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22
First Community Bancshares, Inc.
P O Box 5909
Princeton, West Virginia 24740
November 14, 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 10-Q.
Sincerely,
First Community Bancshares, Inc.
Vivian Perry
Financial Accountant
1
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 1997
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from:__________________ to
__________________
Commission File Number: 0-19297
FIRST COMMUNITY
BANCSHARES, INC.
(Exact name of registrant as specified in its
charter)
Delaware 55-0694814
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
1001 Mercer Street, Princeton, West Virginia 24740
(Address of principal executive offices) (Zip Code)
(304) 487-9000
(Registrant's telephone
number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports
required to be filed by Section 13 of 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 the number of shares outstanding of each of the issuer's
classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31,
1997
Common Stock, $1 Par Value 5,650,932
2
First Community Bancshares, Inc.
FORM 10-Q
For the quarter ended September 30, 1997
INDEX
PART I. FINANCIAL INFORMATION REFERENCE
Item 1. Financial Statements
Consolidated Balance Sheets September 30, 1997 and
December 31, 1996 4
Consolidated Statements of Income for the
Three and Nine Month Periods Ended September 30, 1997 and
1996 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 6
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 30,
1997 and 1996 7
Notes to Consolidated Financial Statements8-10
Independent Accountants' Report 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of19
Security Holders
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K19, 20, 22
SIGNATURES 21
3
ITEM 1. FINANCIAL STATEMENTS
First Community Bancshares, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited) September 30 December 31
(Amounts in Thousands except share data) 1997
1996
Assets:
Cash and due from banks $ 35,779 $ 27,347
Federal funds sold 29,580 --
Securities available for sale (amortized cost
of $134,255, September 30, 1997; $135,404,
December 31, 1996) 135,819 136,113
Investment securities:
U.S. Treasury securities 4,598 8,247
U.S. Government agencies and corporations 34,671
43,494
States and political subdivisions 78,208 47,532
Other securities 1,057 1,055
Total Investment Securities (market
value, $120,955, September 30, 1997; $101,200
December 31, 1996) 118,534 100,328
Total loans, net of unearned income 666,601 547,703
Less: reserve for possible loan losses 10,143 8,987
Net loans 656,458 538,716
Premises and equipment, net 17,825 12,334
Other real estate owned 2,279 2,225
Interest receivable 7,360 6,341
Other assets 9,603 10,122
Intangible assets 26,768 4,116
Total Assets $1,040,005 $837,642
Liabilities:
Deposits, non-interest bearing $ 106,496 $ 89,902
Deposits, interest-bearing 743,675 553,595
Total Deposits 850,171 643,497
Interest, taxes and other liabilities 13,050 11,217
Federal funds purchased -- 25,468
Securities sold under agreement to repurchase 54,575
53,031
Other indebtedness 26,247 15,126
Total Liabilities 944,043 748,339
Stockholders' Equity:
Common stock, $1 par value in 1997 and $5 par value
in 1996; 10,000,000 shares authorized; 5,755,741 issued
in 1997 and 1996; 5,650,932 and 5,650,205 shares outstanding
in 1997 and 1996, respectively 5,756 28,779
Additional paid-in capital 37,587 14,564
Retained earnings 52,952 46,815
Treasury stock, at cost (1,271) (1,288)
Unrealized gain on securities available for sale 938
433
Total Stockholders' Equity 95,962 89,303
Total Liabilities and Stockholders' Equity $1,040,005
$837,642
See Notes to Consolidated Financial Statements.
4
First Community Bancshares, Inc.
CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
(Amounts in Thousands, Except Nine Months Ended Three
Months Ended
Share and Per Share Data) September 30 September 30
1997 1996 1997 1996
Interest Income:
Interest and fees on loans $43,311 $37,371 $15,496 $13,115
Interest on securities available for sale6,758 5,466 2,248
1,830
Interest on investment securities:
U.S. Treasury securities 280 635 75 184
U.S. Government agencies and corporations 1,797 2,630
551 875
States and political subdivisions2,179 1,878 836
567
Other securities 64 62 22 19
Interest on federal funds sold 568 117 272 3
Interest on deposits in banks 35 25
12 0
Total Interest Income 54,992 48,184 19,512
16,593
Interest Expense:
Interest on deposits 20,413 17,150 7,490 5,805
Interest on borrowings 3,084 2,831 1,119
1,113
Total Interest Expense 23,497 19,981 8,609
6,918
Net Interest Income 31,495 28,203 10,903 9,675
Provision for possible loan losses 2,453 1,657
736 621
Net Interest Income After Provision for
Possible Loan Losses 29,042 26,546 10,167
9,054
Non-Interest Income:
Fiduciary income 1,155 1,203 362 422
Service charges on deposit accounts 2,337 2,199 865
755
Other charges, commissions and fees 2,189 1,699 777
558
Investment securities losses -- (165) -- --
Other operating income 429 583 119
100
Total Non-Interest Income 6,110 5,519
2,123 1,835
Non-Interest Expense:
Salaries and employee benefits8,768 7,302 3,082 2,396
Occupancy expense of bank premises 1,313 1,291 534
422
Furniture and equipment expense1,198 1,028 507 313
Other operating expense 7,442 6,656 3,182
2,387
Total Non-Interest Expense 18,721 16,277
7,305 5,518
Income before income taxes 16,431 15,788 4,985 5,371
Income tax expense 5,208 4,836 1,598
1,720
Net Income $11,223 $10,952 $ 3,387 $
3,651
Net income per common share $ 1.99 $ 1.95
$ .60 $ .65
Weighted average shares outstanding5,650,2565,614,296 5,650,355
5,646,873
See Notes to Consolidated Financial Statements.
5
First Community Bancshares, Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Thousands)
Nine Months Ended
September 30 September 30
1997 1996
Cash Flows From Operating Activities:
Net income $ 11,223 $ 10,952
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses2,453 1,657
Depreciation of premises and equipment 819 658
Amortization of intangibles 332 474
Investment amortization and accretion, net (120) 40
(Gain) Loss on the sale of assets, net (74) 130
Other liabilities, net (1,452) 178
Interest receivable (30) 774
Other assets, net 1,523 (1,439)
Other, net 51 (34)
Net cash provided by operating activities 14,725
13,390
Cash Flows From Investment Activities:
Increase (decrease) in cash realized from:
Sales of securities available for sale --
11,016
Maturities and calls of investment securities 19,996
22,789
Maturities and calls of securities available for sale19,285
13,279
Purchase of investment securities(28,005) (2,915)
Purchase of securities available for sale (5,646)
(19,678)
Loans to customers, net (21,435) (64,655)
Purchase of equipment (862) (228)
Sale of equipment 5 41
Net cash provided by acquisitions 39,714 18,771
Net cash provided by (used in) investment activities
23,052 (21,580)
Cash Flows From Financing Activities:
Increase (decrease) in cash realized from:
Demand and savings deposits, net(3,962) 1,194
Time deposits, net 22,299 8,155
Short-term borrowings, net (23,924) 5,550
Increase in long-term debt 11,500 --
Payment of long-term debt (609) (8)
Acquisition of treasury stock -- (170)
Reissuance of treasury stock 17 1,420
Cash dividends paid (5,086) (4,161)
Net cash provided by financing activities 235
11,980
Net increase in cash and cash equivalents 38,012 3,790
Cash and cash equivalents at beginning of year 27,347
26,275
Cash and cash equivalents at end of quarter $65,359
$30,065
See Notes to Consolidated Financial Statements.
6
First Community Bancshares, Inc.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(Unaudited) Unrealized
(Amounts in Thousands, Except Gain (Loss)
Share and Per Share Data) Additional on
Securities
Common Paid-In Retained Treasury Available
Stock Capital Earnings Stock for Sale
Balance beginning of
the period,
January 1, 1996$ 28,779 $ 14,564$ 39,319$ (2,646)$ 391
Net Income -- -- 10,952 -- --
Common dividends
declared ($.74
per common share) -- -- (4,161) -- --
Purchase of 6,375
shares at $26.74
per share -- -- -- (170) --
Reissuance of 59,164 shares
at $24.57 per share -- (33) -- 1,453 --
Unrealized net loss
on securities available
for sale -- -- -- --
(949)
Balance, September 30, 1996 $28,779 $14,531 $46,110 $(1,363) $(558)
Balance beginning of
the period,
January 1, 1997 $28,779 $14,564 $46,815$(1,288) $433
Net income -- -- 11,223 -- --
Common dividends
declared ($.90
per common share) -- -- (5,086) -- --
Reissuance of 727 shares
at $24.38 per share -- -- -- 17 --
Change in par value from
reorganization (23,023) 23,023 -- -- --
Unrealized net gain on
securities available
for sale -- -- -- -- 505
__________ __________ __________________ _______
Balance, September 30, 1997 $5,756 $37,587 $52,952
$(1,271) $938
See Notes to Consolidated Financial Statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Reorganization and Name Change
On September 30, 1997 the Company, formerly known as FCFT, Inc.,
merged with
and into First Community Bancshares, Inc., a Nevada corporation,
formed to
facilitate the change of the Company's state of domicile from
Delaware to
Nevada and to effect the change in name. The change in domicile
is intended
to achieve reduced franchise taxes while the change in name was
designed to
align the parent company image with that of its affiliate banks.
The
reorganization had no impact on the ownership of the company and
its
affiliates other than those described above. In this
reorganization the par
value of the Company's common stock was reduced from $5 per share
to $1 per
share.
Note 2. Unaudited Financial Statements
The unaudited consolidated balance sheet as of September 30, 1997
and the
unaudited consolidated statements of income, cash flows and
changes in
stockholders' equity for the periods ended September 30, 1997 and
1996 have
been prepared by the management of First Community Bancshares,
Inc. (FCBI).
In the opinion of management, all adjustments (including normal
recurring
accruals) necessary to present fairly the financial position of
FCBI and
subsidiaries at September 30, 1997 and its results of operations,
cash flows,
and changes in stockholders' equity for the periods ended
September 30, 1997
and 1996, have been made. These results are not necessarily
indicative of the
results of consolidated operations for the full calendar year.
The consolidated balance sheet as of December 31, 1996 has been
extracted
from audited financial statements included in the Company's 1996
Annual
Report to Shareholders. Certain information and footnote
disclosure normally
included in financial statements prepared in accordance with
generally
accepted accounting principles have been omitted. It is
suggested that these
financial statements should be read in conjunction with the
financial
statements and notes thereto included in the 1996 Annual Report
of FCBI.
Note 3. Acquisitions
On April 9, 1997, FCBI acquired 100% of the 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. Pursuant to the Agreement and Plan
of merger,
FCFT exchanged cash of $19.50 for each of Blue Ridge's 1,212,148
common
shares. In conjunction with the acquisition, Blue Ridge
cancelled outstanding
stock options through the payment of $727,948 representing the
difference
between $19.50 and the respective option prices. Total
consideration
including the payment for cancellation of the options was $24.7
million and
resulted in an intangible asset of approximately $13.2 million
which is being
amortized over a 15 year period. The acquisition was partially
funded with
loan proceeds of $11.5 million which the Company borrowed from an
outside
source. The loan agreement has certain covenants that may
restrict the
payment of dividends to stockholders in the event of default
along with
other customary borrowing provisions. The acquisition was
accounted for under
the purchase method of accounting. Accordingly, results of
operations of Blue
Ridge are included in consolidated results of FCBI from the date
of
acquisition. Subsequent to the merger, Blue Ridge operates as a
wholly-owned
subsidiary of FCBI.
8
The following unaudited proforma financial information shows the
effect of the
Blue Ridge Bank acquisition as if the transaction were
consummated on the
first day of each period presented:
First Community Bancshares, Inc.
Proforma Financial Information
(Amounts in thousands except per share data)
Nine Months EndedThree months ended
September 30 September 30
1997 1996 1997 1996
Net Interest Income $32,465 $52,271
$10,903 $11,031
Net Income $10,718 $11,414 $ 3,387
$ 3,794
Net Income per common share$ 1.90 $ 2.03
$ .60 $ .67
At the close of business on July 24, 1997, First Community Bank
of Southwest
Virginia, Inc., formerly Citizens Bank of Tazewell, Inc., the
Virginia
subsidiary of FCBI acquired the Clintwood, Virginia branch of
First Virginia
Bank-Mountain Empire; the Pound, Virginia branch of Premier Bank-
Central,
N.A.; and the Fort Chiswell, Virginia branch of Premier Bank-
South, N.A.
The acquisition of these branches added approximately $44 million
in deposits.
The intangible value of this transaction totaled approximately
$4.6 million
and is being amortized over a 15 year period. This acquisition
was accounted
for under the purchase method of accounting. Accordingly, the
results of
operations of the Clintwood, Pound and Fort Chiswell branches are
included in
consolidated results only from the date of acquisition.
At the close of business on September 26, 1997, First Community
Bank , Inc.,
a subsidiary of FCFT, Inc., acquired the Man, West Virginia
branch of
Huntington National Bank, West Virginia ("Huntington"). The
acquisition of
this branch added approximately $51 million in deposits The
intangible
value of this transaction totaled approximately $4.9 million
which is being
amortized over a 15 year period. This acquisition was accounted
for under the
purchase method of accounting; therefore, the operations of the
Man branch
will be included in consolidated results of operations only from
the date of
acquisition.
On August 1, 1997, First Community Bank of Southwest Virginia,
Inc., commenced
banking operations at its de-novo branch in Wytheville, Virginia.
Note 4. Cash Flows
For the nine months ended September 30, 1997 and 1996, for
purposes of
reporting cash flows, cash and cash equivalents include cash and
due from
banks and interest-bearing balances available for immediate
withdrawal of
$35.8 million at September 30, 1997 and $30.1 million at
September 30, 1996,
and federal funds sold of $29.6 million at September 30, 1997.
Note 5. Commitments and Contingencies
The Company is currently a defendant in various actions most of
which involve
lending and collection activities in the normal course of
business, some of
which have remained dormant for a number of years. Certain of
these actions
are described in greater detail in the Company's 1996 Report on
Form 10-K.
While the Company and legal counsel are unable to assess the
outcome of each
of these matters, they are of the belief that the resolution of
these actions
should not have a material adverse affect on the financial
position or results
of operations of the Company. In addition to the above
referenced matters,
the following action was filed in the third quarter of 1997.
In August, 1997 the Company was named as a defendant in a suit
seeking to
overturn the establishment of a private foundation for which the
Company's
Trust Division serves as trustee. The suit filed by heirs of the
foundation
donor, seeks a total of $6 million in compensatory and punitive
damages as
well as the termination of the foundation. The company and
trustee believe
the creation and operation of the foundation represent the intent
and will of
the donor and intend to defend the suit and the continuation of
the
foundation's purpose. Both management and the Company's legal
counsel are of
the opinion that this suit is without merit and will be
9
successfully defended with no material adverse impact on the
Company's
financial condition or results of operations.
Note 6. Common Stock
In the first quarter of 1997, the Company declared a five-for-
four stock
split. Accordingly, $5.8 million was transferred from additional
paid-in
capital to common stock, representing the par value of the new
shares issued.
All balance sheet amounts as well as all share and per share
amounts reported
herein have been adjusted for the stock split.
10
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
of First Community Bancshares, Inc.
We have reviewed the accompanying consolidated balance sheet of
First
Community Bancshares, Inc. (FCBI) and subsidiaries as of
September 30, 1997,
and the related consolidated statements of income, changes in
stockholders'
equity and cash flows for the three-month and nine-month periods
ended
September 30, 1997 and 1996. These financial statements are the
responsibility of the Corporation's management.
We conducted our review in accordance with standards established
by the
American Institute of Certified Public Accountants. A review of
interim
financial information consists principally of applying analytical
procedures
to financial data and of making inquiries of persons responsible
for
financial and accounting matters. It is substantially less in
scope than an
audit conducted in accordance with generally accepted auditing
standards,
the objective of which is the expression of an opinion regarding
the financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material
modifications that
should be made to such consolidated financial statements for them
to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing
standards, the consolidated balance sheet of FCBI and
subsidiaries as of
December 31, 1996, and the related consolidated statements of
income, changes
in stockholders' equity, and cash flows for the year then ended
(not presented
herein); and in our report dated January 30, 1997, we expressed
an unqualified
opinion on those consolidated financial statements. In our
opinion, the
information set forth in the accompanying consolidated balance
sheet as of
December 31, 1996, is fairly stated, in all material respects, in
relation to
the consolidated balance sheet from which it has been derived.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
October 31 , 1997
11
FCBI
PART 1. ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis is provided to address information
about
the Company's financial condition and results of operations which is not
otherwise apparent from the consolidated financial statements incorporated
by
reference or included in this report. This discussion and analysis should
be
read in conjunction with the 1996 Annual Report to Shareholders and the
other
financial information included in this report.
RESULTS OF OPERATIONS
The Company reported net income of $11.2 million for the nine
month period
ended September 30, 1997, a 2.5% increase over net income of $10.9
million
for the same period in 1996. Earnings per common share between
the same
periods increased 2.1%, from $1.95 to $1.99.
The improvement in earnings for 1997 can be primarily attributed
to a $3.3
million increase in net interest income compared with the same
period in 1996
including $2.9 million contributed through the Blue Ridge
acquisition. In
May of 1997, $700,000 in litigation reserves were reversed,
resulting in an
after-tax contribution of $420,000 to current year results. The
reversal
was the result of a final settlement of the dispute at
substantially lower
sums than previously anticipated. Non-interest income for the
nine month
period ended September 30, 1997 increased $591,000 over the
comparable period
in 1996, $299,000 of which was due to the Blue Ridge acquisition.
Non-interest expense for the nine month period ended September 30,
1997
increased $2.4 million over the comparable period in 1996 with
Blue Ridge
contributing $2.3 million for the period since April 9, 1997, the
date of
acquisition. Offsetting the impact of Blue Ridge on non-interest
expense for
1997 was the $700,000 reversal of litigation reserves which is
reflected as a
reduction in non-interest expense. The net contribution by Blue
Ridge in its
first six months of affiliated operations was $846,000. Provision
for
possible loan losses for the nine month period ended September 30,
1997
increased $796,000 over the comparable period in 1996. Also, the
Company's
tax position resulted in an increase in the effective tax rate
from 30.6%
through September 30, 1996 to the 1997 level of 31.7%. These
increases in
provision for possible loan losses and income tax expense offset a
portion of
the improvement in pre-tax earnings between the periods.
The amounts presented for 1996 have been restated to reflect the
effect of the
change in the number of outstanding shares as a result of the
March 31, 1997,
5-for-4 stock split as well as the affiliation with First
Community Bank of
Southwest Virginia, Inc., which was accounted for as a pooling-of-
interests.
Net Interest Income
Net interest income, the largest contributor to earnings, was
$31.5 million
for the first nine months of 1997 as compared with $28.2 million
for the
corresponding period in 1996. For the third quarter of 1997, net
interest
income reached $10.9 million, an increase of 12.7% over the $9.7
million
reported for the third quarter of 1996. Tax equivalent net
interest income
was $33.4 million for the nine months ended September 30, 1997, a
$3.4
million increase over the $30.0 million reported for the same
period in 1996.
The increase in net interest income to record levels was the
result of
increases in the average balances of earning assets driven largely
by the
acquisition of Blue Ridge in North Carolina and four branches in
West
Virginia and Virginia. The Company's tax equivalent net interest
margin,
the ratio of tax equivalent net interest income to average earning
assets, of
5.29% at September 30, 1997 decreased slightly from 5.39% at
September 30,
1996.
12
Loans, the Company's highest yielding asset category, increased,
on average,
$84.8 million ($44.8 million or 53% due to the Blue Ridge
acquisition and
$5.8 million or 7% due to branch acquisitions) when comparing
September 1997
average balances to the corresponding average in 1996. This
increase in the
loan portfolio was funded through increases in average deposits of
$107.2
million. The yield on the loan portfolio was 9.75% for the first
nine months
of 1997, down slightly from 9.81% on the corresponding date in
1996. The
yield on securities available for sale improved from 6.63% in 1996
to 6.92% in
1997. The overall yield on average earning assets increased 4
basis points
from 8.98% for the nine months ended September 30, 1996 to 9.02%
for the
corresponding period in 1997.
Market conditions left rates on short-term borrowings, time
deposits, and
short-term deposits, such as interest-bearing demand deposits, and
savings
accounts substantially unchanged. Excluding long term debt, the
overall cost
of funding sources increased only 3 basis points between September
30, 1996
and 1997.
13
NET INTEREST
INCOME ANALYSIS
Nine Months Ended Nine Months Ended
(Unaudited) September 30, 1997 September
30, 1996
(Amounts in Average Interest Yield/Rate Average
Interest Yield/Rate
Thousands) Balance (1) (2) (2) Balance (1) (2) (2)
Earning Assets:
Loans (3)
Taxable $584,264 $42,498 9.72% $499,691 $36,521 9.76%
Tax-Exempt 15,718 1,253 10.66% 15,488 1,30811.28%
Total 599,982 43,751 9.75% 515,179 37,829 9.81%
Reserve for Possible
Loan Losses (9,683) (8,716)
Net Total 590,299 506,463
Securities Available
for Sale:
Taxable 121,993 6,130 6.72% 101,669 4,815 6.33%
Tax-Exempt 15,205 966 8.49% 15,500 1,001 8.62%
Total 137,198 7,096 6.92% 117,169 5,816 6.63%
Investment Securities
Held to Maturity:
Taxable 48,580 2,188 6.02% 69,060 3,376 6.53%
Tax-Exempt 53,574 3,278 8.18% 47,072 2,8137.98%
Total 102,154 5,466 7.15% 116,132 6,1897.12%
Interest-Bearing Deposits 444 35 10.54% 869 25 3.84%
Federal Funds Sold 13,831 5685.49% 2,906 1165.33%
Total Earning Assets843,926 56,9169.02% 743,539 49,9758.98%
Other Assets 73,216 53,540
Total $917,142 $797,079
Interest-Bearing Liabilities:
Interest-bearing Demand
Deposits$105,089 2,153 2.74% $ 92,180 1,864 2.70%
Savings Deposits139,1333,195 3.07% 134,512 3,115 3.09%
Time Deposits385,172 15,065 5.23% 309,667 12,171 5.25%
Short-Term Borrowings 62,439 2,035 4.36% 65,182 2,175 4.46%
Other Indebtedness 21,670 1,049 6.47% 15,132 656
5.79%
Total Interest-Bearing 713,503 23,497 4.40% 616,673 19,981
4.33%
Liabilities
Demand Deposits 96,948 82,796
Other Liabilities13,808 13,317
Stockholders' Equity 92,883 84,293
Total $917,142 $797,079
Net Interest Earnings $33,419 $29,994
Net Interest Spread 4.61% 4.65%
Net Interest Margin 5.29% 5.39%
(1) Interest amounts represent taxable equivalent results for
the first nine months of 1997 and 1996.
(2) Fully Taxable Equivalent-using the statutory rate of 35%.
(3) Non-accrual loans are included in average balances
outstanding with no related interest income.
14
Provision and Reserve for Possible Loan Losses
In order to maintain a balance in the reserve for possible loan
losses which
is sufficient to absorb potential loan losses, charges are made
to the
provision for possible loan losses (provision). The provision
for possible
loan losses was $2.45 million for the nine months ended September
30, 1997
compared with $1.66 million for the corresponding period in 1996.
The
provision for 3rd quarter 1997 was $736,000, compared to $621,000
for 3rd
quarter 1996, an increase of 18%, reflecting elevated charge-offs
for the
quarter as indicated below.
Net charge-offs for the nine months ended September 30, 1997 were
$3.3 million
as compared to $855,000 for the corresponding period in 1996.
Expressed as a
percentage of loans, net charge-offs were .49% for the nine month
period ended
September 30, 1997 and .16% for the corresponding period in 1996.
The
increase in net charge offs between the two periods includes the
impact of
elevated losses in the company's credit card division, indirect
auto lending
and two larger charge offs of $819,000 on a local auto dealership
and $276,000
on a commercial account bankruptcy.
The reserve for possible loan losses totaled $10.1 million at
September 30,
1997 and $9 million at December 31, 1996 resulting in reserve to
loan ratios
of 1.52% and 1.64% for the respective balance sheet dates.
The coverage ratio represents the percentage of non-performing
loans covered
through available reserves. As of September 30, 1997, this ratio
was 73.7%
as compared to 78.8% at September 30, 1996 and 143.7% at December
31, 1996.
Management continually evaluates the adequacy of the reserve for
possible loan
losses and makes specific adjustments to it based on the results
of risk
analysis in the credit review process, the recommendation of
regulatory
agencies, and other factors, such as loan loss experience and
prevailing
economic conditions. Management considers the level of reserves
adequate
based on the current risk profile in the loan portfolio.
However, there can
be no assurance that the Company will not sustain losses in
future periods,
which could be substantial in relation to the size of the reserve
at September
30, 1997.
Non-Interest Income
Non-interest income consists of all revenues which are not
included in
interest and fee income related to earning assets. Total non-
interest income
increased $591,000, or 10.7% from $5.5 million for the nine
months ended
September 30, 1996 to $6.1 million for the corresponding period
in 1997. A
loss of $165,000 on the sale of investment securities is included
in the 1996
operating results as the Company repositioned a portion of its
available for
sale investment portfolio for improved performance. In addition,
1997 results
for the first nine months reflected an increase of $486,000 in
credit card
fees due to continued growth in the credit card portfolio and
merchant
accounts.
Included in other operating income for 1996 are the proceeds of
officers life
insurance totalling $295,000. These proceeds account for the
decrease in
other operating revenues between 1996 and 1997.
Non-interest income for the third quarter of 1997 increased
$288,000 (15.7%)
from the comparable period one year earlier. Included in third
quarter
results for 1997 is the impact of Blue Ridge, which contributed
$156,000 while
credit card fees increased $196,000 over third quarter 1996.
Non-Interest Expense
Non-interest expense totaled $18.7 million in the nine months
ended September
30, 1997 increasing $2.44 million over the corresponding period
in 1996.
This increase which was centered in salaries and employee
benefits ($1.47
million) and other operating expense of $823,000, principally
reflect the
impact of 1997 acquisitions. Increases in salaries and employee
benefits
include the impact of two branch acquisitions in September 1996
as well as
the impact of the Blue Ridge Bank acquisition in April 1997 which
added
approximately $1 million in new salary and benefit costs and the
addition of
the Virginia branches in July 1997. The increase in other
operating costs
reflects the addition of intangible amortization related to Blue
Ridge
($457,000) and other branch acquisitions ($104,000).
15
In comparing third quarter of 1997 with third quarter of 1996,
non-interest
expense increased $1.8 million or 32.4%. 1997 results include
Blue Ridge
which added $1.1 million to the Company's total non-interest
expense.
Excluding Blue Ridge, third quarter 1997 reflects an increase of
$190,000 in
salaries and benefits due, in part, related primarily to branch
acquisitions
in September 1996 which added $49,000 in new salary and benefit
costs.
Income Tax Expense
Income tax expense increased $372,000 from $4.8 million in 1996
to $5.2
million for the corresponding period in 1997. This increase in
taxes is
principally the result of the increases in pre-tax income of
$643,000 or 4.1%
when comparing the nine months ended September 30, 1997 with the
corresponding
period in 1996. The effective tax rate for 1997 was 31.7% versus
30.6% in
1996. For the third quarter of 1997, the Company reported $1.6
million in
income tax expense, a decrease of $122,000 from the $1.7 million
reported for
the same period one year earlier, reflecting the drop in
quarterly earnings.
The effective tax rate was a constant 32% for both the third
quarter of 1996
and 1997.
FINANCIAL POSITION
Securities
Securities totaled $254.4 million at September 30,1997 which
represented an
increase of $17.9 million from December 31, 1996. The
acquisition of Blue
Ridge Bank in the second quarter of 1997 contributed
approximately $22.6
million to the securities portfolio. An offsetting decrease in
the portfolio
as a result of routine maturities was used to reduce the
wholesale funding
from the Federal Home Loan Bank.
Securities available for sale were $135.8 million at September
30, 1997 as
compared to $136.1 million at December 31, 1996. Securities
available for
sale are recorded at their fair market value. The unrealized
gain or loss,
which is the difference between book value and market value, net
of related
deferred taxes, is recognized in the Stockholder's Equity section
of the
balance sheet. The unrealized gain after taxes of $433,000 at
December 31,
1996, increased $505,000 to $938,000 at September 30, 1997.
Investment securities, which are purchased with the intent to
hold until
maturity, totaled $118.5 million at September 30, 1997 as
compared to $100.3
million at December 31, 1996. The market value of investment
securities at
September 30, 1997 was 102% of book value as compared with 100.9%
at December
31, 1996, reflecting a slight increase in the bond market.
Loans
The Company's lending strategy stresses quality growth,
diversified by
product, geography, and industry. A common credit underwriting
structure and
review process is in place throughout the Company.
Total loans increased $118.9 million from $547.7 million at
December 31, 1996
to $666.6 million at September 30, 1997, with the acquisition of
Blue Ridge
Bank in the second quarter of 1997, contributing approximately
$66 million
to the loan portfolio. An additional $34.8 million was
contributed by branch
acquisitions in July and September. The loan to deposit ratio
decreased from
85% at December 31, 1996 to 78% at September 30, 1997, reflecting
the lower
loan to deposit ratios of Blue Ridge and the acquired branches.
Average total loans have increased $84 million over the last
twelve months
due in large part to acquisitions described above. However, the
company
continues to realize significant loan demand in and around its
primary
markets. The loan portfolio continues to be diversified among
loan types and
industry segments. Commercial and commercial real estate loans
represent
the largest portion of the portfolio, comprising $252.6 million
or 37.9% of
total loans at September 30, 1997 and $246.1 million or 45% of
total loans at
December 31, 1996. Residential real estate loans increased to
$245.5
million or 36.8% of the total portfolio at September 30, 1997 as
compared to
$171.5 million or 31% at December 31, 1996. This increase in
residential real
estate loans was due largely to the Blue Ridge affiliation which
contributed
$32.6 million. While loans to individuals increased in volume
from $119.3
million at December 31, 1996 to $150.7 million at September 30,
1997, the
percentage of the total portfolio remained level at 22% for both
periods.
16
Non-Performing Assets
Non-performing assets are comprised of loans on non-accrual
status, loans
contractually past due 90 days or more and still accruing
interest and other
real estate owned (OREO). Non-performing assets were $16.0
million at
September 30, 1997, or 2.4% of total loans and OREO, compared
with $8.5
million or 1.5% at December 31, 1996. The following schedule
details
non-performing assets by category at the close of each of the
last five
quarters:
(In Thousands) September 30 June 30 March 31 December
31 September 30
1997 1997 1997 1996 1996
Non-Accrual $11,507 $7,173 $7,096 $5,476 $6,620
Ninety Days Past Due 2,255 2,674 5,189 780 4,960
Other Real Estate Owned 2,279 2,483 2,450 2,225 1,969
$16,041 $12,330 $14,735 $8,481 $13,549
Restructured loans
performing in accordance
with modified terms$ 381$ 547$ 394$ 401 $ 405
Non-accrual loans and loans ninety days past due increased $6.0
million and
$1.5 million, respectively, when comparing September 30, 1997 and
December
31, 1996. The increase in non-accrual loans is due primarily to
three
relationships. The most significant is a local furniture
manufacturer
amounting to $4.5 million. This company ceased operations in
October 1997.
Repayment of these loans is expected from the liquidation of
assets and
collection from the guarantors. Preliminary discussions on the
sale of the
building are underway and liquidation of the loans should be
complete by the
end of the first quarter 1998.
A second relationship is a plastic film manufacturer, with loans
in the amount of
$565,000. The Company has begun foreclosure proceedings and is
in
the process of liquidating. The Company anticipates that
proceeds from the
sale of repossessed equipment will be sufficient to recover the
debt and
no material loss is expected. The third relationship
contributing to the
increase in non-accrual loans is a community hospital, in the
amount of
$652,000. The hospital has filed for relief under Chapter 11 of
the U.S.
Bankruptcy code. This loan is 80% guaranteed by the FHA and is
continuing
to make reduced principal payments.
As of September 30, the increase in ninety-days past due was due
largely to
the Blue Ridge affiliate which accounted for $443,000 or 30% of
the increase.
Another portion of the increase was a single relationship of
$149,000 which
paid in full in October, 1997. The remainder of the increase in
90 days past
due was comprised of a number of less significant loans.
Management believes that the extent of problem loans at September
30, 1997 is
disclosed as non-performing assets in the preceding chart.
However, there
can be no assurance that future circumstances, such as further
erosions in
economic conditions and the related potential effect that such
erosions may
have on certain borrowers' ability to continue to meet payment
obligations,
will not lead to an increase in problem loan totals. Management
further
believes that non-performing asset carrying values will be
substantially
recoverable after taking into consideration the adequacy of
applicable
collateral and, in certain cases, partial writedowns which have
been taken
and allowances that have been established.
17
Stockholders' Equity
Total stockholders' equity reached $95.9 million at September 30,
1997
increasing $6.6 million over the $89.3 million reported for
December 31, 1996.
The increase in stockholders' equity was the result of earnings
net of
dividends of $6.1 million. Also contributing to the improvement
in equity
was an increase of $505,000 in the unrealized gain on securities
available
for sale, rising from $433,000 at December 31, 1996 $938,000 at
September
30, 1997.
The Federal Reserve's risk based capital guidelines and leverage
ratio measure
capital adequacy of banking institutions. Risk-based capital
guidelines
weight balance sheet assets and off-balance commitments based on
inherent
risks associated with the respective asset types. At September
30, 1997, the
company's risk adjusted capital-to-asset ratio was 10.33% as
compared to
17.02% at December 31, 1996. The company's leverage ratio at
September 30,
1997 was 7.17% compared with 10.33% at December 31, 1996. Both
the risk
adjusted capital-to-asset ratio and the leverage ratio exceed the
current
minimum levels prescribed for bank holding companies of 8% and
3%,
respectively.
Liquidity
The Company maintains a significant level of liquidity in the
form of cash
and due from bank balances ($35.8 million), investment securities
available
for sale ($135.8 million), federal funds sold ($29.6 million),
and Federal
Home Loan Bank of Pittsburgh credit availability of $162 million.
Cash
advances from the Federal Home Loan Bank of Pittsburgh are
immediately
available for satisfaction of deposit withdrawals, customer
credit needs and
operations of the Company. Investment securities available for
sale represent
a secondary level of liquidity available for conversion to liquid
funds in the
event of extraordinary needs.
18
FCBI, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) In August 1997, the Company was named as a defendant in
civil matter
number 97-CU-408-K in Circuit Court of Mercer County, West
Virginia styled
Ann Tierney Smith, as Executrix of the Estate of Katherine B.
Tierney, Ann
Barclay Smith and Lawrence E. Tierney Smith vs. FCFT, Inc.,
Gentry, Locke,
Rakes & Moore, and William Gust. This proceeding seeks $3
million in
compensatory damages as well as $3 punitive damages and the
termination of a
charitable foundation trusteed by the Company through its Trust
Division.
The suit, filed by heirs of the foundation donor, alleges the
establishment of
the foundation was motivated by the Company for its own interest
in
controlling Registrant stock which is held in the foundation as
its primary
asset. The donor's legal counsel is also named as a defendant
alleging he did
not act independent of the Company due to his firm's relationship
as counsel
for securities and employee benefits matters.
The Company and legal counsel in this matter are of the opinion,
at this time,
that the establishment of the foundation reflects the will and
intent of the
donor and that it will prevail in its defense of the suit with no
material
adverse impact on the Company's financial condition or results of
operations.
Item 2. Changes in Securities
(a) N/A
(b) N/A
Item 3. Defaults Upon Senior Securities
(a) N/A
(b) N/A
Item 4. Submission of Matters to a Vote of Security Holders
(a) N/A
Item 5. Other Information
(a) N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 15 - Letter regarding unaudited interim financial
information
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K regarding the Company's merger
with the new
Nevada corporation to change its state of domicile and its
corporate name
was filed on November 3, 1997.
19
November 14, 1997
To the Board of Directors and Stockholders
of First Community Bancshares, Inc.
Dear Sirs:
We have made a review, in accordance with standards established
by the
American Institute of Certified Public Accountants, of the
unaudited interim
financial information of FCBI and subsidiaries for the periods
ended September
30, 1997 and 1996, as indicated in our report dated October 31,
1997; because
we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included
in your
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997, is
incorporated by reference in Registration Statement No. 33-72616
on Form S-8
and Registration Statement No. 333-2996 on Form S-4.
We also are aware that the aforementioned report, pursuant to
Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration
Statement prepared or certified by an accountant or a report
prepared or
certified by an accountant within the meaning of Sections 7 and
11 of that
Act.
Yours truly,
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
20
SIGNATURES
Pursuant to the requirements 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.
First Community Bancshares, Inc.
DATE: November 14, 1997
______________________________
James L. Harrison, Sr.
President & Chief Executive Officer
(Duly Authorized Officer)
DATE: November 14, 1997
______________________________
John M. Mendez
Vice President & Chief Financial Officer
(Principal Accounting Officer)
21