SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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: 0-19618
FIRST COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1833586
(State or Other Jurisdiction (IRS Employer Id. No.)
of Incorporation or Organization)
210 East Harriman Bargersville, Indiana 46106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 422-5171
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:Common Stock,
No Par Value
PART II
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's Financial Statements are included in a separate section of
this Annual Report begining on page F-1.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements. The following information appears
elsewhere in this Annual Report on Form 10-K on the pages indicated
Page
Independent Auditor's Report on consolidated financial statements. F-1
Consolidated Balance Sheet at December 31, 1997 and 1996 F-2
Consolidated Statement of Income for the years ended
December 31, 1997, 1996 and 1995. F-3
Consolidated Statement of Changes In Stockholders'
Equity for the years ended December 31, 1997, 1996 and 1995. F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995. F-5
Notes to consolidated financial statements. F-6
2. Exhibit Index. The following exhibits are included as part of this
Report:
3.1 Articles of Incorporation of First Community Bancshares, Inc.
(Incorporated herein by reference to the Registration Statement on Form
S-4 of First Community Bancshares, Inc. with Registration No. 33-47691
declared effective July 30, 1992).
3.3 Amended Bylaws of First Community Bancshares, Inc. (Incorporated herein
by reference to the Form 10-K of First Community Bancshares, Inc. for
the fiscal year ended December 31, 1992 and filed with the Securities
and Exchange Commission on March 31, 1993, file 0-19618).
10.6 First Community Bancshares, Inc. 1992 Stock Option Plan, as amended and
approved by Shareholders on May 19, 1993 (Incorporated herein by
reference to the Form 10-K of First Community Bancshares, Inc. for the
fiscal year ended December 31, 1993 and filed with the Securities and
Exchange Commission on March 30, 1994)(Commission File No. 0-19618).
2
10.7 Agreement To Purchase Real Estate by and between First Community Bank &
Trust and Mutual Building and Loan Association (Incorporated herein by
reference to the Form 10-K of First Community Bancshares, Inc. for the
fiscal year ended December 31, 1993 and filed with the Securities and
Exchange Commission on March 30, 1994).
10.8 Deferred Director Fee Agreement by and between First Community Bank &
Trust Company and Merrill M. Wesemann Dated November 23, 1994
(Incorporated herein by reference to the Form 10-K of First Community
Bancshares, Inc. for the fiscal year ended December 31, 1994 and filed
with the Securities and Exchange Commission on March 13, 1995).
10.9 First Community Bancshares, Inc. 1996 Stock Option Plan (Incorporated
herein by reference to the First Community Bancshares, Inc. proxy
statement for the 1996 annual shareholders meeting filed with the
Securities and Exchange Commission on March 13, 1996).
10.10 Amendment to the First Community Bancshares, Inc. 1992 Stock Option
Plan, as amended and approved by Shareholders on March 13, 1996
(Incorporated herein by reference to the First Community Bancshares,
Inc. proxy statement for the 1996 annual shareholders meeting filed with
the Securities and Exchange Commission on March 13, 1996).
21 Subsidiaries of First Community Bancshares, Inc. (Incorporated herein by
reference to the Form 10-K of First Community Bancshares, Inc. for the
fiscal year ended December 31, 1992 and filed with the Securities and
Exchange Commission on March 31, 1993, file #0-19618).
27 Financial Data Schedule (Included in electronic version only).
3
SIGNATURES
Pursuant to the requirements of Section 13 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, this
15th day of April, 1998.
FIRST COMMUNITY BANCSHARES, INC.
By:/s/ Albert R. Jackson , III
---------------------------------
Albert R. Jackson, III,
Chief Executive Officer, Chief
Financial Officer, Director, and
Secretary
4
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
- --------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheet 2
Consolidated statement of income 3
Consolidated statement of changes in stockholders' equity 4
Consolidated statement of cash flows 5
Notes to consolidated financial statements 6
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
First Community Bancshares, Inc.
Bargersville, Indiana
We have audited the accompanying consolidated balance sheet of First Community
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated 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 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, the financial statements described above present fairly, in
all material respects, the consolidated financial position of First Community
Bancshares, Inc. and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Indianapolis, Indiana
February 6, 1998
F-1
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31 1997 1996
- ------------------------------------------------------------------------------
Assets
Cash and due from banks $ 933,574 $ 1,059,473
Short-term interest-bearing deposits 10,297,654 5,975,098
-------------------------
Cash and cash equivalents 11,231,228 7,034,571
Investment securities
Available for sale 2,771,058 2,386,358
Held to maturity 1,708,679 2,540,803
-------------------------
Total investment securities 4,479,737 4,927,161
Loans 80,000,575 65,108,481
Allowance for loan losses (848,085) (644,132)
-------------------------
Net loans 79,152,490 64,464,349
Premises and equipment 1,944,779 1,791,873
Federal Home Loan Bank of
Indianapolis stock, at cost 777,800 777,800
Foreclosed real estate 78,636 139,500
Interest receivable 700,079 526,186
Other assets 374,965 417,268
-------------------------
Total assets $98,739,714 $80,078,708
=========================
LIABILITIES
Deposits
Noninterest bearing $ 7,623,814 $ 5,833,251
Interest bearing 80,071,501 64,719,018
-------------------------
Total deposits 87,695,315 70,552,269
Federal Home Loan Bank of
Indianapolis advances 2,929,789 2,378,830
Interest payable 250,617 187,083
Other liabilities 313,987 74,570
-------------------------
Total liabilities 91,189,708 73,192,752
-------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, no-par value
Authorized and unissued-1,000,000 shares
Common stock, no-par par value
Authorized-4,000,000 shares
Issued and outstanding-989,848
and 942,825 shares 6,722,251 6,181,486
Retained earnings and contributed capital 794,796 692,760
Net unrealized gain on securities
available for sale 32,959 11,710
-------------------------
Total stockholders' equity 7,550,006 6,885,956
-------------------------
Total liabilities and stockholders' equity $98,739,714 $80,078,708
=========================
See notes to consolidated financial statements.
F-2
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------------------------------------------------
INTEREST INCOME
Loans, including fees $6,779,091 $5,564,766 $4,416,698
Securities
Taxable 183,260 202,022 188,212
Tax exempt 106,252 125,814 253,979
Deposits with financial institutions 230,410 207,940 170,432
Dividends 62,136 57,153 44,834
------------------------------------------
Total interest income 7,361,149 6,157,695 5,074,155
------------------------------------------
INTEREST EXPENSE
Deposits 3,695,491 2,945,818 2,755,847
Federal Home Loan Bank advances 111,425 219,980 197,750
------------------------------------------
Total interest expense 3,806,916 3,165,798 2,953,597
------------------------------------------
NET INTEREST INCOME 3,554,233 2,991,897 2,120,558
Provision for loan losses 255,000 219,000 207,500
------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,299,233 2,772,897 1,913,058
------------------------------------------
OTHER INCOME
Fiduciary activities 26,509 27,353 21,453
Service charges on deposit accounts 253,207 184,400 132,926
Net realized gains (losses)
on securities 5,630 (13,553)
Other operating income 25,522 31,722 96,373
------------------------------------------
Total other income 305,238 249,105 237,199
------------------------------------------
OTHER EXPENSES
Salaries and employee benefits 1,236,794 1,012,761 838,495
Premises and equipment 301,262 212,847 178,143
Advertising 131,989 122,429 114,790
Data processing fees 232,797 191,698 175,822
Deposit insurance expense 45,178 453,368 106,781
Printing and office supplies 64,925 81,541 68,995
Legal and professional fees 97,843 135,068 108,879
Telephone expense 69,197 61,770 50,064
Other operating expenses 310,433 293,853 220,889
------------------------------------------
Total other expenses 2,490,418 2,565,335 1,862,858
------------------------------------------
INCOME BEFORE INCOME TAX 1,114,053 456,667 287,399
Income tax expense 375,609 115,401 11,046
------------------------------------------
NET INCOME $ 738,444 $ 341,266 $ 276,353
==========================================
BASIC EARNINGS PER SHARE $.75 $.35 $.29
DILUTED EARNINGS PER SHARE .74 .34 .28
See notes to consolidated financial statements.
F-3
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
RETAINED
COMMON STOCK EARNINGS NET UNREALIZED
---------------------- AND GAIN ON
SHARES CONTRIBUTED SECURITIES
OUTSTANDING AMOUNT CAPITAL AVAILABLE FOR SALE TOTAL
- --------------------------------------------------------------------------------------------------------
BALANCES, JANUARY 1, 1995 738,715 $6,068,970 $ 76,017 $6,144,987
Net income for 1995 276,353 276,353
Five-for-four stock split 184,576
Cash dividends in lieu of issuing
fractional shares (876) (876)
Net change in unrealized gain on
securities available for sale $21,751 21,751
-----------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 923,291 6,068,970 351,494 21,751 6,442,215
Net income for 1996 341,266 341,266
Stock options exercised 19,534 112,516 112,516
Net change in unrealized gain on
securities available for sale (10,041) (10,041)
-----------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 942,825 6,181,486 692,760 11,710 6,885,956
Net income for 1997 738,444 738,444
Cash dividends ($.10 per share) (94,282) (94,282)
5% stock dividend 47,023 540,765 (540,765)
Cash dividends in lieu of issuing
fractional shares (1,361) (1,361)
Net change in unrealized gain on
securities available for sale 21,249 21,249
-----------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 989,848 $6,722,251 $794,796 $32,959 $7,550,006
=================================================================
See notes to consolidated financial statements.
F-4
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 738,444 $ 341,266 $ 276,353
Adjustments to reconcile net
income to net cash provided
by operating activities
Provision for loan losses 255,000 219,000 207,500
Depreciation and amortization 137,713 82,860 71,926
Deferred income tax 498 10,278 (20,419)
Investment securities amortization 4,362 7,215 62,383
Gain on disposal of premises and equipment (20,716)
Investment securities (gains) losses (5,630) 13,553
Net change in
Interest receivable (173,893) 91,485 (126,381)
Interest payable 63,534 12,988 52,542
Other assets 27,866 89,746 (23,718)
Other liabilities 238,056 (27,278) 9,732
------------------------------------------
Net cash provided by operating
activities 1,291,580 821,930 502,755
------------------------------------------
INVESTING ACTIVITIES
Purchases of securities available for sale (1,000,000) (1,670,000)
Proceeds from maturities of securities
available for sale 650,000 677,750 230,000
Proceeds from sales of securities
available for sale 2,176,965 622,021
Proceeds from maturities and paydowns
of securities held to maturity 828,248 608,936 1,542,787
Proceeds from sales of securities held
to maturity 125,000
Net change in loans (15,062,301) (10,587,119) (15,317,327)
Purchases of premises and equipment (290,617) (533,467) (25,746)
Proceeds from disposal of premises
and equipment 64,663
Purchase of stock of Federal Home
Loan Bank of Indianapolis (177,300) (87,600)
Proceeds from sale of other real estate
and repossessions 180,024 26,992 50,908
Other investing activities (4,803)
------------------------------------------
Net cash used by investing activities (14,694,646) (7,807,243) (14,470,097)
------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, NOW, and savings
deposits 6,597,456 5,023,029 8,518,439
Certificates of deposit 10,545,590 6,366,136 4,460,633
Short-term borrowings (908,138) 908,138
Proceeds from Federal Home Loan
Bank advances 1,750,000 3,000,000
Repayment of Federal Home Loan Bank advances (1,199,041) (2,224,485) (3,711,098)
Cash dividends (94,282)
Cash dividends in lieu of issuing fractional
shares (876)
Stock options exercised 112,516
------------------------------------------
Net cash provided by financing activities 17,599,723 8,369,058 13,175,236
------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,196,657 1,383,745 (792,106)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,034,571 5,650,826 6,442,932
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $11,231,228 $7,034,571 $5,650,826
==========================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $ 3,743,382 $3,526,976 $2,901,055
Income tax paid (refunded) 187,406 110,000 (40,921)
See notes to consolidated financial statements.
F-5
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Community Bancshares, Inc.
("Company") and its wholly owned subsidiary, First Community Bank and Trust
("Bank"), conform to generally accepted accounting principles and reporting
practices followed by the banking industry. The more significant of the
policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a bank holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a state bank
charter and provides full banking services, including trust services. As a
state bank, the Bank is subject to regulation by the Department of Financial
Institutions, State of Indiana and the Federal Deposit Insurance Corporation.
DESCRIPTION OF BUSINESS-The Bank generates commercial, mortgage and consumer
loans and receives deposits from customers located primarily in Johnson and
Jennings Counties, Indiana and surrounding counties. The Bank's loans are
generally secured by specific items of collateral including real property,
consumer assets and business assets.
CONSOLIDATION-The consolidated financial statements include the accounts of
the Company and the Bank after elimination of all material intercompany
transactions.
INVESTMENT SECURITIES-Debt securities are classified as held to maturity when
the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported separately through stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net security
gains (losses). Gains and losses on sales of securities are determined on the
specific-identification method.
F-6
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
LOANS are carried at the principal amount outstanding. A loan is impaired
when, based on current information or events, it is probable that the Bank
will be unable to collect all amounts due (principal and interest) according
to the contractual terms of the loan agreement. Payments with insignificant
delays not exceeding 90 days outstanding are not considered impaired. Certain
nonaccrual and substantially delinquent loans may be considered to be
impaired. The Bank considers its investment in one-to-four family residential
loans and consumer loans to be homogeneous and therefore excluded from
separate identification for evaluation of impairment. Interest income is
accrued on the principal balances of loans. The accrual of interest on
impaired and nonaccrual loans is discontinued when, in management's opinion,
the borrower may be unable to meet payments as they become due. When interest
accrual is discontinued, all unpaid accrued interest is reversed when
considered uncollectible. Interest income is subsequently recognized only to
the extent cash payments are received. Certain loan fees and direct costs are
being deferred and amortized as an adjustment of yield on the loans over the
contractual lives of the loans. When a loan is paid off or sold, any
unamortized loan origination fee balance is credited to income.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb potential loan losses based
on management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loan loss experience,
changes in the composition of the portfolio, and the current condition and
amount of loans outstanding, and the probability of collecting all amounts
due. Impaired loans are measured by the present value of expected future cash
flows, or the fair value of the collateral of the loan, if collateral
dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1997, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline
in the area within which the Company operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally on
the estimated useful lives of the assets. Maintenance and repairs are expensed
as incurred while major additions and improvements are capitalized. Gains and
losses on dispositions are included in current operations.
FEDERAL HOME LOAN BANK STOCK is a required investment for institutions that
are members of the Federal Home Loan Bank ("FHLB") system. The required
investment in the common stock is based on a predetermined formula.
FORECLOSED REAL ESTATE is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any
required adjustment is charged to the allowance for loan losses. All
subsequent activity is included in current operations.
STOCK OPTIONS are granted for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant. The
Company accounts for and will continue to account for stock option grants in
accordance with Accounting Principle Board Opinion ("APB") No. 25, Accounting
for Stock Issued to Employees, and, accordingly, recognizes no compensation
expense for the stock option grants.
F-7
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
INCOME TAX in the consolidated statement of income includes deferred income
tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax
purposes. The Company files consolidated income tax returns with its
subsidiary.
EARNINGS PER SHARE have been computed based upon the weighted average common
shares and potential common shares outstanding during each year.
- - RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank ("FRB"). The reserve required at December 31, 1997,
was $360,000.
- - INVESTMENT SECURITIES
1997
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------
Available for sale
State and municipal $1,316 $55 $1,371
Corporate obligations 1,400 1,400
-----------------------------------------
Total available for sale 2,716 55 2,771
Held to maturity-state and municipal 1,709 25 1,734
-----------------------------------------
Total investment securities $4,425 $80 $0 $4,505
=========================================
F-8
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
1996
------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
DECEMBER 31 COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------
Available for sale
State and municipal $1,737 $24 $ (5) $1,756
Corporate obligations 630 630
-----------------------------------------
Total available for sale 2,367 24 (5) 2,386
-----------------------------------------
Held to maturity
State and municipal 2,367 2 (44) 2,325
Mortgage-backed securities 174 (1) 173
-----------------------------------------
Total held to maturity 2,541 2 (45) 2,498
-----------------------------------------
Total investment securities $4,908 $26 $(50) $4,884
=========================================
The amortized cost and fair value of securities held to maturity and available
for sale at December 31, 1997, by contractual maturity, are shown below.
Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
1997
---------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
---------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
MATURITY DISTRIBUTION AT DECEMBER 31 COST VALUE COST VALUE
- ------------------------------------------------------------------------------
Due in one year or less $ 620 $ 620 $ 675 $ 675
Due after one through five years 1,375 1,389 742 750
Due after five through ten years 180 187 292 309
Due after ten years 541 575
-------------------------------------
Totals $2,716 $2,771 $1,709 $1,734
=====================================
No securities were pledged at December 31, 1997. Securities with a carrying
value of $174,000 were pledged at December 31, 1996 to secure FHLB advances.
Proceeds from sales of securities available for sale during 1996 were
$183,000. Gross gains of $3,000 were realized on those sales.
Proceeds from securities held to maturity called at a premium during 1996 were
$278,000. Gross gains of $3,000 were realized on those calls.
F-9
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Proceeds, including due from broker of $1,994,000, from sales of securities
available for sale during 1995 were $2,616,000. Gross gains of $4,000 and
gross losses of $18,000 were realized on those sales.
During 1995, the Company sold two securities held to maturity with an
amortized cost of $125,000 due to substandard credit worthiness. No gains or
losses were realized on these sales.
- - LOANS AND ALLOWANCE
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------
Commercial, commercial real estate
and industrial loans $17,883 $17,401
Real estate loans 28,971 23,010
Construction loans 6,773 3,621
Individuals' loans for household
and other personal expenditures 22,896 19,084
Tax-exempt loans and leases 3,377 1,922
-----------------------
79,900 65,038
Deferred loan origination costs 101 70
-----------------------
Total loans $80,001 $65,108
=======================
DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $644 $518 $362
Provision for losses 255 219 208
Recoveries on loans 29 18 36
Loans charged off (80) (111) (88)
-----------------------------------
Balances, December 31 $848 $644 $518
===================================
At December 31, 1997, the Company had no impaired loans. At December 31,
1996, the Company had an impaired loan of $67,000 and had recorded an
allowance for losses of $7,000. The average balance of impaired loans for the
years ended December 31, 1997, 1996 and 1995 were $25,000, $112,000 and
$26,000. The Company had no interest income or cash receipts on impaired
loans during the years ended December 31, 1997, 1996 and 1995.
F-10
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Company had no commitments to loan additional funds to the borrowers of
impaired loans.
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders of the Company and their affiliates or
associates (related parties). Such transactions were made in the ordinary
course of business on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other unfavorable
features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
- --------------------------------------------------------------------------
Balances, January 1, 1997 $649
New loans, including renewals 429
Payments, etc., including renewals (333)
----
Balances, December 31, 1997 $745
====
- - PREMISES AND EQUIPMENT
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------
Land $ 432 $ 264
Buildings 853 786
Leasehold improvements 285 343
Equipment 751 686
-----------------------
Total cost 2,321 2,079
Accumulated depreciation (376) (287)
-----------------------
Net $1,945 $1,792
=======================
F-11
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - DEPOSITS
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------
Demand deposits $16,992 $14,212
Savings deposits 18,957 15,139
Certificates and other time
deposits of $100,000 or more 10,519 7,355
Other certificates and time deposits 41,227 33,846
-----------------------
Total deposits $87,695 $70,552
=======================
Certificates and other time deposits maturing in years ending December 31:
1998 $38,544
1999 8,711
2000 2,572
2001 1,120
2002 799
-------
$51,746
=======
- - FHLB ADVANCES
INTEREST
AMOUNT RATE
- --------------------------------------------------------------------------
Maturities in years ending December 31
1998 $ 177 6.01%
1999 156 6.01
2000 638 6.05
2001 122 6.01
2002 1,603 5.77
2003 234 5.85
------
$2,930 5.87%
======
The FHLB advances are secured by first mortgage loans totaling $21,259,000.
Advances are subject to restrictions or penalties in the event of prepayment.
The Bank has an available line of credit with the FHLB totaling $2,000,000.
The line of credit expires May 7, 1998 and bears interest at a rate equal to
the then current variable advance rate. There were no drawings on this line
of credit at December 31, 1997.
F-12
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - INCOME TAX
YEAR ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $270 $ 54 $15
State 106 51 16
Deferred
Federal 8 20 (31)
State (8) (10) 11
-------------------
Total income tax expense $376 $115 $11
===================
Reconciliation of federal statutory to actual tax expense
Federal statutory income tax at 34% $379 $155 $98
Tax exempt interest (69) (66) (108)
Effect of state income taxes 65 27 18
Other 1 (1) 3
--------------------
Actual tax expense $376 $115 $11
====================
A cumulative net deferred tax asset is included in other assets. The
components of the asset are as follows:
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------
ASSETS
Allowance for loan losses $312 $227
Net operating loss carryforward 20
Alternative minimum tax credit carryforward 38 54
Other 9
--------------------
Total assets 359 301
====================
LIABILITIES
Depreciation 103 75
State income tax 16 13
Loan fees 35 8
Securities available for sale 22 8
Total liabilities 176 104
--------------------
$183 $197
====================
F-13
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
At December 31, 1997, the Company had an alternative minimum tax credit
carryforward of $38,000 available to offset future regular federal income tax
liabilities which has an unlimited carryover period.
Tax expense (benefit) applicable to investment security gains and losses for
the years ended December 31, 1996 and 1995 was $2,230 and $(5,400).
- - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying financial
statements. The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instruments for commitments to extend
credit and standby letters of credit is represented by the contractual or
notional amount of those instruments. The Bank uses the same credit policies
in making such commitments as it does for instruments that are included in the
consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
1997 1996
- --------------------------------------------------------------------------
Commitments to extend credit $5,606 $9,022
Standby letters of credit 640 401
Commitments to extend credit are agreements to lend to a customer as long as
there is no 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 without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation. Collateral held varies but may include
accounts receivable, inventory, property and equipment, and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Company and Bank are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will
not have a material adverse effect on the consolidated financial position of
the Company.
In connection with the approval of its bank holding company application, the
Company must obtain Federal Reserve approval prior to incurring debt which
would cause its debt to equity ratio to exceed 30 percent. The Company is in
compliance with this commitment at December 31, 1997.
F-14
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
- - Stockholders' Equity
On April 26, 1995, the Board of Directors declared a 5-for-4 stock split
effective June 1, 1995. Net income per share and weighted average shares
outstanding have been restated to reflect the stock split.
On November 19, 1997, the Board of Directors declared a 5% stock dividend
payable on February 1, 1998. Net income per share and weighted average shares
outstanding have been restated to reflect the 5% stock dividend.
The dividends which the Company may pay are restricted by FRB capital
requirements and by Indiana law to the amount of retained earnings. The
ability of the Company to pay dividends to stockholders is dependent on
dividends received from the Bank. Without prior approval, current regulations
allow the Bank to pay dividends to the Company not exceeding net profits (as
defined) for the current year plus those for the previous two years. The Bank
is also restricted by the Office of Thrift Supervision for the amount of the
liquidation account established at the time of its stock conversion. The Bank
normally restricts dividends to a lesser amount because of the need to
maintain an adequate capital structure. At December 31, 1997, stockholder's
equity of the Bank was $7,324,000, of which a minimum of $1,080,000 was
available for payment of dividends.
- - Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and are assigned to a capital category. The
assigned capital category is largely determined by three ratios that are
calculated according to the regulations: total risk adjusted capital, Tier 1
capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to
an entity can also be affected by qualitative judgments made by regulatory
agencies about the risk inherent in the entity's activities that are not part
of the calculated ratios.
There are five capital categories defined in the regulations, ranging from
well capitalized to critically undercapitalized. Classification of a bank in
any of the undercapitalized categories can result in actions by regulators
that could have a material effect on a bank's operations. At December 31,
1997 and 1996, the Bank is categorized as well capitalized and met all subject
capital adequacy requirements. There are no conditions or events since
December 31, 1997 that management believes have changed the Bank's
classification.
F-15
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
The Bank's actual and required capital amounts and ratios are as follows:
1997
----------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL(1) CAPITALIZED(1)
----------------------------------------------------
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------
Total capital(1) (to risk-weighted assets) $7,291 10.1% $5,789 8.0% $7,236 10.0%
Tier 1 capital(1) (to risk-weighted assets) 8,139 11.3% 2,895 4.0 4,342 6.0
Tier 1 capital(1) (to average assets) 8,139 8.7% 3,758 4.0 5,638 6.0
(1) As defined by regulatory agencies
1996
----------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL(1) CAPITALIZED(1)
----------------------------------------------------
DECEMBER 31 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- -------------------------------------------------------------------------------------------------
Total capital(1) (to risk-weighted assets) $6,665 10.9% $4,885 8.0% $6,106 10.0%
Tier 1 capital(1) (to risk-weighted assets) 7,309 12.0% 2,443 4.0 3,664 6.0
Tier 1 capital(1) (to average assets) 7,309 9.4% 3,125 4.0 3,906 5.0
(1) As defined by regulatory agencies
- - Employee Benefits
Effective January 1, 1995, the Bank adopted a retirement savings 401(k) plan
in which substantially all employees may participate. The Bank matches
employees' contributions as determined each year by the Bank's Board of
Directors. The Bank's expense for the plan was $8,000, $6,000 and $4,000 for
1997, 1996 and 1995.
The Company adopted a stock option plan in 1992 whereby 46,921 shares of
common stock, after restatement for stock dividends and splits, were reserved
for the granting of options to certain officers, directors and key employees.
The options were exercisable within five years from the date of grant, and the
right to purchase shares under such options vested at a rate of 40% after the
first year and 20% each year thereafter with the options being fully vested
after four years. Additional options to purchase common shares may be granted
not to exceed 10% of the Company's outstanding shares of common stock, less
previously granted options.
F-16
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Data)
On February 15, 1993, the 1992 stock option plan, which is accounted for in
accordance with APB No. 25, Accounting for Stock Issued to Employees, and
related interpretations, was amended to increase the aggregate number of
shares under the plan from 46,921 to 66,771 shares. In addition, the
amendment provided for immediate vesting of all outstanding stock options and
stock options granted pursuant to the agreement. On May 15, 1996, the 1992
stock option plan was amended to extend the exercise period from five years to
ten years from the date of grant.
On May 15, 1996, the stockholders approved the 1996 stock option plan,
reserving 105,000 shares of Company stock for the granting of options to
certain key employees, directors and advisors. The exercise price of the
shares may not be less than the fair market value of the shares upon the grant
of the option. Options granted to key employees and advisors require approval
of the Compensation Committee of the Board of Directors ("Committee"). Options
granted to key employees and advisors become 25% exercisable one year from the
date of the grant and continue to vest 25% each year thereafter until fully
vested. Without any action by the Committee, each outside director will be
automatically granted an option to purchase 1,000 shares of Company stock on
each anniversary date of service on the Board of Directors beginning with
their 1997 anniversary. These options vest at the date of grant. Each option
granted under the plan shall expire no later than ten years from the date the
option is granted.
Although the Company has elected to follow APB No. 25, Standard Financial
Accounting Standards ("SFAS") No. 123 requires pro forma disclosures of net
income and earnings per share as if the Company had accounted for its employee
stock options under that Statement. The fair value of each option grant was
estimated on the grant date using an option-pricing model with the following
assumptions:
1997
--------------
Risk-free interest rates 6.67%
Dividend yields .73%
Volatility factors of expected market price of common stock 8.00%
Weighted-average expected life of the options 9 years
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
1997
--------------
Net income As reported $738
Pro forma 726
Basic Earnings per share As reported .75
Pro forma .73
Diluted earnings per share As reported .74
Pro forma .72
F-17
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Data)
The following is a summary of the status of the Company's stock option plans
and changes in the plans as of and for the years ended December 31, 1997, 1996
and 1995.
YEAR ENDED DECEMBER 31 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 46,261 $5.54 66,771 $5.54 66,771 $5.54
Granted 5,250 11.43
Exercised 20,510 5.54
------- ------- -------
Outstanding, end of year 51,511 $6.14 46,261 $5.54 66,771 $5.54
======= ======= =======
Options exercisable at year end 46,261 66,771
Weighted-average fair value of
options granted during the year $4.00
As of December 31, 1997, options outstanding of 46,261 and 5,250 have exercise
prices of $5.54 and $11.43 and weighted-average remaining contractual lives of
4.5 and 9.4 years.
- - EARNINGS PER SHARE
Earnings per share ("EPS") were computed as follows:
YEAR ENDED DECEMBER 31, 1997
-------------------------------
WEIGHTED
AVERAGE PER SHARE
INCOME SHARES AMOUNT
-------------------------------
BASIC EARNINGS PER SHARE
Income available to common stockholders $738 989,848 $.75
EFFECT OF DILUTIVE STOCK OPTIONS 13,803 ====
-----------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders
and assumed conversions $738 1,003,651 $.74
===============================
F-18
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands, Except Per Share Data)
Options to purchase 5,250 shares of common stock at $11.43 per share were
outstanding at December 31, 1997, but were not included in the computation of
diluted EPS because the options' exercise price was greater than the average
market price of the common shares.
YEAR ENDED DECEMBER 31, 1996
-------------------------------
WEIGHTED
AVERAGE PER SHARE
INCOME SHARES AMOUNT
-------------------------------
BASIC EARNINGS PER SHARE
Income available to common stockholders $341 986,043 $.35
EFFECT OF DILUTIVE STOCK OPTIONS 14,757 ====
-----------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders
and assumed conversions $341 1,000,800 $.34
===============================
YEAR ENDED DECEMBER 31, 1995
-------------------------------
WEIGHTED
AVERAGE PER SHARE
INCOME SHARES AMOUNT
-------------------------------
BASIC EARNINGS PER SHARE
Income available to common stockholders $276 969,455 $.29
EFFECT OF DILUTIVE STOCK OPTIONS 21,174 ====
-----------------
DILUTED EARNINGS PER SHARE
Income available to common stockholders
and assumed conversions $276 990,629 $.28
===============================
- - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS-The fair value of cash and cash equivalents
approximates carrying value.
INVESTMENT SECURITIES-Fair values are based on quoted market prices.
LOANS-The fair value for loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
F-19
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
FHLB STOCK-Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
INTEREST RECEIVABLE/PAYABLE-The fair values of interest receivable/payable
approximate carrying values.
DEPOSITS-The fair values of noninterest-bearing and interest-bearing demand
accounts are equal to the amount payable on demand at the balance sheet date.
Fair values for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being offered on
certificates to a schedule of aggregated expected monthly maturities on such
time deposits.
FHLB ADVANCES-The fair value of advances is estimated using a discounted cash
flow calculation, based on current rates for similar debt.
The estimated fair values of the Company's financial instruments are as
follows:
1997 1996
---------------------------------
CARRYING FAIR CARRYING FAIR
DECEMBER 31 VALUE VALUE VALUE VALUE
- ---------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $11,231 $11,231 $7,035 $7,035
Investment securities available
for sale 2,771 2,771 2,386 2,386
Investment securities held to maturity 1,709 1,734 2,541 2,498
Loans, net 79,152 80,403 64,464 65,305
Stock in FHLB 778 778 778 778
Interest receivable 700 700 526 526
LIABILITIES
Deposits 87,695 87,806 70,552 70,633
FHLB advances 2,930 2,908 2,379 2,351
Interest payable 251 251 187 187
F-20
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
- - CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial position,
results of operations and cash flows of the Company:
CONDENSED BALANCE SHEET
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------
ASSETS
Cash on deposit $ 88 $ 64
Investment in subsidiary 7,324 6,665
Other assets 139 161
----------------------
Total assets $7,551 $6,890
======================
LIABILITIES-other liabilities $ 1 $ 4
STOCKHOLDERS' EQUITY 7,550 6,886
----------------------
Total liabilities and stockholders' equity $7,551 $6,890
======================
CONDENSED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------
Income
Dividends from subsidiary $165 $ 30
Other interest income and dividends 1 $ 1 1
----------------------
Total income 166 1 31
----------------------
Expenses
Salaries and employee benefits 44 20 19
Professional fees 46 55 20
Other expenses 18 12 22
----------------------
Total expenses 108 87 61
----------------------
Income (loss) before income tax benefit
and equity in undistributed income of
subsidiary 58 (86) (30)
Income tax benefit (42) (34) (24)
----------------------
Income (loss) before equity in
undistributed income of subsidiary 100 (52) (6)
Equity in undistributed income of subsidiary 638 393 282
----------------------
NET INCOME $738 $341 $276
======================
F-21
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table Dollar Amounts in Thousands)
CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $738 $341 $276
Adjustments to reconcile net income to
net cash provided (used) by operating
activities (620) (421) (296)
----------------------
Net cash provided (used) by
operating activities 118 (80) (20)
----------------------
FINANCING ACTIVITIES
Cash dividends (94)
Cash dividends in lieu of issuing
fractional shares (1)
Stock options exercised 113
----------------------
Net cash provided (used) by
financing activities (94) 113 (1)
----------------------
NET CHANGE IN CASH ON DEPOSIT 24 33 (21)
CASH ON DEPOSIT AT BEGINNING OF YEAR 64 31 52
----------------------
CASH ON DEPOSIT AT END OF YEAR $ 88 $ 64 $ 31
======================
F-22