit in certain
industries or geographic areas.
Statement No. 114, "Accounting by Creditors for Impairment of
a Loan", as amended, requires an allowance to be established as
a component of the allowances for possible loan losses for certain
loans when it is probable that all amounts due pursuant to
contractual terms of the loan will not be collected and the
recorded investment in the loan exceeds the fair value.
Management reviews the impairment status of all loans
designated as nonaccrual or have been classified as
"substandard" or "doubtful" by FCFT's loan review process.
Management does not individually evaluate certain smaller
balance, homogeneous
38
loans, such as consumer installment loans and residential
mortgage loans, for impairment. These 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 standard.
Beginning in 1995, the Company adopted Financial Accounting Standards (SFAS)
No. 114, "Accounting by Creditors for Impairment of a Loan." Under SFAS
No. 114, the allowance for possible loan losses related to loans that are
identified for evaluation in accordance with SFAS No. 114 is based on
discounted cash flows using the loan's initial effective interest
rate or the fair value of the collateral for certain collateral
dependent loans. Prior to 1995, the allowance for possible loan
losses related to these loans was based on undiscounted cash
flows or the fair value of the collateral for collateral dependent
loans.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation of both buildings and improvements
as well as for equipment is computed on the straight-line method
over estimated useful lives. Maintenance and repairs are
charged to current operations while betterments are capitalized.
Disposition gains and losses are reflected in current operations.
On January 1, 1996, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of." The impact of adopting this standard was not
material to the Company.
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 the evaluation of 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, interest accrued and not collected in the current
year is reversed and interest accrued and not collected from 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.
Loan Fee Income
Loan origination fees are recorded as a reduction of direct costs
associated with loan processing, including 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
fees are deferred and amortized over the related commitment
period.
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 with
operating the properties, subsequent write-downs and gains or
losses upon sale are included in other non-interest income and
expense. General reserves for possible loss on the disposition of
other real estate are established through charges against current
operations.
Intangible Assets
The investment in subsidiaries in excess of amounts attributable
to tangible and identified intangible assets at dates of acquisition
is recorded as goodwill and is being amortized to operations over
a period of fifteen years
39
using the straight-line method. The unamortized balance of goodwill was
$3,202,000 and $2,490,000 at December 31, 1996 and 1995, respectively. A
portion of the cost of purchased subsidiaries has been allocated to values
associated with the future 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 was
$914,000 and $1,132,000 at December 31, 1996 and 1995, 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,
deferred income taxes are recognized for the tax 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
includes the enactment date.
Reclassifications
Certain amounts included in the 1995 and 1994 financial statements have
been reclassified to conform with the presentation used in preparation of
the 1996 financial statements.
Recent Accounting Pronouncements
On January 1, 1996, the Company adopted SFAS No. 122 "Accounting for
Mortgage Servicing Rights." The impact of adopting this standard was not
material to the Company.
Cash Flows
In 1996,1995 and 1994 for purposes of reporting cash flows, cash and cash
equivalents include cash and due from banks, federal funds sold, and interest
bearing balances available for immediate withdrawal. Interest and income
taxes paid in 1996, 1995 and 1994 were as follows:
(Amounts in Thousands) 1996 1995 1994
Interest $26,615 $22,864 $19,865
Income taxes 7,911 4,390 4,804
Supplemental Schedule of
Non-Cash Transactions
Transfers from investment securities
to securities available for sale $ - $26,578 $ -
Transfers of loans to other real estate owned 2,190 545 806
Unrealized (gain) loss on securities
available for sale (69) (6,264) 5,647
Note 2. Merger and Acquisition
On July 3,1996, FCFT, Inc. merged with 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 to the Agreement and Plan of Merger, FCFT exchanged 3.51
shares of its common stock for each share of Citizens' common stock, which
totaled 263,159 shares upon consummation.
This transaction was accounted for as a pooling of interests. The pooling of
interests method requires the combining of the financial information of the
merging companies as though they had always been combined.
Consequently, the financial position and results of operations of FCFT and
Citizens for 1996 and all prior periods presented have been restated to
properly reflect this combination.
40
Combined and separate results of operations of FCFT and Citizens for the
periods presented are as follows:
Year Ended
1996 1995 1994
Net Interest Income
FCFT $35,962 $33,726 $32,193
Citizens Bank of Tazewell, Inc. 2,046 1,746 1,684
Combined 38,008 35,472 33,877
Provision for possible loan losses
FCFT 2,104 2,093 1,668
Citizens Bank of Tazewell, Inc. 169 142 96
Combined 2,273 2,235 1,764
Non-interest income
FCFT 8,843 7,056 6,865
Citizens Bank of Tazewell, Inc. 227 158 170
Combined 9,070 7,214 7,035
Non-interest Expense
FCFT 23,261 21,526 22,055
Citizens Bank of Tazewell, Inc. 1,097 1,168 1,183
Combined 24,358 22,694 23,238
Taxes
FCFT 6,217 4,791 4,281
Citizens Bank of Tazewell, Inc. 313 177 175
Combined 6,530 4,968 4,456
Net Income
FCFT 13,223 12,372 11,054
Citizens Bank of Tazewell, Inc. 694 417 400
Combined $13,917 $12,789 $11,454
Net income per common share
FCFT $2.94 $2.76 $2.45
Citizens Bank of Tazewell, Inc. 0.15 0.09 0.09
Combined $3.09 $2.85 $2.54
On September 26, 1996, First Community Bank, Inc., a subsidiary of FCFT,
Inc., acquired the Grafton and Rowlesburg, West Virginia branches of
Huntington National Bank West Virginia. The acquisition of these branches
added approximately $21 million in total deposits. The intangible value of
this transaction totaled approximately $1 million which will be amortized
over a 15-year period. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the consolidated results in future
periods after September 26,1996 will include the operations of the Grafton
and Rowlesburg branches only from the date of acquisition.
On December 30,1996, the Company entered into a Definitive Agreement to
acquire all of the outstanding common stock of Blue Ridge Bank (Blue Ridge),
headquartered in Sparta, North Carolina. Blue Ridge is a $105 million
state-chartered bank with offices located in Sparta, Elkin, Hays and
Taylorsville, North Carolina. FCFT will exchange $19.50 for each share of
Blue Ridge common stock outstanding (approximately 1,212,148 shares).
Management anticipates the consummation of this transaction by March 31,
1997. This merger will be accounted for under the purchase method of
accounting. The intangible value of this transaction will total
approximately $12.9 million and will be amortized over a 15-year period.
Subsequent to the merger, Blue Ridge will operate as a wholly-owned
subsidiary of FCFT, Inc.
41
Following are the significant components of the balance sheet of Blue
Ridge as of December 31, 1996:
(Unaudited)
(In Thousands)
Total Loans $ 64,515
Total Assets 105,785
Total Deposits 93,354
Shareholders' Equity 11,088
Note 3. Securities Available for Sale
As of December 31, the cost and market value of securities classified as
available for sale are as follows:
(Amounts in Thousands) 1996
Book Unrealized Unrealized Market
Value Gains Losses Value
U.S. Government and agency
securities $ 111,949 $ 733 $(710) $ 111,972
States and political subdivisions 15,351 724 (38) 16,037
Other securities 8,104 - - 8,104
Total $135,404 $1,457 $(748) $136,113
1995
Book Unrealized Unrealized Market
Value Gains Losses Value
U.S. Government and agency
securities $ 101,553 $1,145 $ (1,297) $ 101,401
States and political subdivisions 15,558 832 (45) 16,345
Other securities 3,442 5 - 3,447
Total $120,553 $1,982 $(1,342) $121,193
As of December 31, 1995, the Company transferred investment securities
classified as held to maturity with an amortized cost of $26.6 million to
securities available for sale. This transfer was made in accordance with the
"Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities" issued by FASB during 1995.
The securities transferred increased the unrealized appreciation in
securities available for sale by $755,000.
Securities available for sale with market values of $47,092,000 and
$51,693,000 at December 31, 1996 and 1995, respectively, were pledged to
secure public deposits, securities sold under agreements to repurchase,
short-term borrowings and for other purposes.
The cost and market value of securities available for sale at December
31,1996, by contractual maturity, are shown on the following page. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties. During 1996, the sale of securities available for
sale resulted in gains of $90,000 and losses of $225,000. During 1995, the
sale of securities available for sale resulted in gains of $572,000 and
losses of $115,000. The following table presents maturities of investments
by type on both a book and market value basis at December 31, 1996:
42
(Amounts in Thousands) U.S. States Tax
Government and Equivalent
Agencies & Political Other Purchase
Corporations Subdivisions Securities Total
Yield
Book Value
Maturity:
Within one year 2,629 $ - $ - $ 2,629 5.83%
After one year through
five years 17,527 809 - 18,336 5.42%
After five years through
ten years 48,975 11,592 - 60,567 7.56%
After ten years 42,818 2,950 8,104 53,872 6.98%
Total book value $111,949 $15,351 $8,104 $135,404
Tax equivalent purchase yield 6.80% 9.29% 5.50% 7.00%
Average maturity (in years) 12.23 8.80 10.01 11.71
Market Value
Maturity:
Within one year $2,636 $ - $ - 2,636
After one year through
five years 17,235 821 - 18,056
After five years through
ten years 49,136 12,038 - 61,174
After ten years 42,965 3,178 8,104 54,247
Total market value $111,972 $16,037 $8,104 $136,113
Note 4. Investment Securities Held to Maturity
The book and approximate market value of investment securities as of
December 31 are as follows:
(Amounts in Thousands) 1996
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Treasury securities $ 8,247 $ 11 $ (29) $ 8,229
U.S. Government agencies and
corporations 43,494 160 (274) 43,380
States and political subdivisions 47,532 1,188 (200) 48,520
Other securities 1,055 21 (5) 1,071
Total $ 100,328 $1,380 $(508) $101,200
1995
Amortized Unrealized Unrealized Market
cost Gains Losses Value
U.S. Treasury securities $ 16,563 104 $ (13) $16,654
U.S. Government agencies and
corporations 59,792 778 (582) 59,988
States and political subdivisions 47,975 1,287 (263) 48,999
Other securities 1,055 65 (4) 1,116
Total $ 125,385 $2,234 $(862) $126,757
Various investment securities with a book value of approximately $36,829,000
and $48,203,000, respectively, were pledged at December 31, 1996 and 1995
to secure public deposits and for other purposes required by law. There were
no sales of investment securities during 1996 or 1995. The following table
presents maturities of investments by type on both a book and market value
basis at December 31, 1996:
43
U.S.Government States and Equivalent
U.S. Agencies & Political Other Purchase
Treasury Corporations Subdivisions Securities Total Yield
Book Value
Maturity:
Within one year $ 4,149 $ 17,750 $635 $ - $22,534 6.30%
After one through
five years 4,098 18,978 1,861 - 24,937 6.04%
After five through
ten years - 6,006 18,198 1,055 25,259 7.68%
After ten years - 760 26,838 - 27,598 9.26%
Total book value $8,247 $43,494 $47,532 $1,055 $100,328
Tax equivalent purchase
yield 5.58% 6.12% 8.87% 7.63% 7.39%
Average maturity (in years) 1.18 2.36 11.20 5.67 6.47
Market Value
Maturity:
Within one year $ 4,160 $ 17,809 $635 $ - $ 22,604
After one through
five years 4,069 18,854 1,891 - 24,814
After five through
ten years - 5,941 18,500 1,071 25,512
After ten years - 776 27,494 - 28,270
Total market value $8,229 $43,380 $48,520 $1,071 $101,200
Note 5. Loans
Loans consist of the following at December 31:
(Amounts in Thousands) 1996 1995
Real estate - commercial $ 166,787 $152,579
Real estate - construction 10,589 5,608
Real estate - residential 171,458 155,282
Commercial, financial and agricultural 79,278 71,441
Loans to individuals for household and other
consumer expenditures 119,297 99,722
All other loans 294 519
$547,703 $485,151
Banking subsidiaries of the Company are parties to financial instruments
with off-balance sheet risk in the normal course of business to meet the
financing needs of their customers. These financial instruments include
commitments to extend credit, standby letters of credit and financial
guarantees. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized on the
balance sheet. The contractual amounts of those instruments reflect the
extent of involvement the Company has in particular classes of financial
instruments.
The Company's exposure to credit loss in the event of non-performance
by the other party to the financial instrument for commitments to extend
credit and standby letters of credit and financial guarantees written is
represented by the contractual amount of those instruments. The Company
uses the same credit policies in making commitments 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
are expected to expire with-
44
out being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained,
if deemed necessary by the Company, upon extension of credit is based on
management's credit evaluation of the counterparts. Collateral held varies
but may include accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities
to customers. To the extent 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, 1996.
Financial instruments whose contract amounts represent credit risk at
December 31, 1996 are commitments to extend credit (including availability
of lines of credit and undrawn credit card availability) - $123.9 million,
and standby letters of credit and financial guarantees written - $4.8 million.
At December 31, 1996, neither the Company nor its subsidiaries has any
amounts outstanding representing futures, forward exchange contracts or
interest swaps.
In the normal course of business, the Company originates loan commitments.
Loan commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Company evaluates each
customer's creditworthiness on a case-by-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, 1996 are summarized as follows:
(Amounts in Thousands) 1996
Notional
Amount Rate
Real estate - commercial (fixed) $4,628 7.99-10.75%
Real estate - commercial (variable) 14,215 8.25-10.75
Real estate - construction (fixed) 4,073 8.24-11.25
Real estate - construction (variable) 3,585 7.30-10.25
Real estate - residential (fixed) 1,812 6.00-18.00
Real estate - residential (variable) 7,462 8.25-12.75
Commercial, financial, agricultural (fixed) 4,718 5.50-18.00
Commercial, financial, agricultural (variable)35,658 6.43-13.25
Loans to individuals for household
and other consumer expenditures (fixed) 41,467 5.00-18.00
Loans to individuals for household
and other consumer expenditures (variable) 14,119 8.25-18.00
Other(fixed) 54 7.25-10.25
Other (variable) 379 10.25
Total $132,170
Additionally, the Company is also subject to certain asserted and unasserted
potential claims encountered in the normal course of business. In the opinion
of management, neither the resolution of these claims nor the funding of
credit commitments will have a material effect on the Company's financial
position or results of operations.
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. Although portions of the West Virginia
economy are closely related to coal and timber, they are supplemented by
service industries. The current economy of the Company's market is
relatively stable and is not seen as highly subject to volatile economic
change.
45
In the normal course of business, the banking subsidiaries of the Company
have made loans to directors and executive officers of the Company and its
subsidiaries. All loans and commitments made to such officers and directors
and to companies in which they are officers or have significant ownership
interest have been made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons. The aggregate dollar amount of such loans
was $9.8 million and $10.2 million at December 31, 1996 and 1995,
respectively. New loans and payments attributable to the change from 1995
to 1996 total $2.7 million and $3.1 million, respectively.
Note 6. Reserve for Possible Loan Losses
Activity in the reserve for possible loan losses was as follows:
(Amounts in Thousands) 1996 1995 1994
Balance, January 1 $8,321 $8,479 $9,568
Recoveries credited to reserve 574 490 510
Provision for the year charged to operations 2,273 2,235 1,764
1,168 11,204 11,842
Loans charged-off 2,181 2,883 3,363
Balance, December 31 $8,987 $8,321 $8,479
The following table presents FCFT's investment in loans considered to be
impaired and related information on those impaired loans (in thousands):
1996 1995
Recorded investment in loans considered to be impaired $3,500 $3,200
Loans considered to be impaired that were on a nonaccrual basis 3,350 3,200
Allowance for possible loan losses related to loans considered to be impaired 529 832
Average recorded investment in impaired loans 3,300 4,600
Total interest income recognized on impaired loans 15 75
Interest income on impaired loans recognized on a cash basis - 75
Note 7. Premises and Equipment
Premises and equipment are comprised of the following as of December 31:
(Amounts in Thousands) 1996 1995
Land $ 3,247 $ 3,332
Bank premises 16,256 15,764
Equipment 10,551 10,128
30,054 29,224
Less: accumulated depreciation and amortization 17,720 16,624
$12,334 $12,600
46
Note 8. Long-Term Advances from the Federal Home Loan Bank
Two of the Company's subsidiaries are members of the Federal Home Loan Bank
("FHLB") of Pittsburgh, Pennsylvania. Long-term advances from the FHLB
mature as follows:
(Amounts in Thousands, Except Percent Data)
1996 1995
Weighted Weighted
Average Average
Amount Rate Amount Rate
1998 $ 5,000 5.46% 5,000 5.46%
2003 8,000 5.95% 8,000 5.95%
2008 2,000 6.27% 2,000 6.27%
$15,000 5.83% $15,000 5.83%
Advances from the FHLB are secured by stock in the FHLB of Pittsburgh,
qualifying first mortgage loans, mortgage-backed securities and certain
investment securities. Certain of these advances are subject to restrictions
or penalties in the event of prepayment. Other various debt obligations of
the Company totaled $126,000 at December 31, 1996 and $136,000 at
December 31, 1995.
Note 9. Deposits
Time deposits include Certificates of Deposit issued in denominations of
$100,000 or more which amounted to $71.8 million and $61.3 million at
December 31, 1996 and 1995, respectively. Interest expense on these
certificates was $3.1 million, $2.7 million, and $1.8 million for 1996,1995,
and 1994, respectively.
At December 31, 1996, the scheduled maturities of these certificates of
deposits are as follows: (Amounts in Thousands)
1997 $57,333
1998 7,445
1999 703
2000 3,669
2001 and thereafter 2,586
$71,736
Note 10. Per Share Amounts
Net income per share is based upon the weighted average number of shares of
common stock outstanding during the year. The following table sets forth the
net income used to determine net income per common share for the applicable
years:
(Amounts in Thousands, Except Per Share Data)
1996 1995 1994
Net income $13,917 $12,789 $11,454
Net income per common share 3.09 2.85 2.53
47
Note 11. Employee Benefits
Through 1995, the Company and its subsidiaries maintained three qualified
employee benefit plans. On January 1, 1996 two deferred contribution plans
were merged into a single plan with similar provisions. The first of these
three plans is a non-contributory defined benefit pension plan. Benefits
under the plan are based on length of service and qualifying compensation.
The Company's funding policy is to contribute pension costs accrued. Net
periodic pension expense in 1996, 1995, and 1994 is as follows:
(Amounts in Thousands) 1996 1995 1994
Service cost - benefits earned during the year $ 326 $ 389 $388
Interest expense on projected benefit obligation 607 555 519
Actual return on plan assets (1,390) (2,044) (186)
Net amortization and deferral 622 1,486 (339)
Net periodic pension expense $ 165 $ 386 $382
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated balance sheets at December 31, 1996 and 1995,
based upon a measurement date of December 31 for each year:
(Amounts in Thousands) 1996 1995
Accumulated benefit obligation $ 7,364 $ 6,532
Vested benefit obligation 7,364 6,265
Projected benefit obligation 7,364 8,446
Plan assets at fair value 11,175 10,156
Plan assets in excess of projected benefit obligation 3,811 1,710
Unrecognized net (gain) loss (1,707) (1,653)
Unrecognized prior service cost - 761
Prepaid pension expense $ 2,105 $ 818
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 were 7.25% and 5%, respectively for both 1996
and 1995. The investment of pension assets is diversified among debt
securities 23%, equity securities 63%, and cash and money market funds 14%.
In 1996, the Company recognized a $1.5 million curtailment gain from the
freeze of the Company's Defined Benefit Pension Plan. The freeze of the plan
was the result of the Company's decision to simplify the retirement benefits
it offers.
Employee Stock Ownership and Savings Plan
The Company maintained an Employee Stock Ownership and Savings Plan.
Coverage under the plan is provided to all employees meeting minimum
eligibility requirements. Annual contributions to the ESOP portion of the
plan are made at the 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 recognized by the Company related to the Employee Stock
Ownership Plan was $454,000, $335,000, and $514,000 in 1996, 1995 and
1994, respectively.
The 401 (k) Savings portion of the plan is available to substantially all
employees meeting minimum eligibility requirements. Participation is
voluntary with the Company making matching contributions of 25% of employee
contributions to the Plan up to 6% of base pay. Additional voluntary
contributions by participating employees are available up to an additional
10% of base pay which are not matched by Company contributions.
The cost of Company contributions under the Savings Plan was $59,000,
$46,000, and $44,000 in 1996, 1995 and 1994, respectively. This plan was
merged with the Employee Stock Ownership Plan on January 1, 1996.
Subsequent
48
to this Plan merger, matching contributions will be at the discretion of the
board up to 50% of elective deferrals of no more than 6% of base compensation.
Employee Welfare Plan
The Company provides various medical, dental, life, accidental death and
dismemberment and long term disability insurance benefits to all full-time
employees who elect coverage under this program (basic life, accidental death
and dismemberment, and long term disability coverage is automatic). The cost
of coverage under the medical insurance program is shared by the Company
and employees with the Company bearing the cost of the employee portion and
with dependent coverages paid by the employee.
The Company adopted Financial Accounting Standards Board Statement 106
"Employers Accounting for Postretirement Benefits Other Than Pensions" as of
January 1, 1993. The adoption of Statement 106 resulted in the recognition of
a postretirement benefit obligation at the date of adoption (transition
obligation). The Company has elected to recognize the obligation over the
average remaining life expectancy of the participants. The transition
obligation totaled $634,000 and is being recognized over 17 years. The net
periodic postretirement benefit cost is expected to be approximately $72,000
on an annual basis, consisting of the interest cost of the accumulated benefit
obligation and amortization of the benefit obligation. The assumed health
care cost trend rate used in measuring the accumulated postretirement benefit
obligation as of January 1, 1993 was 10% for 1993, decreasing each successive
year until it reaches 6% in the year 2000. The weighted average discount rate
was 7.25% in 1995 and 1996.
The Company does not have a postretirement plan for employees who retired
after December 31,1993.
Deferred Compensation Plan
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
liability at December 31, 1996 was approximately $1,126,000.
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. These
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 1996 Report on Form 10-K. Several of the
claims and their current status are discussed below.
In January 1993, a lawsuit was filed against the Company by loan customers
who claimed breach of implied duty of good faith and fair dealing, breach of
fiduciary duty and breach of implied contract in connection with allegations
that the Company failed to lend plaintiffs appropriate sums to complete
construction and development of a condominium project. This action
which sought $30 million in compensatory damages was concluded in a civil
trial in May 1995 with the plaintiffs being awarded a verdict of
approximately $513,000. The Company filed motions seeking abatement of
portions of the verdict and received a reduction of $128,000. The remaining
verdict of $385,000 was ordered with prejudgment interest totaling $248,000.
The amount due plaintiffs under the judgment, together with an estimate of
prejudgment interest, was provided for in the Company's results of operations
in the second and fourth quarters of 1995. All of the plaintiffs have now
filed bankruptcy. The Company has asserted its right to setoff the judgment
against the other judgments which are due to the Company by the plaintiffs
as a result of defaulted loans earlier made by the Company to plaintiffs.
In September, the Company and the plaintiff, with court approval, agreed
to stay proceedings against the Company to permit negotiation and/or
litigation in the plaintiff's bankruptcy cases of these offset issues.
Settlement negotiations commenced in the fourth quarter of 1996 and have
yielded an agree-
49
ment in principal providing for the settlement of all outstanding issues
relating to the judgment, including the offset claims, and in two related
pending litigations (one, a civil matter in state court and the other, a
mechanics' lien assertion in Federal Bankruptcy Court). The significant
provisions of the proposed compromise, which is expected to be finalized in
the first quarter of 1997, are as follows:
In settlement of the judgment against the Company, and the two related
cases, the Company and third parties, including its insurance carrier, have
agreed to pay sums aggregating $733,000 to the judgment plaintiffs and to
the plaintiffs in the related civil matters and to pay the sum of $228,000
to plaintiffs' counsel. Payment of the settlement by the Company will result
in full settlement of the judgment and the two related civil matters. A
third party bank and co-defendant in one of the related civil matters has
agreed to forgive indebtedness under a $200,000 note made by the third party
plaintiff in that matter. The Company will also forgive indebtedness of
plaintiffs totaling $62,500 and refinance secured notes of $573,610 owed by
one of the judgement plaintiffs, on current market terms.
The net settlement cost to the Company of settlement of all the litigations
discussed above is expected to be $468,000 and has been fully provided for in
the Company's statement of condition. With execution of the final settlement
agreement, the Company will have settled three separate matters seeking
damages of $30 million, $.6 million and $1 million, respectively.
The Company is currently a defendant in other actions surrounding lending
and collection activities in the normal course of business, certain of which
have remained dormant for a number of years. While the Company and legal
counsel are unable to assess the outcome of each of these matters, they are
of the belief that these actions should not have a material adverse affect on
the financial position or results of operations of the Company.
Note 14. Dividends
The primary source of funds for dividends paid by FCFT is dividends received
from its subsidiary banks. Dividends paid by the banks are subject to
restrictions by banking regulations. 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 profits of the two
preceding years. At December 31, 1996, subsidiary earnings available for
distribution as dividends to the Company without prior approval were $13.9
million.
Note 15. Regulatory
Capital Requirements
and Restrictions
FCFT, Inc. and First Community Bank Inc., First Community Bank of Mercer
County Inc., and Citizens Bank of Tazewell, Inc. (collectively referred to as
"the Banks') are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory-and possibly additional
discretionary-actions by regulators that, if undertaken. could have a direct
material effect on the Company's financial statements. Under the capital
adequacy guidelines, and the regulatory framework for prompt corrective
action, which applies to only the Banks, the entities must meet specific
capital guidelines that involve quantitative measures of the entities'
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The entities' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require FCFT, Inc. and the Banks to maintain minimum amounts and ratios (set
forth in the table on p. 51) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996, that the Company meets all capital adequacy requirements to which
it is subject.
As of December 31, 1996 and 1995, 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 the Banks must maintain minimum total risk-based, Tier I
risk-based and Tier I leverage ratios as set forth in the table. There are
no conditions or events since those notifications that management believes
have changed the institution's category.
50
December 31, 1996
To Be Well
Capitalized
For Capital Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total Capital to Risk-Weighted Assets:
FCFT, Inc. $91,524 17.02% 43,011 8.00% N/A N/A
First Community Bank, Inc. 30,075 16.34% 14,727 8.00% 18,409 10.00%
First Community Bank of Mercer County, Inc. 49,112 15.08% 26,062 8.00% 32,578
10.00%
Citizens Bank of Tazewell, Inc. 7,040 23.21% 2,427 8.00% 3,033 10.00%
Tier I Capital to Risk-Weighted Assets:
FCFT, Inc. $84,776 15.77% $ 21,505 4.00% N/A N/A
First Community Bank, Inc. 27,755 15.08% 7,363 4.00% 11,045 6.00%
First Community Bank of Mercer County, Inc. 45,032 13.82% 13,031 4.00% 19,547
6.00%
Citizens Bank of Tazewell, Inc. 6,661 21.96% 1,213 4.00% 1,820 6.00%
Tier I Capital to Average Assets (Leverage):
FCFT, Inc. $ 84,776 10.33% $ 24,626 3.00% N/A N/A
First Community Bank, Inc. 27,755 7.92% 10,514 3.00% 17,524 5.00%
First Community Bank of Mercer County, Inc. 45,032 10.10% 13,371 3.00% 22,285
5.00%
Citizens Bank of Tazewell, Inc. 6,661 13.06% 2,041 4.00% 2,551 5.00%
December 31, 1995
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
Total Capital to Risk-Weighted Assets:
FCFT, Inc. $ 82,474 17.29% $ 38,164 8.00% $ N/A N/A
First Community Bank, Inc. 31,568 20.34% 12,415 8.00% 15,519 10.00%
First Community Bank of Mercer County, Inc. 44,118 14.97% 23,573 8.00% 29,467
10.00%
Citizens Bank of Tazewell, Inc. 4,124 15.07% 2,189 8.00% 2,736 10.00%
Tier I Capital to Risk-Weighted Assets:
FCFT, Inc. $ 76,540 16.04% 19,082 4.00% $ N/A N/A
First Community Bank, Inc. 29,609 19.08% 6,208 4.00% 9,312 6.00%
First Community Bank of Mercer County, Inc. 40,424 13.72% 11,787 4.00% 17,680
6.00%
Citizens Bank of Tazewell, Inc. 3,841 14.04% 1,094 4.00% 1,641 6.00%
Tier I Capital to Average Assets (Leverage):
FCFT, Inc. $ 76,540 9.86% $ 23,293 3.00% N/A N/A
First Community Bank, Inc. 29,609 9.75% (a) 9,111 3.00% 15,185 5.00%
First Community Bank of Mercer County, Inc. 40,424 9.45% (a) 12,833 3.00% 21,388
5.00%
Citizens Bank of Tazewell, Inc. 3,841 7.88% 1,951 4.00% 2,438 5.00%
(a) Leverage ratio is calculated using ending assets due to a reorganization
of Bank Subsidiaries prior to year-end.
51
Note 16. Income Taxes
(Amounts in Thousands) Years Ended December 31
Income taxes are as follows: 1996 1995 1994
Income exclusive of securities gains (losses) $6,581 $ 4,785 $4,455
Net securities gains (losses) (51) 183 1
$6,530 $ 4,968 $4,456
Years Ended December 31
Income tax provisions consists of- 1996 1995 1994
Current tax expense $6,143 $ 4,829 $4,626
Deferred tax liability (benefit) 387 139 (170)
$6,530 $ 4,968 $4,456
Deferred income taxes reflect the net effect 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 items comprising the Company's net deferred tax asset of
December 31, 1996 and 1995 are as follows:
(Amounts in Thousands) 1996 1995
Deferred tax assets:
Reserve for possible loan losses $3,505 $ 3,184
Unrealized asset losses 250 443
Deferred compensation 817 869
Litigation reserves 429 -
Deferred insurance premiums 399 413
Total deferred tax assets 5,400 4,909
Deferred tax liabilities:
Purchase accounting adjustments 1,905 1,157
Depreciation 195 284
Gain on pension termination 565 -
Unrealized gain on securities available for sale 284 249
Other 346 571
Total deferred tax liabilities 3,295 2,261
Net deferred tax assets $2,105 $2,648
52
The reconciliation between the federal statutory tax rate and the effective
income tax rate is as follows:
Years Ended December 31
1996 1995 1994
Tax at statutory rate 35.0% 34.9% 34.5%
Increases (reductions) resulting from:
Tax-exempt interest on investment
securities and loans (6.7%) (7.3%) (7.6%)
State income taxes, net of federal benefit 1.0% 1.1% 1.5%
Amortization of purchase accounting adjustments . .5%.6% 1.1%
- -Other, net 2.1% (1.5%) (1.5%)
Effective tax rate 31.9% 27.8% 28.0%
Note 17. 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
(Amounts in Thousands) 1996 1995 1994
Other losses and charge-offs $ * $1,303 $ *
Credit card fees paid 1,149 949 844
Federal deposit insurance and other assessments * 888 1,402
*Cost did not exceed one percent for the reported period.
53
Note 18. Fair Value of Financial Instruments
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" (SFAS 107). The pronouncement requires disclosure of fair value
information about financial instruments, whether or not recognized on the
balance sheet, for which it is practical to estimate the value. SFAS 107
defines a financial instrument as cash, evidence of ownership in an entity,
or a contract that conveys or imposes on an entity that contractual right or
obligation to either receive or deliver cash for another financial instrument.
Fair value is defined as the amount at which a financial instrument could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted market price
if one exists.
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments presented
below. The information used to determine fair value is highly subjective
and judgmental in nature and, therefore, the results may not be precise.
Subjective factors include, among other things, estimates of cash flows, risk
characteristics, credit quality, and interest rates all of which are subject
to change. Since the fair value is estimated as of the balance sheet date,
the amounts which will actually be realized or paid upon settlement or
maturity on these various instruments could be significantly different.
1996 1995
(Amounts in Thousands) Carrying Carrying
Amount Fair Value Amount Fair Value
Assets:
Cash and due from banks $ 27,369 $ 27,369 $ 23,911 $ 23,911
Securities available for sale 136,113 136,113 121,193 121,193
Investment securities 100,328 101,200 125,385 126,757
Federal funds sold - - 2,360 2,360
Loans (net of reserve for
possible loan losses) 538,716 537,566 476,830 475,199
Interest receivable 6,341 6,341 6,620 6,620
Liabilities:
Demand deposits 89,902 89,902 86,460 86,460
Interest-bearing demand deposits 93,303 93,303 93,568 93,568
Savings deposits 132,590 132,590 136,525 136,525
Time deposits 327,702 329,311 306,170 307,575
Securities sold under agreements
to repurchase 53,031 53,031 50,205 50,205
Federal funds purchased 25,468 25,468 - -
Interest, taxes and other
obligations 11,217 11,217 11,778 11,778
Other indebtedness 15,126 14,831 15,136 15,139
54
Financial Instruments with Book Value Equal to Fair Value
The book values of cash and due from banks, interest-bearing balances with
banks, federal funds sold and purchased, securities sold under agreements to
repurchase, interest receivable, and interest, taxes and other liabilities are
considered to be equal to fair value as a result of the short-term nature of
these items.
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 the quoted price of similar instruments.
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, fair value has
been estimated by discounting future cash flows based on interest rates
currently being offered on deposits with similar characteristics and
maturities.
Other Indebtedness
Fair value has been estimated based on interest rates currently available
to the Company for borrowings with similar characteristics and maturities.
Commitments to Extend Credit, Stand-by Letters of Credit, and
Financial Guarantees
The amount of off-balance sheet commitments to extend credit, stand-by letters
of credit, and financial guarantees, is considered equal to fair value.
Because of the uncertainty involved in attempting to assess the likelihood
and timing of commitments being drawn upon, coupled with the lack of an
established market and the wide diversity of fee structures, the Company
does not believe it is meaningful to provide an estimate of fair value that
differs from the given value of the commitment.
55
Note 19. Parent Company Financial Information
Condensed financial information related to FCFT as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995 and 1994 are as follows:
CONDENSED BALANCE SHEETS
(Amounts in Thousands)
December 31
1996 1995
Assets:
Cash $ 2,493 $ 494
Investment in subsidiaries 83,996 79,819
Other assets 2,942 308
Total Assets $89,431 $80,621
Liabilities:
Other liabilities $ 106 $ 161
Stockholders' Equity:
Common stock 23,022 23,022
Additional paid-in capital 20,343 20,372
Retained earnings 47,248 39,712
Treasury stock (1,288) (2,646)
Total Stockholders' Equity 89,325 80,460
Total Liabilities and Stockholders' Equity $89,431 $80,621
CONDENSED STATEMENTS OF INCOME
(Amounts in Thousands Except Per Share Data)
Years Ended December 31
1996 1995 1994
Cash dividends received from subsidiary banks $ 9,825$ 7,000 $6,650
Revenue 123 615 53
Operating expense (267) (152) (355)
9,681 7,463 6,348
Income tax (expense) benefit 51 (152) 302
Equity in undistributed earnings of subsidiaries 4,185 5,478 4,804
Net Income $13,917 $12,789 $11,454
Net Income Per Share $ 3.09 $ 2.85 $ 2.53
56
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31
1996 1995 1994
Cash flows from operating activities:
Net income $13,917 $12,789 $11,454
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sales of assets - (547) -
Amortization of intangibles - - 199
Equity in undistributed earnings
of subsidiaries (4,185) (5,478) (4,804)
(Increase) decrease in other assets (890) (159) 220
(Decrease) increase in other liabilities (54) 120(602)
Other net 49 38 30
Net cash provided by investing activities8,837 6,763 6,497
Cash flows from investing activities:
Purchase of other investments (1,745) (23) (900)
Proceeds from sale of securities
available for sale - 1,454 -
Net cash (used in) provided by investing activities(1,745) 1,431 (900)
Cash flows from financing activities:
Acquisition of treasury stock (170) (839) (1,104)
Dividends paid (6,422) (5,525) (4,714)
Reissuance of treasury stock 1,499 - -
Net cash used in financing activities (5,093) (6,364) (5,818)
Net (decrease) increase in cash and
cash equivalents 1,999 1,830 (221)
Cash and cash equivalents at beginning of year 494(1,336) (1,115)
Cash and cash equivalents at end of year 2,493 494$(1,336)
57
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania
15222-5401
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FCFT, INC.,
We have audited the accompanying consolidated balance sheets of FCFT, Inc.
and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of FCFT'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 to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of FCFT, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1996 in conformity with generally accepted accounting principles.
Pittsburgh, Pennsylvania
January 30, 1997
58
Report on
Management's
Responsibilities
The management of FCFT, Inc. is responsible for the integrity of its financial
statements and their preparation in accordance with generally accepted
accounting principles. To fulfill this responsibility requires the
maintenance of a sound accounting system supported by strong internal
controls. 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, the development and communication
of accounting and other procedures, and comprehensive internal audits.
Our independent auditors (Deloitte & Touche LLP) are engaged to examine,
and render an opinion on, the fairness of our consolidated financial
statements in conformity with generally accepted accounting principles.
Our independent auditors evaluate the effectiveness of our internal
accounting control systems, review selected transactions and carry out
other auditing procedures before expressing their opinion on our consolidated
financial statements.
The Board of Directors has appointed an Audit Committee composed of outside
directors which periodically meets with the independent auditors, bank
examiners, management and internal auditors to review the work of each.
The independent auditors, bank examiners and the Company's internal auditors
have free access to meet with the Audit Committee without management's
presence.
James L. Harrison, Sr.
President & Chief Executive Officer
John M. Mendez
Vice President & Chief Financial Officer
59
Board of Directors, FCFT, Inc.
Sam Clark
Agent, State Farm Insurance
Allen T. Hamner
Professor of Chemistry, West Virginia
Wesleyan College; Member Executive
Committee
James L. Harrison, Sr.
President and Chief Executive
Officer, FCFT, Inc.; Member Executive
Committee; President, First
Community Bank, Inc.; and First
Community Bank of Mercer County,
Inc.
B. W. Harvey
President, Highlands Real Estate
Management, Inc.; Vice President,
Acme Markets of Virginia, Inc.;
Former President and Chief
Executive Officer, Bluefield Supply
Company
I. Norris Kantor
Partner, Katz, Kantor & Perkins,
Attorneys-at-Law; Member of Audit
Committee
John M. Mendez
Vice President & Chief Financial
Officer, FCFT, Inc.; Vice President -
Finance & Chief Administrative
Officer, First Community Bank, Inc.
and First Community Bank of Mercer
County, Inc.
A. A. Modena
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.; President, Melrose
Enterprises, Ltd.; Chairman, FCFT,
Inc.; Member Executive Committee;
Member Audit Committee
William P. Stafford, II
Attorney-at-Law, Brewster, Morhous
& Cameron
W. W. Tinder, Jr.
Chairman of the Board and Chief
Executive Officer, Tinder Enterprises,
Inc.; President, Tinco Leasing
Corporation (Real Estate Holdings);
Member Executive Committee
Harold M. Wood
Owner and Operator, Wood's
General Store; Chairman of Audit
Committee
Officers, FCFT, Inc.
James L. Harrison, Sr.
President and Chief
Executive Officer
John M. Mendez
Vice President and Chief
Financial Officer
Robert L. Buzzo
Vice President and Secretary
60
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
H.C. Arnold, Jr.
Retired Public Accountant
Dr. James P. Bailey *
Veterinarian, Veterinary Associates, Inc.
William B. Belchee
Retired Bluefield Division Manager, Appalachian Power Company;
President, Welch Insurance Agency
Claude E. Blankenship
Officer, C and R Furniture: Former Mercer County Commissioner
W.C. Blankenship, Jr.
Chairman of the Board, Citizens Bank of Tazewell, 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 and Secretary, FCFT, Inc.; Chief Executive Officer, First
Community Bank of Mercer County, Inc.- Bluefield
Sam Clark*
Agent, State Farm Insurance
W. Paul Cole, Jr.
President, Cole Chevrolet-Cadillac, Inc. and Cole Motor Company; Chairman of
the Board, Truck City Parts, Inc.
L.M. Compton
President, Compton Enterprises
Lillian S. Cooke
Private Investor
C. William Davis*
Attorney at Law, Richardson, Kemper, Hancock and Davis
H.R. Davis
Auctioneer
Frank Ferrante *
Retired Owner of Frankie's LaSalute
Lloyd D. Feuchtenberger, Jr.
Retired Bakery Executive
Chester H. Friedl
Pharmacist
H.A. Goodykoontz, Jr.
Retired Pharmacist
Owen R. Griffith, Jr.
Retired President and Chief Executive Officer, First Community Bank, Inc.
Anthony A. Gum
Mayor, City of Buckhannon; Chairman, Business and Economics Division,
West Virginia Wesleyan College
Allen T. Hamner, Ph.D.*
Professor of Chemistry, West Virginia Wesleyan College
W.T. Hancock
Of Counsel, Richardson, Kemper, Hancock and Davis
James L. Harrison, Sr.*
President and Chief Executive Officer, FCFT, Inc.; President, First Community
Bank, Inc.; and First Community Bank of Mercer County, Inc.
B.W. Harvey*
President, Highlands Real Estate Management, Inc.; Vice President, Acme
Markets of Virginia, Inc.
Chapman I. Johnston, Jr.
Retired Chairman of the Board, Bluefield Supply Company
I. Norris Kantor*
Partner, Katz, Kantor and Perkins, Attorneys-At-Law
Walden M. Keene
Retired Coal Operator
Dr. John S. Lambert, Jr.
Dentist
M. Neil Lohr
Pharmacist, Princeton Pharmacy
61
Directors
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, Inc.
A. Herbert McClaugherty
President, The Dean Company
John M. Mendez*
Vice President and Chief Financial Officer, FCFT, Inc.; Vice President-
Finance and Chief Administrative Officer, First Community Bank, Inc. and
First Community Bank of Mercer County, Inc.
Edgar L. Miller, Sr.
Owner, Edgar's Exxon Service Station
A.A. Modena*
Past Executive Vice President and Secretary, FCFT, Inc.; Past President
and Chief Executive Officer, The Flat Top National Bank of Bluefield
Dr. Samuel A. Muscari, Sr.
Physician
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
Alvin E. Platnick*
President, Platnick Steel and Engineering, Inc.
Dr. William Prudich
Physician, Montcalm Medical Services
Bernie Queen
Retired, Amherst Coal Company
Clyde B. Ratliff
President, Gasco Drilling, Inc.
Michael Ross
President, Ross and Wharton Gas Co.
Richard G. Rundle*
Attorney at Law, Rundle and Rundle, LC
M.M. Shumate
Retired
E.T. Smith
President, Smith Services, Inc.
Ira M. Smith*
Attorney at Law, Smith and Lilly
Jack D. Stafford, P.E.
President, Stafford Consultants, Inc.
William P. Stafford*
President, Princeton Machinery Service, Inc.
William P. Stafford, II*
Attorney at Law, Brewster, Morhous and Cameron
William D. Starling
Retired Coal Operator
Robert R. Stuart, Jr.
Retired Bakery Executive
Harold Tomchin
Chairman of the Board, Tomchin Furniture Company
W.W. Tinder, Jr.*
Chairman and Chief Executive Officer, Tinder Enterprises, Inc.
Robert J. Wallace
Attorney at Law, Coleman and Wallace
Harold M. Wood*
Owner, Wood's General Store
C. Paige Wooldridge
Retired Resident Vice President, Norfolk Southern Corporation
Dale F. Woody*
President, Woody Lumber Company
62
First Community Bank
(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
Blue Prince Road, Green Valley
Bluefield, West Virginia 24701-6160
(304)325-3641
211 Federal Street
Bluefield, West Virginia 24701-0950
(304)325-7151
Highway 52
Bluefield, West Virginia 24701-3068
(304)589-3301
Corner of Bank and Cedar Streets
Pineville, West Virginia 24874-0269
(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
Buckhannon, West Virginia 26201
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
Citizens Bank of Tazewell, Inc.
(A VIRGINIA CORPORATION - MEMBER FDIC)
643 E. Riverside Drive
Tazewell, Virginia 24651
(540) 988-5577
Railroad Avenue
Richlands, Virginia 24641
(540) 964-7454
63
Financial Information
Corporate Headquarters
1001 Mercer Street
P.0. Box 5909
Princeton, West Virginia
24740-5909
(304) 487-9000
Stock Registrar and Transfer Agent
First Community Bank, Inc.
Trust and Financial Services Division
P.0. Box 950
Bluefield, West Virginia 24701-0950
(304) 325-7151
Form 10-K
The Annual Report on Form 10-K, filed with the Securities and
Exchange Commission, is available to shareholders upon request to the
Vice President & Chief Financial Officer of FCFT, Inc.
Financial Contact
John M. Mendez
Vice President & Chief Financial Officer, FCFT, Inc.
P. 0. Box 5909
Princeton, West Virginia 24740-5909
(304) 487-9000
64
(Graph 1)
PROFITABILITY
Return on Average Equity (%)
Peer All
Group Banks FCFT
1992 12.76 12.10 12.59
1993 12.77 12.90 14.72
1994 12.82 12.30 16.33
1995 13.12 12.57 16.77
1996 12.49 12.76 16.26
(Graph 2)
PROFITABILITY
Return on Average Assets (%)
Peer All FCFT
Group Banks
1992 1.23 0.95 1.11
1993 1.24 1.08 1.34
1994 1.24 1.09 1.55
1995 1.30 1.16 1.70
1996 1.26 1.18 1.73
(Graph 3)
PERFORMANCE
Net Interest Margin (%)
Peer All FCFT
Group Banks
1992 4.89 4.69 5.18
1993 4.80 4.73 5.21
1994 4.87 4.83 5.36
1995 4.93 4.85 5.38
1996 4.91 4.76 5.39
(Graph 4)
MARKET VALUE
Price/Book Value (%)
Peer All FCFT
Group Banks
1992 161.10 133.80 153.80
1993 164.60 138.50 166.90
1994 151.40 127.70 186.00
1995 155.10 140.80 183.50
1996 158.70 151.80 174.60
(Graph 5)
MARKET VALUE
Price/Earnings Per Share (Multiple)
Peer All FCFT
Group Banks
1992 13.00 12.40 12.70
1993 13.50 11.70 11.80
1994 12.10 10.80 11.50
1995 12.70 12.30 11.00
1996 12.80 12.70 11.20
65
(Graph 6)
OVERALL SATISFACTION
Norm Comparison (%)
FCFT 87.9
USA Financial Institutions 81.3
USA Banks 80.5
USA Credit Unions 86.5
USA S & L's 80.5
(Graph 7)
EFFICIENCY
Net Operating Expense/Average Assets (%)
Peer All FCFT
Group Banks
1992 2.39 2.44 2.46
1993 2.37 2.45 2.33
1994 2.34 2.52 2.51
1995 2.28 2.45 2.27
1996 2.20 2.33 2.02
(Graph 8)
EFFICIENCY
Assets/Employee (Millions)
Peer All FCFT
Group Banks
1992 1.71 1.89 1.91
1993 1.85 1.93 2.05
1994 1.93 1.98 2.11
1995 2.03 2.10 2.16
1996 2.11 2.20 2.27
(Graph 9)
CAPITALIZATION
Equity/Assets (%)
Peer All FCFT
Group Banks
1992 9.62 7.74 9.04
1993 9.75 8.28 9.32
1994 9.68 8.35 9.43
1995 10.20 8.97 10.31
1996 10.44 8.92 10.67
(Graph 10)
Net Income
(millions)
1992 7,475
1993 9,595
1994 11,454
1995 12,789
1996 13,917
66
(Graph 11)
Return on Average Equity
(percent)
1992 12.59
1993 14.72
1994 16.33
1995 16.77
1996 16.26
(Graph 12)
Return on Average Assets
(percent)
1992 1.11
1993 1.34
1994 1.55
1995 1.70
1996 1.73
(Graph 13)
Net Income Per Share
(dollars)
1992 1.65
1993 2.12
1994 2.53
1995 2.85
1996 3.09
(Graph 14)
Dividends Per Share
(cents)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1994 .21 .21 .26 .37
1995 .26 .27 .28 .42
1996 .28 .30 .35 .50
(Graph 15)
Net Interest Margin
(percent)
1992 5.18
1993 5.21
1994 5.30
1995 5.38
1996 5.39
67
(Graph 16)
Tax Equivalent Net Interest Income (millions)
1992 31,537
1993 34,196
1994 36,094
1995 37,759
1996 40,395
(Graph 17)
Other Service Charges, Commissions and Fees (millions)
1992 1,263
1993 1,627
1994 1,843
1995 2,093
1996 2,283
(Graph 18)
Net Overhead Ratio
(percent)
1994 2.51
1995 2.27
1996 2.02
(Graph 19)
Loans
(millions)
1994 421
1995 485
1996 548
(Graph 20)
Loans
(percent)
Loans to Individuals 21.8
Commercial, Financial
and Agricultural 14.5
Real Estate -Construction 1.9
Real Estate-Commercial 30.4
Real Estate-Residential 31.3
All Others 0.1
(Graph 21)
Risk-Based Capital
(percent)
Regulatory Risk-Adjusted
Minimum Assets
1992 8.0 14.71
1993 8.0 15.59
1994 8.0 17.22
1995 8.0 17.29
1996 8.0 17.02
68
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-72616 of FCFT, Inc. on Form S-8 of our report dated January 30, 1997,
appearing in and incorporated by reference in this Annual Report on Form 10-K
of FCFT, Inc. for the year ended December 31, 1996.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
March 31, 1997
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14 (a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6 (e) (2) )
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to
240.14a-11 (c) or 240.14a-12
FCFT, INC.
(Name of Registrant as Specified In Its Charter)
N.A.
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the
appropriate box):
[X] No fee required.
[ ] Fee computed on table below per
Exchange Act Rules 14a-6 (I) (4) and 0-11.
1) Title of each class of
securities to which transaction applies:
__________________________________________
__________________________________________
2) Aggregate number of
securities to which transaction applies:
__________________________________________
__________________________________________
3) Per unit price or other
underlying value of transaction
computed pursuant to
Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined:
__________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________
5) Total fee paid:
_________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee
is offset as provided by
Exchange Act Rule 0-11 (a) (2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________________________
2) Form, Schedule or Registration Statement No.
__________________________________________
3) Filing Party:
__________________________________________
4) Date Filed:
__________________________________________
FCFT, INC.
1001 Mercer Street
Princeton, West Virginia 24740
Notice of 1997
Annual Meeting of Stockholders
To the Stockholders of FCFT, Inc.:
The ANNUAL MEETING of Stockholders of FCFT, Inc. will be held at
Bluefield Country Club, 1501
Whitethorn Street, Bluefield, West Virginia, at 3:00 p.m., local time on
April 8, 1997, for the purpose of
considering and voting upon the following items as more fully discussed
herein.
1. Election of four directors to serve as members of the Board of
Directors, Class of 2000.
2. Adoption of the agreement of merger between FCFT, Inc., and a newly
formed Nevada corporation
formed solely to change the corporate domicile of FCFT, Inc. from
Delaware to Nevada.
3. Ratification of the selection of Deloitte & Touche, LLP,
Pittsburgh, Pennsylvania, as independent
auditors for the year ending December 31, 1997.
4. Transacting of such other business as may properly come before
the meeting, or any
adjournment thereof.
Only Stockholders of record at the close of business on March 10, 1997
are entitled to notice of and
to vote at such meeting or at any adjournment thereof.
To ensure your shares are represented at the Annual Meeting, please
complete, sign and return the
enclosed proxy as promptly as possible whether or not you plan to attend the
meeting. An addressed
return envelope is enclosed for your convenience. YOU MAY REVOKE YOUR
PROXY AT ANY TIME
PRIOR TO THE TIME IT IS VOTED.
By Order of the Board of Directors
John M. Mendez, Secretary to the Board
PROXY STATEMENT
Annual Meeting of
Stockholders
To Be Held on Tuesday,
April 8, 1997
The Board of Directors of FCFT, Inc. (The "Corporation") solicits the
enclosed proxy for use at the
Annual Meeting of Stockholders of FCFT, Inc., which will be held on
Tuesday, April 8, 1997, at 3:00 p.m., (local time) at Bluefield Country
Club, 1501 Whitethorn Street, Bluefield, West Virginia, and at any
adjournment thereof.
The expenses of solicitation of the proxies for the meeting, including
the cost of preparing, assembling
and mailing the notice, proxy statement and return envelopes, the handling
and tabulation of
proxies received, and charges of brokerage houses and other institutions,
nominees or fiduciaries for
forwarding such documents to beneficial owners, will be paid by the
Corporation. In addition to the
mailing of the proxy material, solicitation may be made in person or by
telephone or telegraph by offi-
cers, directors or regular employees of the Corporation.
This Proxy Statement and the proxies solicited hereby are being first
sent or delivered to stockholders
of the Corporation on or about March 11, 1997.
Voting
Shares of Common Stock ($5 par value per share) represented by proxies
in the accompanying
form which are properly executed and returned to the Corporation will be
voted at the Annual
Meeting in accordance with the stockholder's instructions contained therein.
In the absence of
contrary instructions, shares represented by such proxies will be voted FOR
the election of the nominees
as described herein under "Election of Directors" and FOR ratification of the
selection of Deloitte
& Touche as independent public accountants for the year ended December 31,
1997. Any stockholder
has the power to revoke his proxy at any time before it is voted.
The Board of Directors has fixed March 10, 1997 as the record date for
stockholders entitled to
notice of and to vote at the Annual Meeting. Shares of Common Stock
outstanding on the record date
are entitled to be voted at the Annual Meeting, and the holders of record will
have one vote for each
share so held in the matters to be voted upon by the stockholders. There
are no cumulative voting
rights.
Directors are elected by a plurality of votes present in person or by
proxy and entitled to vote,
assuming a quorum is present. All other matters coming before the
meeting will be determined by
majority vote of those present in person or by proxy and entitled to vote.
Abstentions and broker
non-votes thus have no direct effect on the election of directors, but have
the effect of negative votes
on other matters considered.
As of the close of business on March 4, 1997, the outstanding shares
of the Corporation
consisted of 4,604,423 shares of Common Stock.
Election of
Directors
The Corporation's Board of Directors is comprised of twelve directors,
including ten
non-employee directors, divided into three classes with staggered terms.
All directors are elected for
three-year terms.
The nominees for the Board of Directors, to serve until the annual meeting
of stockholders in 2000,
are set forth below. All nominees are currently serving on the Corporation's
Board of Directors. In the
event any nominee is unable or declines to serve as a director at the time
of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill
the vacancy. In the event that additional persons are nominated for election
as directors, the proxy
holders intend to vote all proxies received by them for the nominees listed
below. All nominees named
herein have consented to be named and to serve as directors if elected.
Principal Occupation and Director of Class
Employment Last Five Years; Corporation of
Name Age Principal Directorships Since Director
James L. Harrison, Sr. 49 President & Chief Executive 1989 2000
Officer of the Corporation;
President & Director of First
Community Bank, Inc., First
Community Bank of Mercer
County, Inc. & Citizens Bank
of Tazewell, Inc.
I. Norris Kantor 67 Partner, Katz, Kantor & Perkins, 1989 2000
Attorneys-at-Law; Director,
First Community Bank, Inc. &
First Community Bank of Mercer
County, Inc.
A.A. Modena 68 Past Executive Vice President and 1989 2000
Secretary of the Corporation
(Retired October 1, 1994);
Director, First Community Bank, Inc.
& First Community Bank of Mercer
County, Inc.
William P. Stafford, II 33 Attorney, Brewster, Morhous & 1994 2000
Cameron; Director, First Community
Bank, Inc. & First Community Bank
of Mercer County, Inc.
Continuing Directors
The following persons will continue to serve as members of the Board of
Directors until the Annual
Meeting of Stockholders in the year of the expiration of their designated
term. The name, age, principal
occupation and certain biographical information for each continuing
director is presented below:
Principal Occupation and Director of Class
Employment Last Five Years; Corporation of
Name Age Principal Directorships Since Director
Sam Clark 65 Agent, State Farm Insurance; 1993 1999
Director, First Community Bank,
Inc. & First Community Bank of
Mercer County, Inc.
Allen T. Hamner 55 Professor of Chemistry, West Virginia 1993 1998
Wesleyan College; Director, First
Community Bank, Inc. & First Community
Bank of Mercer County, Inc.
B.W. Harvey 65 Vice President, Acme Markets of 1989 1998
Virginia, Inc.; President, Highlands
Real Estate Management, Inc.;
Director, First Community Bank, Inc.
& First Community Bank
of Mercer County, Inc.
John M. Mendez 42 Vice President & Chief Financial 1994 1998
Officer of the Corporation; Vice-
President-Finance & Chief
Administrative Officer &
Director, First Community Bank,
Inc., First Community Bank of
Mercer County, Inc. & Citizens Bank
of Tazewell, Inc.
Robert E Perkinson, Jr. 49 Vice President-Operations, MAPCO 1994 1999
Coal, Inc.; Permac, Inc.; Race Fork
Coal, Inc.; Director, Virginia Coal
Association; Director, First
Community Bank, Inc. & First
Community Bank of Mercer County, Inc.
William P. Stafford 63 President, Princeton Machinery 1989 1999
Service, Inc.; President, Melrose
Enterprises, Ltd.; Chairman of the
Board of the Corporation; Director,
First Community Bank, Inc. & First
Community Bank of Mercer County, Inc.
Continuing Directors
W.W. Tinder, Jr. 71 Chairman & Chief Executive 1989 1999
Officer, Tinder Enterprises, Inc.;
President, Tinco Leasing Corporation
(Real Estate Holdings); Director,
First Community Bank, Inc. &
First Community Bank of Mercer County, Inc.
Harold Wood 78 Owner and Operator, Wood's General 1989 1998
Store; Director, First Community Bank, Inc.
& First Community Bank of Mercer County, Inc.
Compensation of Directors
During 1996, non-employee members of the Board of Directors received
$500 per month. Directors
of the Corporation are also reimbursed for travel or other expenses incurred
in attendance at Board or
committee meetings. Directors who are employees of the Corporation receive
no additional compensation
for service on the Board or its committees.
Meeting Attendance
The Board of Directors held 11 meetings during 1996. All directors and
those nominees who are cur-
rently directors attended at least 75% of all meetings of the Board and any
committee of which they are
a member with the exception of I. Norris Kantor who attended eight meetings.
Board Committees
The Board of Directors of the Corporation has an Audit Committee
consisting of Messrs. Kantor,
Chairman; Wood; and William P.Stafford, all non-employee members of the
Board. The Audit Committee of the Board of Directors, which held four
meetings during 1996, reviews and acts on reports to the Board with respect
to various auditing and accounting matters, the scope of the audit procedures
and the results thereof, the internal accounting and control systems of the
Corporation, the nature of service
performed for the Corporation by and the fees to be paid to the independent
auditors, the perfor-
mance of the Corporation's independent and internal auditors and the
accounting practices of the
Corporation. The Audit Committee also recommends to the full Board of
Directors the auditors to be
appointed by the Board (subject to stockholders ratification). The Board
does not maintain Nominat-
ing or Compensation Committees.
Transactions With Directors and Officers
Some of the directors and officers of the Corporation and members of their
immediate families are at
present, as in the past, customers of the Corporation's subsidiary banks,
and have had and expect to
have transactions with the banks. In addition, some of the directors and
officers of the Corporation are,
as in the past, also officers of or partners in entities which are customers
of the banks and which have
had and expect to have transactions with the banks. Such transactions were
made in the ordinary
course of business, were made on substantially the same terms, including
interest rates and collateral,
as those prevailing at the time for comparable transactions with other
persons, and did not involve
more than normal risk of collectibility or present other unfavorable features.
Principal Stockholders
The following sets forth information with respect to those persons, who
to the knowledge of man-
agement, beneficially owned more than 5% of the Corporation's outstanding
stock as of March 4,
1997. All shares are subject to the named entity's sole voting and
investment power.
Title of Name and Address Shares Beneficially Percent
Class of Beneficial Owner Owned of Class
Common The H.P. and Anne S. Hunnicutt Foundation (1) 517,120 11.44%
P.O. Box 309, Princeton, WV 24740
(1) William P. Stafford is deemed beneficial owner of the same shares by
virtue of his position as
President of the Foundation.
Ownership of Common Stock by Directors and Executive Officers
The following table sets forth the beneficial ownership of the Common
Stock of the Corporation as
of March 4, 1997, by each director and nominee, each executive officer
named in the Summary
Compensation Table, and all directors and executive officers as a group
including each executive officer
named in this Proxy Statement.
Percent of Class
Name of Group Number of Shares Beneficially Owned
Sam Clark 20,316 *
Allen T. Hamner 1,688 *
James L. Harrison, Sr. 28,594 *
B.W. Harvey 3,772 *
I. Norris Kantor 9,791 *
John M. Mendez 8,893 *
A.A. Modena 17,639 *
Robert E. Perkinson, Jr. (1) 9,082 *
William P. Stafford (2) 91,214 2.02%
William P. Stafford, II 62,510 1.38%
W.W.Tinder, Jr. 32,400 *
Harold Wood 10,840 *
All Directors and Executive Officers
as a group (Twelve Persons) 296,739 6.57%
(1) Mr. Perkinson serves as Co-trustee of the Trust Under Agreement
for Robert E. Perkinson, Sr.,
and by virtue of voting power is deemed to share beneficial ownership of
an additional 129,987 shares
or 2.88% of the Corporation's outstanding stock held by the Trust.
(2) Mr. Stafford serves as President of The H.P. and Anne S. Hunnicutt
Foundation, and by virtue of
voting power is deemed beneficial owner of an additional 517,120 shares
or 11.44% of the
Corporation's outstanding stock held by the Foundation.
*Less than one percent.
Reports of Changes in Beneficial Ownership
Based on a review of the forms submitted to the Corporation during and
with respect to its fiscal year ended December 31, 1996, no person required
to file reports pursuant to Section 16 of the Securities Exchange Act of 1934
failed to file any such report on a timely basis during that year.
Report on Executive Compensation
Executive Compensation Policy
Executive officers of the Corporation are not compensated by the
Corporation, but rather, by a
wholly-owned subsidiary bank. Accordingly, compensation of the executive
officers who qualify for dis-
closure is determined by the subsidiary bank's Executive Committee
(executive management in the
case of Mr. Mendez), consisting of bank directors Bailey, Harvey, Perkinson,
William P. Stafford, and Tinder. Although a member of the Executive
Committee, Mr. Harrison does not participate in any Committee discussions
related to his employment provisions or compensation. Executive
compensations (including compensation of the Chief Executive Officer),
as determined by the Executive Committee
("Committee"), is not tied directly to Company performance through specific
criteria. The compensa-
tion policy of the Committee is to provide competitive levels of
compensation with appropriate recog-
nition of responsibility of the respective officers. Management
compensation is intended to be set at
levels that the Committee believes to be consistent with other companies
in the banking industry of
similar size, operations, and performance.
Dr.
James P. Bailey Robert E. Perkinson, Jr.
B.W.
Harvey William P. Stafford
W.W. Tinder, Jr.
Executive Compensation for the Years Ended December 31, 1996, 1995 and 1994
The following summary compensation table sets forth the information
concerning compensation
for services in all capacities awarded to, earned by or paid to the
Corporation's President and Chief
Executive Officer and to other executive officers of the Corporation whose
salary and bonus exceeded
$100,000 during the years ended December 31, 1996, 1995, and 1994.
Summary Compensation Table
Capacities in Which Other Annual
Name of Individual Served Year Salary Bonus Compensation
James L. Harrison, Sr. President , Chief Exec- 1996 $189,999 ----- $32,054
utive Officer & Director 1995 193,821 ----- 57,115
of the Corporation; President 1994 193,595 ----- 21,511
& Director of First Community
Bank, Inc. & First Community
Bank of Mercer County, Inc.
& Citizens Bank of Tazewell, Inc.
John M. Mendez Vice President & Chief 1996 134,978 $14,295 $5,460
Financial Officer and Director 1995 123,365 22,533 7,130
of the Corporation; 1994 113,195 12,108 6,316
Vice President-Finance,
Chief Administrative Officer &
Director of First Community
Bank, Inc., First Community
Bank of Mercer County, Inc. &
Citizens Bank of Tazewell, Inc.
No long term compensation is paid to the named executive officers.
Comparative Performance of the Company
The following chart compares cumulative total shareholder return on the
Corporation's common
stock for the five-year period ended December 31, 1996 with cumulative
total shareholder return of 1)
The Standard & Poore's 500 market index ("S & P 500"); and 2) a group
of four Peer Bank Holding
Companies ("Peer"), selected by management of the Corporation based
upon relative asset size and
geographic location. The graph assumes an initial investment of $100 on
December 31, 1991 in the
Corporation's common stock and each of the comparative investments with
dividends from each of
the investments reinvested at year-end in additional shares of the stock at
the then current market
value.
FCFT, INC. S &P 500 PEER
12/31/91 90 100 123
12/31/92 107 108 207
12/31/93 216 118 200
12/31/94 278 120 181
12/31/95 312 164 224
12/31/96 326 202 232
Employment Contracts
Under the provisions of employment contracts with Messrs. Harrison
and Mendez, in the event of a
change in control of the Corporation, Harrison and Mendez may elect to
terminate services and be
compensated at their annual salary for the balance of the term of the
contract or for a period of twelve
months, whichever is greater. In the event either officer is dismissed
for reasons other than cause, as
defined, he will be compensated at his annual salary for the balance
of the term of the three-year con-
tract, or twelve months, whichever is greater.
Retirement Benefits
Through October 1996, the Corporation and its subsidiaries maintained
a non-contributory Defined
Benefit Pension Plan, for all employees meeting certain eligibility
requirements. In October 1996, bene-
fits under this plan were frozen with termination of the plan set for
November 1996. Future retirement
benefits will be provided principally through the Company's Employee
Stock Ownership and Savings
Plan.
Annual benefits payable upon retirement to eligible employees were
calculated as the sum of (i) the
product of one percent of the employee's highest ten-year average
compensation, (up to $150,000),
multiplied by the years of service; and (ii) one-half of one percent of
the employee's highest ten-year
average compensation in excess of $7,800 (up to $150,000), multiplied by
years of service not in excess
of 35. An employee's highest ten-year average compensation consists of
1/10th of all amounts received
by an employee as remuneration during the highest 10 consecutive years
of compensation during the
15 years of service immediately preceding the normal retirement date,
the early retirement date or the
disability retirement date. With the pending termination of this plan,
benefits as computed above will
become payable in the form of private annuities or the actuarial equivalent
of the life annuities at date
of termination.
The following table includes the approximate annual retirement
benefits that will be payable in a life
annuity form under various assumptions as to salary and years of credit
service classifications:
10-Year Highest Years of Service
Compensation 15 25 35 45
$75,000.00 $16,920 $27,150 $38,010 $45,510
$100,000.00 $21,915 $36,525 $51,135 $61,135
$125,000.00 $27,540 $45,900 $64,260 $76,760
$150,000.00 $33,165 $55,275 $77,385 $92,385
$175,000.00 $33,165 $55,275 $77,385 $92,385
$200,000.00 $33,165 $55,275 $77,385 $92,385
$225,000.00 $33,165 $55,275 $77,385 $92,385
Compensation for purposes of the plan consists of all salary and earned
income paid by the
Corporation and is substantially identical to amounts reported in the Summary
Compensation Table. The benefits listed in the table above are computed
on the basis of a straight life annuity and are subject to any deductions
for social security benefits or other off-set amounts.
As of October 31, 1996, the date of the benefit freeze, the credited
years of service under the retire-
ment plan for the individuals named in the Summary Compensation Table
were as follows: James L.
Harrison, Sr.-12 years and John M. Mendez-12 years.
Employee Stock Ownership And Savings Plan
The individuals listed in the Summary Compensation Table are covered
under the Company's
Employee Stock Ownership And Savings Plan ("ESOP"). Contributions to the
ESOP portion of the plan
are made annually at the discretion of the Board of Directors. Allocations
of those contributions to par-
ticipant's accounts are made on the basis of relative compensation (up to
$150,000). Allocations to the
accounts of the individuals named in the Summary Compensation Table for
the 1996 year were: James
L. Harrison, Sr.-$10,500; and John M. Mendez-$10,500.
The 401(k) Savings portion of the plan matches deferred employee
contributions at the rate of 25%
up to 6% of compensation. Matching contributions for 1996 for the covered
persons listed in the
Summary Compensation Table were as follows: James L. Harrison, Sr.-$2,250;
and John M. Mendez-$2,250.
Wrap Plan
In July 1996, the Corporation created a Supplemental Executive
Retirement Plan ("Plan") for the purpose of providing deferred
compensation which cannot be accumulated under the Basic Savings Plan
due to the deferral limitations on tax-qualified pension plan benefits and
contributions for highly compensated employees. The Company makes
a nonqualified matching credit on employee contributions at the rate of 25%
up to 6% of compensation to the extent not included in the basic plan. There
were no matching contributions for 1996 for the covered persons listed in the
Summary Compensation Table.
Change in Corporate Domicile
The Corporation is currently organized under the laws of the state of
Delaware. The proposed change in domicile to the state of Nevada will, at
current rates, save approximately $50,000 per year in franchise taxes. The
change will be effected by formation of a new Nevada corporation and merging
the Corporation into it, with the Nevada corporation to be the survivor,
pursuant to an agreement of merger (the "Agreement") between the Corporation
and the new Nevada corporation.
The Agreement provides that on the effective date of the merger,
outstanding shares will be exchanged on a one for one basis; and each
stockholder will have exactly the same interest in the new corporation
after that date as he or she previously held in the Corporation. The
transaction will be free of tax consequences and no material impact on the
market for the Corporation's common stock is expected. The articles of
incorporation and bylaws of the new corporation will be similar to those
of the Corporation; and
the new corporation will have a capital structure identical to that of the
Corporation, as shown in the financial statements contained in the
accompanying annual report to stockholders. The rights of stockholders
under Nevada law will be similar to their former rights under Delaware law.
The officers, directors, employees and executive offices of the Corporation
will not change, and the new corporation will succeed to all assets and
liabilities of the Corporation. After the effective date, the Nevada
corporation will be operated in the same manner as the Corporation,
with the same policy as to dividends and similar matters.
The proposal must be approved by the holders of a majority of the
Corporation's outstanding shares, and is subject to approval by the Federal
Reserve Board.
THE BOARD OF DIRECTORS RECOMMENDS ADOPTION OF THE AGREEMENT OF MERGER
CHANGING THE CORPORATION'S DOMICILE.
Ratification of the Selection of Auditors
Pursuant to the Bylaws of the Corporation, stockholders will be asked
to ratify the selection of
Deloitte & Touche, LLP, Pittsburgh, Pennsylvania, as independent auditors of
the Corporation and its sub-
sidiaries for the fiscal year ending December 31, 1997. The firm of Deloitte
& Touche, LLP, as independent auditors has examined the financial statements
of the Corporation and its subsidiaries each year since 1985 and has no
relationship with the Corporation or its subsidiaries except in its capacity
as auditors. In connection with its audit of the Corporation's financial
statements for the years ended December 31, 1985 through 1996, Deloitte &
Touche, LLP, reviewed the Corporation's annual reports to stockholders and its
filings with the Securities and Exchange Commission and conducted reviews of
quarterly reports to stockholders.
The Audit Committee of the Board of Directors recommended to the Board of
Directors that Deloitte
& Touche, LLP, be appointed as independent auditors for the year ended
December 31, 1997. The Board of Directors has made that appointment and
recommends that the stockholders ratify the selection of
Deloitte & Touche, LLP, as independent auditors for the ensuing year.
A representative of Deloitte & Touche, LLP, is not expected to be
present at the meeting . However,
inquiries or questions of Deloitte & Touche, LLP, may be directed to Mr.
Kenneth A. Liss, Partner, Deloitte & Touche, LLP, 2500 One PPG Place,
Pittsburgh, PA 15222-5401, (412) 338-7200.
Other Matters
All properly executed proxies received by the Corporation will be voted
at the meeting in accor-
dance with the specifications contained thereon. The Board of Directors
knows of no other matter
which may properly come before the meeting for action. However, if any other
matter does properly
come before the meeting, the persons named in the proxy materials enclosed
will vote in accordance
with their judgment upon such matter.
Stockholder Proposals
If any stockholder intends to present a proposal at the 1998 Annual
Meeting, such proposals must
be received by the Corporation at its principal executive offices on or before
November 13, 1997.
Otherwise, such proposal will not be considered for inclusion in the
Corporation's Proxy Statement for
such meeting.
You are urged to properly complete, execute and return the enclosed
form of proxy.
By Order of the Board of Directors
John M. Mendez, Secretary to the Board
March 11, 1997
Proxy for Annual Meeting of Stockholders
FCFT, INC. 1001 MERCER STREET, PRINCETON, WEST VIRGINIA 24740
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints Robert L. Schumacher and
Barbara J. Buchanan, or either of them, attorney and proxy with full power of
substitution, to represent the undersigned at the Annual Meeting of the
Stockholders of FCFT, Inc. (the "Corporation") to be held on Tuesday, April 8,
1997, at Bluefield Country Club, Whitethorn Street, Bluefield, West Virginia
24701, at 3:00 p.m., local time, and any adjournment thereof, with all power
then possessed by the undersigned, and to vote, at that meeting or any
adjournment thereof, all shares which the undersigned would be entitled to
vote if personally present.
1. FOR [ ] the election of 4 directors-Class of 2000
James L. Harrison, Sr. A.A. Modena
I. Norris Kantor William P. Stafford, II
WITHHOLD AUTHORITY [ ]
You may withhold authority to vote for any nominee by lining through
or otherwise striking out his name.
2. To adopt the agreement of merger by which the Corporation will change its
corporate domicile from Delaware to Nevada.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To ratify the selection of the firm Deloitte & Touche, LLP, Pittsburgh,
Pennsylvania, as independent auditors for the Corporation for the fiscal year
ending December 31, 1997.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To vote upon such other business as may properly come before this meeting.
CONTINUED ON REVERSE
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF AUTHORITY IS
NOT WITHHELD OR IF NO CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR
ITEMS 1, 2 AND 3 ABOVE.
Dated: _________________________, 1997 ________________________________
Signature of Stockholder
________________________________
Signature of Stockholder
[ ] Please check if you plan to attend the Stockholder's Meeting on April 8,
1997.
Please sign your name(s) exactly as shown imprinted hereon. If more than one
name appears as part of registration name, all names must sign. If acting in
executor, trustee or other fiduciary capacity, please sign as such.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-72616 of FCFT, Inc. on Form S-8 of our report dated January 30, 1997,
appearing in and incorporated by reference in this Annual Report on Form
10-K/A of FCFT, Inc. for the year ended December 31, 1996.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 6, 1997