EXHIBIT 13
FIRST COMMUNITY BANCSHARES, INC.
2001 ANNUAL REPORT
[FIRST COMMUNITY BANK LOGO]
[GRAPHIC]
intranet
branch acquisitions
electronic trust access
high-end check imaging
database consolidation
branch capture
resource-fcb online banking
Financial Highlights
(Amount in Thousands. Except Percent and Per Share Data) 2001 2000 1999
---------- ---------- ----------
EARNINGS AND DIVIDENDS
Net income from recurring operations $ 19,266 $ 17,166 $ 15,748
Net income as reported 19,134 17,063 16,852
Basic and diluted earnings per share (1) 1.92 1.78 1.75
Cash earnings per share (1),(2) 2.05 1.96 1.93
Cash dividends per share (1) 0.89 0.86 0.80
Return on average equity 14.80% 15.70% 16.23%
Return on average assets 1.49% 1.51% 1.62%
(1) All share and per share data have been adjusted for a 10% stock dividend
declared February 19, 2002, and payable March 28, 2002, to shareholders of
record March 1, 2002.
(2) Cash earnings per share represent earnings per share adjusted for noncash
charges for amortization of goodwill and other intangibles.
BALANCE SHEET DATA AT YEAR-END
Total Assets $1,478,235 $1,218,017 $1,088,162
Earning Assets 1,366,168 1,117,910 996,366
Deposits 1,078,260 899,903 833,258
Securities sold under agreements to repurchase 79,262 46,179 41,062
Stockholders' equity 133,041 120,682 103,488
[PHOTO OF LILLY, MENDEZ, BUZZO]
PICTURED FROM LEFT TO RIGHT:
E. STEPHEN LILLY
Chief Operating Officer,
First Community Bancshares, Inc.,
SVP and COO
First Community Bank, N. A.
JOHN M. MENDEZ
President and CEO,
First Community
Bancshares, Inc.
ROBERT L. BUZZO
President,
First Community Bank, N. A.
Vice President and Secretary,
First Community Bancshares, Inc.
Contents
Message to Stockholders 1
Management's Discussion and Analysis
Introduction 4
Stock Dividend 5
Recent Acquisitions 5
Summary Financial Results 5
Five-Year Selected Financial Data 8
Common Stock and Dividends 9
Net Interest Margin 9
Net Interest Income 10
Provision for Loan Losses 11
Non-interest Income 11
Non-interest Expense 13
Franchise Map 15
Income Tax Expense 16
Securities Held to Maturity 16
Securities Available for Sale 16
Loan Portfolio 17
Allowance for Loan Losses 18
Non-performing Assets 19
Deposits 20
Short-Term Borrowings 20
Other Indebtedness 20
Stockholders' Equity 21
Trust and Investment
Management Services 21
Liquidity 21
Interest Rate Sensitivity, Interest Rate Risk
and Asset/Liability Management 21
Bankers Insurance 23
Recent Legislation 24
Consolidated Financial Statements 26
Report of Independent Auditors 61
Report on Management's Responsibilities 62
Board of Directors 63
Locations & Other Information 65
Message to Stockholders
Our recently completed 2001 fiscal year was marked by a number of
achievements, and record performance. Record deposit growth, record earnings
performance, new highs in asset quality, expansion of our branch network and
record levels of total resources are but a few of the milestones achieved by our
company this past year. These accomplishments are further magnified when viewed
in light of declining interest rates, a weakening economy and uncertain markets.
Financial results in 2001 resulted in another record year. Net income of
$19.1 million represented a $2 million or 12% increase over our 2000 results.
Current year earnings improved on the strength of an 8.25% increase in net
interest income and a 62.3% increase in non-interest revenues, including a $4.9
million increase in mortgage origination revenues.
Adjusted for a 10% stock dividend to be distributed on March 28, 2002, to
shareholders of record March 1, 2002, basic and diluted earnings per share
increased to $1.92, up from $1.78 in 2000, an increase of 7.9%.
Return on assets was 1.49% in 2001, compared with 1.51% for 2000. Return
on equity for 2001 was 14.8% versus 15.7% in 2000. Investor returns remained
strong in 2001 with the 12% increase in net income; however, large increases in
capital, derived from retained earnings, business combinations and comprehensive
income on improving market values on available for sale securities resulted in a
slight decline in return on equity.
Deposit growth in 2001 was its strongest in years, with a 19.8% increase
in total customer deposits. This growth to $1.1 billion in deposits is
attributable, in part, to the branch acquisitions in the fourth quarter, but
also reflects significant growth in existing markets as the company restructured
its product set for improved marketability and initiated marketing campaigns
designed to bolster the Company's image and reach a broader base of retail
customers. Combined with growth in equity and other financing sources, total
assets grew by more than 21% for the year. Combined with the previous year's
double-digit growth rate, total assets reached $1.5 billion at year-end 2001.
During 2001 First Community Bancshares, Inc. was able to achieve these
record operating results while, at the same time, investing heavily for the
future. Capital spending for facilities, technologies and equipment and for
programs benefiting future periods totaled more than $3 million as the company
continued its investment in technology, new branches, information systems,
marketing programs and human resources. Technology investments were in the form
of digital communications equipment and a company-wide frame relay network to
speed communications and information transfer. Technology investment also
included the acquisition and development of Resource - FCB Online Banking(R) for
delivery of banking services via the Internet. Investment in new branches
includes our new Athens, West
[PHOTO OF MENDEZ]
JOHN MENDEZ,
President & CEO
[BAR GRAPH]
Basic and Diluted Earnings per share
97 98 99 00 01
- ---- ---- ---- ---- ----
1.55 1.35 1.75 1.78 1.92
1
[BAR GRAPH]
97 98 99 00 01
------- ------- ------- ------- -------
Total Assets 1,042.3 1,054.0 1,088.2 1,218.0 1,478.2
Earning assets 955.3 971.9 996.4 1,118.0 1,366.2
(Amounts in millions)
Virginia, branch which will serve additional portions of Mercer County and the
acquisition of land for the upcoming development of new branches in Bluefield
and Emporia, Virginia, and in Princeton, West Virginia. Investment in marketing
programs includes the development of the company's new tagline, "Your First
Financial Resource," and its promotion through an extensive advertising campaign
focusing on the employees and customers of First Community Bank. In 2001, we
began a program of branch development designed to improve the service level and
increase access within our markets. In addition to our new Athens, West Virginia
branch, we have acquired land for the construction of our new branches in
Bluefield, Virginia and Princeton, West Virginia. We also acquired land in
Emporia, Virginia where we will construct a new main office location to upgrade
our existing branch network in Greensville County. As we continue development in
these areas, we are also exploring opportunities in Virginia, West Virginia and
North Carolina. Our goal is to continue to be close to our customer, building on
existing relationships and increasing market penetration.
In 2001, we expanded the company by adding three new divisions. The
acquisition of branches from BB&T and F&M resulted in the formation of our
Southside, Virginia, and Alleghany County banking divisions and the start-up of
wholesale mortgage operations in Richmond, Virginia, greatly expanded our reach
and volume in the mortgage banking line of business. The combined work of our
retail and wholesale mortgage divisions resulted in total mortgage origination
volume of over $500 million. The mortgage operations proved very important to
our company during 2001 as it contributed $1.3 million in net earnings for the
year. Expectations for the two new banking divisions in Virginia are high as we
believe these areas will be significant contributors for the upcoming year.
Results in our new Raleigh County market were quite good in 2001. The new
branches exceeded financial objectives set for its first year of operation.
Pretax earnings for Raleigh County operations were just over $1.3 million and
total resources in this market grew from $56.2 million at acquisition to $70
million at year-end 2001, an increase of 24.5%.
Improvement in asset quality was an important part of our financial
success in 2001. Attention to this critical element of our business resulted in
maintenance of total delinquencies at 1.6% and a reduction in non-accrual loans
to .40%. Total non-performing loans were .55% at year-end and were further
reduced to another all-time low of .42% following the resolution of a $1.1
million ninety-day delinquency in January 2002. Improvement in asset quality
through year-end brought our coverage ratio (loan loss reserves divided by
non-performing loans) to 280%, up from 186% at year-end 2000. While the company
has shown great improvement in asset quality in 2001, our efforts in this area
will not diminish.
2 FCB ANNUAL REPORT 2001
The market for First Community Bancshares, Inc. stock improved greatly this
year with our NASDAQ(R) listing and the institution of our invest or relations
program in late 2000. At December 31, 2001, our stock closed at $29.47, ($26.79
adjusted for the 10% stock dividend), up from $17.75, ($16.14 adjusted for the
stock dividend), per share at year-end 2000. This represents a 66% increase in
market value for the year and a multiple of 15.4 times our last twelve months'
earnings, very much in line with other comparably sized financial institutions.
The company is now regularly followed by two regional brokerage firms and is
listed in a number of quarterly financial institution reviews. This increased
visibility and the NASDAQ(R) listing makes investing in our stock more
convenient and attracts a wider base of investment. With the increase in our
market capitalization to over $260 million at mid-year, our company was added to
the Russell 3000 index and this too has significantly increased interest in our
company and has enhanced trading volume and liquidity for our stock.
As we write this report, we are finalizing testing of our new
Internet-based banking product known as Resource - FCB Online Banking(R). With
this Internet product accessed through www.fcbresource.com we have added another
convenient point of access for our retail and business customers. We are quite
excited about this new delivery channel and its 24-hour a day availability.
Combined with our recent product alignment, new product development and
consolidation of databases, customers throughout our banking network will have
immediate access to current financial information and their accounts as well as
bill payment services and discount brokerage. We would like to take this
opportunity to thank the hundreds of employees throughout our organization who
continue to produce record results year after year. We are extremely fortunate
to have such a dedicated and capable team of professional bankers, managers,
technicians and support personnel. Without them it would be impossible to
achieve such consistently high results.
We also thank you for your support as a customer and investor and we pledge
our continued commitment to quality service and strategies to make First
Community Bank and First Community Bancshares, Inc. a leader in financial
services as well as a valued investment. Our annual meeting of Stockholders is
scheduled for April 16, 2002, at Fincastle Country Club in Bluefield, Virginia,
at 3:00 p.m. We look forward to reporting to you on these and other activities
of the Company.
Sincerely,
/S/ JOHN M. MENDEZ
John M. Mendez, President & Chief Executive Officer
[BAR CHART]
Dividends per share
<Table>
97 98 99 00 01
- ---- ---- ---- ---- ----
0.75 0.76 0.80 0.86 0.89
</Table>
3
Management's
Discussion and
Analysis of Financial
Condition and
Results of
Operations
INTRODUCTION
This discussion should be read in conjunction with the consolidated
financial statements, notes and tables included throughout this report and the
First Community Bancshares, Inc. (the "Company" or "First Community") Annual
Report on Form 10-K. All statements other than statements of historical fact
included in this Annual Report, including statements in the Letter to
Shareholders and in Management's Discussion and Analysis of Financial Conditions
and Results of Operations are, or maybe deemed to be, forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Exchange Act of 1934. Generally, the words "believe," "expect," "intend,"
"estimate," "anticipate," "project," "will" and similar expressions identify
forward-looking statements, which generally are not historical in nature. All
statements that address operating performance, events or developments that we
expect or anticipate will occur in the future -- including statements relating
to growth, share of revenues and earnings per share growth and statements
expressing general optimism about future operating results -- are forward-
looking statements. Forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from our
Company's historical experience and our present expectations or projections. As
and when made, management believes that these forward-looking statements are
reasonable. However, caution should be taken not to place undue reliance on any
such forward-looking statements since such statements speak only as to
conditions of the date when made.
Many factors could cause the Company's actual results to differ materially
from the results contemplated by the forward-looking statements. Some factors,
which could negatively affect the results, include: (1) general economic
conditions, either nationally or within the Company's markets, could be less
favorable than expected, (2) changes in market interest rates could affect
interest margins and profitability, (3) competitive pressures could be greater
than anticipated, (4) legal or accounting changes could affect the Company's
results, (5) acquisition cost savings may not be realized or the anticipated
income may not be achieved, and (6) adverse changes could occur in the
securities and investments markets. The foregoing list of important factors is
not all inclusive.
Forward-looking statements made herein reflect management's expectations as
of the date such statements are made. Such information is provided to assist
stockholders and potential investors in understanding current and anticipated
financial operations of the Company
[GRAPHIC] Throughout this text, we have featured some of the internal
projects that were initiated by First Community Bank to ensure continued
customer satisfaction and to build on our promising future. First Community
Bank's 2001 fiscal year was marked by a number of achievements and
record-breaking performance.
4 FCB ANNUAL REPORT 2001
and is included pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company under takes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
First Community is a multi-state holding company headquartered in
Bluefield, Virginia. With total resources of $1.48 billion at December 31, 2001,
First Community through its banking subsidiary First Community Bank, N. A.
("FCBNA" or "Bank"), provides financial, mortgage brokerage and origination and
trust services to individuals and commercial customers through 38 full-service
banking locations in West Virginia, Virginia and North Carolina as well as
eleven mortgage brokerage facilities operated by United First Mortgage, Inc.
("UFM"). UFM is a wholly-owned subsidiary of FCBNA.
STOCK DIVIDEND
On February 19, 2002, the Company declared a 10% stock dividend payable on
March 28,2002, to stockholders of record March 1, 2002. All share and per share
amounts, with the exception of market pricing of the Company's stock, within
this Management's Discussion and Analysis have been retroactively adjusted to
give effect to the stock dividend payable.
RECENT ACQUISITIONS
On December 7, 2001, the Company completed the acquisition of four branch
facilities of Branch Banking and Trust Company of Virginia (BB&T) and F&M Bank -
Southern Virginia (F&M) located in Clifton Forge, Emporia and Drakes Branch,
Virginia. The completion of this transaction resulted in the addition of $77
million in cash and securities, an additional $114 million in deposits and added
$31 million to the loan portfolio.
SUMMARY FINANCIAL RESULTS
Net income for 2001 was $19.1 million, up $2.0 million from $17.1 million
in 2000 and up $2.2 million from 1999 net income of $16.9 million. Adjusted for
a 10% stock dividend in 2002, basic and diluted earnings per share also
increased to a record level of $1.92 per share, up from $1.78 and $1.75 in 2000
and 1999, respectively. This represents an increase of 7.9% compared to 2000.
Cash earnings per share for 2001 were $2.05, up from $1.96 in 2000 and $1.93 in
1999. Cash earnings per share represent earnings per share (EPS) adjusted for
non-cash charges such as amortization of goodwill and other intangibles.
The increase in net income between 2000 and 2001 of $2.0 million or 12.1%
was driven by a $7.8 million increase in non-interest income and a $3.8 million
increase in net interest income. The improvement in net interest income was the
[BAR CHART]
<Table>
<Caption>
Net income
(Amount in millions)
97 98 99 00 01
- ---- ---- ---- ---- ----
15.1 13.1 16.9 17.1 19.1
</Table>
[PHOTO OF BUILDING]
Corporate Center
This strategic location has resulted in more effective communication and better
execution of our strategies, which provides functional consistency for our
entire company.
"Moving our Corporate Center to our new facility in Bluefield, VA, has helped
create a stronger central organization which better supports our bank branches."
- John Mendez, President & CEO
5
result of continued strong loan demand as indicated by the 7.4% increase in
loans outstanding, excluding loans acquired from the BB&T and F&M branches in
December 2001. In addition, increased mortgage banking activity stemming from
the lower interest rate environment during 2001, caused loans held for sale at
December 31, 2001, to increase by 466.4% from December 31, 2000. As a result of
these increases, interest and fees on loans outpaced those of the preceding
year, increasing $7.1 million from $68.4 million in 2000 to $75.5 million in
2001. Total loans outstanding, net of unearned income, including loans held for
sale, reached a record level of $970.0 million at December 31, 2001.
The Company's cost of funds experienced a $3.0 million dollar increase over
2000 as the level of deposits and borrowings also increased. Interest expense
was managed through the use of a combination of retail deposits, Federal Home
Loan Bank borrowings, and active product pricing and marketing strategies.
Consistent with the rate environment, the rate paid on interest-bearing
liabilities declined by 22 basis points to 4.21% while the yield on earning
assets declined 58 basis points to 8.13%, resulting in a net yield of 4.55% for
the year compared to 4.86% in 2000.
The current year operating costs include depreciation and certain
expenses which reflect a substantial investment in the future of the Company as
over $3 million was invested in technology upgrades, image campaigns and
marketing programs. Operating expense for 2001 increased by $7.0 million from
$31.0 million reported for 2000 to $38.0 million in 2001. The cost increases
included the increased operating costs at UFM related to the substantial
increase in the volume of loans originated and sold, the full-year impact of
Citizens Southern Bank, Inc. acquired in the fourth quarter of 2000, additional
banking facilities including the new Athens, West Virginia, branch and the four
branches acquired from BB&T and F&M.
The increase in net income between 1999 and 2000 was driven by a $2.3
million or 5.3% increase in net interest income and a $1.8 million increase in
noninterest income. Additionally, when excluding the impact of a $1.8 million
pre-tax non-recurring gain recognized in 1999, net earnings on an operational
basis were up by 9% or approximately $1.4 million in 2000 over 1999. The
improvement in net-interest income was the result of strong loan volume and
controlled interest cost. Interest and fees on loans increased from $58.0
million in 1999 to $68.4 million in 2000, a $10.4 million, or 17.9% increase.
Alternatively, the cost of funds increased $7.1 million over 1999. Consistent
with the rate environment experienced during 1999, the rate
[PHOTO OF BANE, LILLY, MILLS]
EDP Steering Committee
EDP Steering has been a driving force for technological improvements and
enhancements. It creates a timely and efficient implementation of well developed
strategic plans, while guaranteeing that customer impact guides all change.
Pictured from left to right: William Bane, E. Stephen Lilly, Gary Mills.
6 FCB ANNUAL REPORT 2001
paid on interest-bearing liabilities increased 43 basis points to 4.43% while
the yield on earning assets increased 27 basis points to 8.71%, leaving a net
yield of 4.86% for 2000 compared to 5.03% in 1999.
The Company's key profitability ratios of Return on Average Assets (ROA)
and Return on Average Equity (ROE) continue to reflect the strong earnings
performance of the Company and substantially exceeded the average of the
Company's national peers at 1.08% and 12.97%, respectively. ROA, which measures
the Company's stewardship of assets, was at 1.49%, compared to 1.51% in 2000 and
1.62% in 1999. ROE for the Company remained strong in 2001 at 14.80%, compared
to 15.70% in 2000 and 16.23% in 1999. The declining trend in ROE reflects the
substantial growth in capital as a result of earnings, the Citizens Southern
acquisition, and a $6.3 million addition to average accumulated other
comprehensive income on the Company's Available for Sale (AFS) securities
portfolio. The improved mark-to-market on AFS securities is the principal reason
for the 90 basis point decline in ROE between 2000 and 2001.
[BAR CHART]
<Table>
<Caption>
Return on average equity
97 98 99 00 01
- ----- ----- ----- ----- -----
16.05 13.02 16.23 15.70 14.80
</Table>
[BAR CHART]
<Table>
<Caption>
Return on average assets
97 98 99 00 01
- ---- ---- ---- ---- ----
1.59 1.24 1.62 1.51 1.49
</Table>
[PHOTO OF CLARK, ASBURY, STUTTS, BAKER.]
Items Processing Center
First Community's state-of-the-art image capture processing center has
significantly reduced the bank's overhead. Our Items Processing Center not only
provides increased capacity, but also provides the flexibility that allows
customization of the product offering.
Pictured from left to right: Peggy Clark, Charles Asbury, GarryStutts, Mike
Baker.
7
FIVE-YEAR SELECTED FINANCIAL DATA
(Amounts in Thousands, Except Percent and
Per Share Data) 2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
BALANCE SHEET SUMMARY (at end of period):
Loans, net of unearned income $ 904,496 $ 811,256 $ 704,096 $ 611,493 $ 671,817
Loans held for sale 65,532 11,570 N/A N/A N/A
Allowance for loan losses 13,952 12,303 11,900 11,404 11,406
Securities 395,891 283,298 290,873 277,210 270,969
Total assets 1,478,235 1,218,017 1,088,162 1,053,988 1,042,304
Deposits 1,078,260 899,903 833,258 875,996 853,507
Other indebtedness 145,320 138,015 10,218 18,176 24,330
Stockholders' equity 133,041 120,682 103,488 101,719 97,842
SUMMARY OF EARNINGS:
Total interest income 92,829 85,958 76,492 81,213 75,834
Total interest expense 42,409 39,379 32,250 38,128 32,890
Provision for loan losses 5,134 3,986 2,893 6,250 4,963
Non-interest income 20,275 12,492 10,732 11,182 8,661
Non-interest expense 38,025 30,968 27,457 28,752 24,672
Income tax expense 8,402 7,054 7,722 6,164 6,876
Net income 19,134 17,063 16,852 13,101 15,094
PER SHARE DATA:
Basic and diluted earnings per common share 1.92 1.78 1.75 1.35 1.55
Cash earnings per share (1) 2.05 1.96 1.93 1.54 1.68
Cash dividends 0.89 0.86 0.80 0.76 0.75
Book value at year-end 13.39 12.14 10.78 10.55 10.07
SELECTED RATIOS:
Return on average assets % 1.49 % 1.51 % 1.62 % 1.24 % 1.59
Return on average equity 14.80 15.70 16.23 13.02 16.05
Dividend payout 46.23 48.72 45.83 56.38 48.54
Average equity to average assets 10.05 9.64 9.96 9.50 9.90
Risk based capital to risk adjusted assets 12.10 12.93 13.22 13.25 11.96
Leverage ratio 7.93 8.37 8.25 7.37 6.96
(1) Cash earnings per share represent earnings per share adjusted for non-cash
charges for goodwill and other amortization intangibles.
[PHOTO OF DIANA COULTHARD, JOE KEATLEY.]
Trust and Financial Services
Our Trust and Financial Services Division has remained up-to-date with modern
technologies and increased productivity by combining electronic forms capability
with workflow control in our trust accounting system. Customers can be assured
of daily account evaluations and access to their account information at any time
through the Internet.
Pictured from left to right: Diana Coulthard, Joe Keatley.
8 FCB ANNUAL REPORT 2001
EXHIBIT 13
COMMON STOCK AND DIVIDENDS
The Company's common stock has historically traded in the over-the-counter
market; however, on March 1, 2001, the Company began trading on the NASDAQ(R)
Small-Cap Market under the symbol FCBC. On December 31, 2001, First Community's
year-end common stock price was $29.47, a 66% increase over the $17.75 closing
price on December 31, 2000.
Book value per common share was $13.39 at December 31, 2001, compared with
$12.14 at December 31, 2000, and $10.78 at the close of 1999. The year-end
market price for First Community common stock of $29.47 represents 220% of the
Company's book value as of the close of the year and reflects total market
capitalization of $292.8 million. Utilizing the year-end market price and 2001
basic earnings per share, First Community common stock closed the year trading
at a price/earnings multiple of 15.4 times basic earnings per share.
Dividends for 2001 totaled $.89 per share, up $.03 or 3.49% from the $.86
paid in 2000. The 2001 dividends resulted in a cash yield on the year-end market
value of 3.02%. Total dividends paid for the current and prior year, totaled
$8.9 and $8.3 million, respectively.
NET INTEREST MARGIN
Net interest margin measures net interest income as a percentage of
average earning assets. In 2001, the net interest margin was 4.55% for the year,
below the 4.86% and 5.03% levels attained in 2000 and 1999, respectively. The
current year's decrease was due in large part to the general decline in the
interest rate
STOCK PERFORMANCE
BID
------------------ BOOK VALUE CASH DIVIDENDS
HIGH LOW PER SHARE PER SHARE
2001 -------- -------- -------- --------
FIRST QUARTER $ 18.88 $ 17.13 $ 12.64 $ 0.21
SECOND QUARTER 30.00 17.85 12.85 0.21
THIRD QUARTER 33.80 29.75 13.33 0.21
FOURTH QUARTER 31.60 23.75 13.39 0.26
--------
$ 0.89
2000
First Quarter $ 21.00 $ 17.25 $ 10.93 $ 0.20
Second Quarter 18.88 15.00 11.14 0.21
Third Quarter 16.13 15.00 11.54 0.21
Fourth Quarter 17.00 14.00 12.14 0.24
--------
$ 0.86
[PHOTO OF TRISH MALCOMB, DOUG KENNEDY, BEVERLEY NEAL, DONNA CLAY]
PRODUCT ALIGNMENT
FCB's product alignment project followed the creation of a customized product
set designed to meet all customers' needs. This project enhanced the development
of company-wide marketing campaigns.
Pictured from left to right: Trish Malcomb, Doug Kennedy, Beverly Neal, Donna
Clay.
9
[BAR GRAPH]
Net interest margin (%)
97 98 99 00 01
- ---- ---- ---- ---- ----
5.25 4.81 5.03 4.86 4.55
environment during 2001 and associated reductions in loan and investment yields.
Average loans, which include loans held for sale, increased $95.3 million in
volume and resulted in an additional $7.1 million in interest and fees on loans
despite the previously referenced decline in asset yield. The increase in
average loan and security volume was partially off set by a reduction in yield
on the underlying assets and, as a result, total interest income increased $6.9
million. Volume increases also led to increases in interest on total deposits of
$1.2 million and interest expense on short-term borrowings of $1.9 million.
Short-term borrowings, including retail repurchase agreements with existing bank
customers and FHLB advances, increased $66.9 million, however, with a
corresponding 22 basis point decline in the cost of these sources. In 2001,
significant increases in the loan portfolio were funded with a combination of
increased deposits and short-term borrowings. The FHLB provides a moderately
priced funding source and is a significant component of the Company's funding
and liquidity plans.
NET INTEREST INCOME
The primary source of the Company's earnings is net interest income, the
difference between income on earning assets and the cost of funds supporting
those assets. Significant categories of earning assets are loans and securities
while deposits and short-term borrowings represent the major portion of
interest-bearing liabilities.
On a tax equivalent basis, net interest income increased $4.1 million, or
8.3% in 2001 compared to $2.2 million, or 4.6% in 2000 and $1.3 million, or 2.7%
in 1999. The increase in 2001 was the net result of a $6.4 million dollar
increase due to the volume of interest-earning assets and interest-bearing
liabilities and a $2.3 million decrease due to changes in rates on these assets
and liabilities. The increase in net interest income in 2001 was primarily due
to a $161.1 million or 15.7% increase in average earning assets over 2000. Also
2000 net interest income was boosted by a similar $78.1 million or 8.25%
increase in average earning assets experienced over the previous corresponding
level in 1999. The current year increase in average earning assets was the
result of a $136.8 million increase in average total loans, an $8.5 million
increase in average investment securities and a $16.1 million increase in other
interest-bearing assets. The 2000 increase in average earning assets of $78.1
million was primarily the result of a $110.2 million increase in average loans
with an offsetting $19.8 million decrease in average investment securities and a
$12.3 million decrease in average interest-bearing balances with banks and fed
funds sold. The net yield on earning assets was 8.13% in
[PHOTO OF BRENDA ROSE, PAM HINKLE, AMY HALL, ESTHER FULFORD]
DATABASE MERGER
FCB's database merger verification team played an important role in the merging
of our customers' account records and information. This project enhanced
efficiency while providing seamless customer service.
Pictured from left to right: Brenda Rose, Pam Hinkle (seated), Amy Hall, Esther
Fulford.
[GRAPHIC OF CD ROM DRIVE]
10 FCB Annual Report 2001
2001, compared to 8.71% in 2000, while the cost of funds was 4.21% in 2001,
compared to 4.43% in 2000.
Average interest-bearing liabilities increased $118.9 million in 2001,
which is largely attributable to increases in deposits of $79.4 million.
Reflected in the increase in average interest-bearing liabilities was a $76.4
million increase in interest-bearing deposits and a $42.5 million increase in
short-term borrowings and other indebtedness. Additionally, there was a $17.6
million increase in average non-interest bearing demand deposits compared to the
prior year.
The acquisition of Citizens Southern Bank in late 2000 accounted for
approximately $43 million of the 2001 average interest-bearing deposit gain but
was supplemented by double-digit internal growth in deposits within existing
markets in West Virginia. Stronger internal growth is attributable to the
Company's restructured deposit set, new products and enhanced marketing
campaigns. The branch acquisitions in late 2001 contributed approximately $2.1
million in average earning assets for the current year.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $5.1 million in 2001, $4.0 million in
2000 and $2.9 million in 1999. The provision and underlying allowance for loan
losses is quantified through a series of objective measures, economic
indications, and estimated levels of anticipated losses within various loan
types that portray inherent weaknesses.
The current year provision of $5.1 million increased by $1.1 million from
2000 in response to current economic conditions that suggest, through
statistically compiled industry analysis, an increase in national charge-off
trends. Additionally, due to the substantial increase in loan volume, allowance
for loan losses was increased through provisions to maintain reserves at levels
reflecting historical loss rates. The 2000 provision for loan losses of $4.0
million was elevated in comparison to 1999, primarily due to adjustments to the
net realizable value of two commercial accounts that were in various stages of
resolution, as well as, substantial increases in outstanding loan balances at
December 31, 2000, in comparison to the volume of loans outstanding at December
31, 1999. See further discussion under "Allowance For Loan Losses" on Page 18.
NON-INTEREST INCOME
Non-interest income primarily consists of fiduciary income on trust
services, service charges on deposit accounts and income derived from the
origination and sale of mortgages. The largest contributors to the current year
increase in non-interest income were the origination and sale
[BAR CHART]
Tax equivalent net interest income
(Amounts in thousands)
97 98 99 00 01
- ------ ------ ------ ------ ------
45,700 46,426 47,676 49,870 54,001
[PHOTO OF JAMES HEATH]
WIDE AREA NETWORK
FCB's major infrastructure upgrade facilitates faster, more secure and efficient
communications. This implementation has provided us with better management of
our technical resources via a central control.
[GRAPHIC OF KEYBOARD]
11
[BAR CHART]
Fiduciary revenues
(Amounts in thousands)
97 98 99 00 01
- ----- ----- ----- ----- -----
1,678 1,682 2,092 1,804 1,815
of mortgages through United First Mortgage, Inc. and the effective utilization
of the Company's new and restructured deposit product set, including "Overdraft
Honor(TM)". UFM, acquired in the latter part of 1999 and in the second full year
of operations as a subsidiary of First Community's banking subsidiary, generated
a $4.9 million increase in other income in comparison to the prior year.
Non-interest income totaled $20.3 million in 2001, a $7.8 million increase or
62.3% over the $12.5 million recognized in 2000 and a $9.6 million or 88.9%
increase over the 1999 total of $10.7 million. Additionally, the increase in
service charges on deposit accounts, primarily attributed to the "Overdraft
Honor(TM)" deposit account program, generated an additional $2.0 million in
non-interest income in 2001.
The increase in total non-interest income in 2000 of $1.8 million in
comparison to 1999 was driven by the impact of the fee income generated by UFM.
UFM added an additional $3.4 million in revenues in 2000 versus 1999. When
excluding the impact of the aforementioned $1.8 million gain recorded in 1999,
recurring non-interest revenues increased by $3.6 million or 33.6% during 2000.
Fiduciary income totaled $1.8 million in both 2001 and 2000 versus $2.1
million in 1999. The level of trust and estate revenues remained consistent in
2001 even though the total market value of the assets managed declined in
conjunction with weaker valuations in the broad equity markets. The primary
reason for the variance between 2001 and 2000 revenues versus 1999 was the
difference in the number and size of estates administered in the respective
years. The volume of revenue generated from sources such as trust estate and
asset management services is highly dependent upon the corresponding assets
under management and can be cyclical in nature. Trust revenues, as described
above, are comprised of fees for asset management and estate settlement.
Expenses associated with the operation of the Trust and Financial Services
Division are included in non-interest expense.
Service charges on deposit accounts are one of the largest sources of
noninterest income. Service charge income totaled $5.97 million in 2001, an
increase of $1.96 million or 48.9% over 2000. The current year increase is
largely attributed to a program developed for well managed demand deposit
accounts, "Overdraft Honor(TM)," that allows the customer greater flexibility in
managing overdrafts to their accounts. As a result of this program,
approximately $4.6 million in deposit account charges were recorded in 2001 in
contrast to the $2.6 million recorded in 2000. The aforementioned deposit
account program was introduced in the latter part of 2000 and is the
[PHOTO OF Brian Broyles]
AS400 UPGRADE
The AS400 upgrade increases our ability to support growth of the FCB franchise.
By taking advantage of the system's advanced capabilities, the door is left open
for other beneficial technologies.
[GRAPHIC OF MAINFRAME CPU]
12 FCB Annual Report 2001
primary reason for the recognition of $4.0 million in service charges on deposit
accounts recorded in 2000, an increase of $0.4 million, or 10.0% from 1999.
Other service charges, commissions and fees increased slightly by $74,000
in 2001 versus 2000. This increase was primarily a result of the increasing
customer base serviced due to both acquisitions of new branches and a general
increase in customer accounts experienced at existing bank branches. Other
service charges, commissions and fees increased by $0.3 million or 24.3% in 2000
versus 1999.
NON-INTEREST EXPENSE
Non-interest expenses consist of salaries and benefits, occupancy,
equipment and all other operating expense incurred by the Company. Non-interest
expense totaled $38.0 million in 2001, compared with $31.0 million and $27.5
million in 2000 and 1999, respectively. The increase in non-interest expense in
2001 of $7.0 million relates, in part, to the increase in operational costs
experienced by UFM as a result of the substantial increase in production and the
addition of new branches during the year. Operating costs at UFM increased by
$3.1 million over the prior year. This increase is largely related to the
variable operating cost of commissions and brokerage fees incurred in connection
with the increase in production levels. Additionally, operating cost increases
were experienced in relation to the full-year operations of new branches
acquired in the Citizens Southern Bank acquisition (approximately $0.9 million),
as well as the opening of the new branch in Athens, West Virginia ($168,000),
and the acquisition of four branches from BB&T and F&M in December 2001. Other
increases include the cost of consolidating the Company's customer databases and
substantial marketing campaigns undertaken in 2001. The $3.5 million increase in
non-interest expense in 2000 relates largely to the impact of a full year's
operation of UFM, acquired in September 1999, and the two months of operation of
Citizens. UFM and Citizens contributed additional operating costs of $3.8
million and $144,000, respectively, in comparison to the 1999 year. During 2000,
reductions of approximately $440,000 were achieved in the existing banking
operations through the utilization of newer equipment and cost reductions
achieved due to the sale of a portion of other real estate owned and under-
utilized banking facilities.
Salaries and employee benefits increased $3.8 million, or 23.6%, between
2000 and 2001, and $2.9 million in comparing 2000 to 1999. The current year
increase relates largely to the expenses of UFM operations and its significant
increase in production in 2001. Salary and
RESOURCE-FCB ONLINE BANKING
With the Resource-FCB Online Banking, customers can take advantage of fast,
convenient banking anytime and anywhere they choose. First Community Bank's
online banking service utilizes image technology to provide more feature
functionality than most competing products.
[GRAPHIC OF LAPTOP]
13
NET OVERHEAD RATIO (%)
97 98 99 00 01
- ---- ---- ---- ---- ----
1.84 2.06 1.96 1.64 1.39
benefit costs increased by $1.9 million as a result of these increases in
production levels during the current year. The addition of the Citizens'
branches, which added $625,000 in salary and benefit cost to the current year as
a result of the first full year of operations of these facilities as well as a
general increase in staffing levels of the bank to support the growth of the
Company. During 2000, the effect of the full year of operations of UFM and three
months of operations of Citizens added an additional $2.7 million and $90,000,
respectively, in additional personnel cost.
Occupancy expense increased $133,000 or 5.4% between 2000 and 2001 and
$350,000 or 16.4% between 1999 and 2000. The current year increase relates to
the full year maintenance of the additional branch facilities of Citizens as
well as a general level of increased maintenance cost throughout the banking
facilities of FCBNA ($85,000) and UFM ($45,000). The $350,000 increase between
1999 and 2000 is primarily attributed to the acquisition of UFM in 1999 which
resulted in an increase of $270,000. The prior year also was impacted by two
months of operations of Citizens and existing facility cost increases of
approximately $80,000.
Furniture and equipment cost increased $116,000 or 6.8% as the Company
continued to invest in the development of its technology infrastructure. The
prior year costs declined by $45,000 in comparison to 1999. Both years reflect
the reduced maintenance cost on newer equipment that has been added over the
last several years and new technology utilized in check processing.
The Company's net overhead ratio (non-interest expense less non-interest
income excluding security gains and non-recurring gains divided by average
earning assets) is a measure of its ability to manage and control costs. As this
ratio decreases, more of the net interest income earned is realized as net
income. The net overhead ratios for 2001, 2000 and 1999 were 1.39%, 1.64% and
1.96%, respectively. Improvements in 2001 and 2000 ratios reflect substantial
increases in non-interest revenues associated with UFM and the Company's
restructured product set.
The Company's efficiency ratio also measures management's ability to
control costs and maximize net revenues. The efficiency ratio is computed by
dividing non-interest expense by the sum of net-interest income plus
non-interest income (all non-recurring items and amortization of intangibles are
excluded). The efficiency ratios for 2001, 2000 and 1999 were 47.8%, 45.8% and
44.2%, respectively. The increase in the current and prior year is reflective of
the higher operating costs incurred by UFM in the development of a
[PHOTO OF DAWN WILLIAMS]
BRANCH CAPTURE
First Community Bank's branch capture has allowed for acquisitions that are not
geographically contiguous to our existing branches. Branch capture makes it
possible for FCB to operationally assimilate acquisitions using the technology
and capacity of image processing systems. This technology provides FCB with
limitless expansion potential, and gives us the opportunity to target
geographical areas that better fit our growth strategy.
Pictured: Dawn Williams
14 FCB Annual Report 2001
[FCB FRANCHISE MAP]
FCB FRANCHISE MAP
With 38 full service banking facilities strategically located in West Virginia,
Virginia and North Carolina, along with 10 mortgage-brokerage facilities
operated by United First Mortgage, Inc., headquartered in Richmond, VA. FCB
positions itself as the first financial resource for more and more customers
everyday.
15
new wholesale division which began production in the latter part of 2000, as
well as the Bank's addition of new branch facilities, including the Citizens
branches acquired in the latter part of 2000, the BB&T and F&M branches acquired
in December 2001, and the recently constructed branch facility in Athens,
West Virginia.
INCOME TAX EXPENSE
Income tax expense totaled $8.4 million in 2001, compared with $7.1
million in 2000 and $7.8 million in 1999. The $1.3 million increase between 2000
and 2001 is reflective of the higher level of pre-tax earnings and the earnings
contribution from UFM. Pre-tax earnings increased $3.7 million between 2000 and
2001. The slight decrease in the prior year is reflective of an increased level
of tax-exempt earnings generated from state and municipal bonds within the
Company's investment portfolio. This change is reflective of the general
increase in the sector distribution of investments into tax-exempt municipal
securities and the development of tax strategies that have enabled further
reductions in taxable earnings.
The major difference between the statutory tax rate and the effective tax
rate (income tax expense divided by pre-tax book income) results from income not
taxable for Federal income tax purposes. The primary category of non-taxable
income is that of state and municipal securities and industrial revenue bonds
and tax-free loans. The effective tax rate for 2001 was 30.5% as compared with
29.3% for 2000 and 31.6% in 1999.
SECURITIES HELD TO MATURITY
Investment securities held to maturity are comprised largely of U.S.
Agency obligations and state and municipal bonds. U.S. Agency obligations
include securities issued by various government corporations and agencies,
including Federal Home Loan Bank (FHLB), Federal National Mortgage Association
(FNMA), Government National Mortgage Association (GNMA), and Federal Home Loan
Mortgage Corporation (FHLMC).
Obligations of state and political subdivisions, which represent the
largest portion of the held to maturity portfolio, totaled $39.8 million at
December 31, 2001. These are comprised of high-grade municipal securities
generally carrying AAA bond ratings, most of which also carry credit enhancement
insurance by major insurers of investment obligations. The average final
maturity of the investment portfolio increased from 8.92 years in 2000 to 9.79
years in 2001 with the tax equivalent yield increasing from 8.54% at year-end
2000 to 8.59% at the close of 2001. The average maturity of the investment
portfolio, based on market assumptions for prepayment, is reduced to 4.2 years
and 4.5 years at December 2001 and 2000, respectively.
The held to maturity investment portfolio of $41.9 million decreased by
$33.9 million between 2000 and 2001. This decrease is primarily the result of
the reclassification of $32.5 million of securities previously accounted for in
the held to maturity portfolio to the available for sale portfolio at market
value, as permitted upon adopting Financial Accounting Standards Board (FASB)
Statement 133, Accounting for Derivative Instruments and Hedging Activities, on
January 1, 2001. The net cash flow generated by the portfolio during 2001 was
invested in new loans as a result of the higher level of loan demand experienced
in the current year.
SECURITIES AVAILABLE FOR SALE
Securities available for sale are used as part of management's
asset/liability strategy. These securities may be sold in response to changes in
interest rates, changes in prepayment risk, for liquidity needs and other
factors. These securities are recorded at market value.
At December 31, 2001, the Company had $354.0 million in securities
available for sale, compared with $207.6 million at year-end 2000, an increase
of $146.4 million or 70.5%. The increase in the portfolio was due primarily to
the purchase of $232.1 million and the FAS 133 reclassification of $32.5 million
from the held to
16 FCB Annual Report 2001
maturity portfolio as discussed earlier. These increases were offset by
maturities, calls and mortgage-backed security principal payments and
prepayments of $102.5 million, and sales of $18.7 million.
The fair value of securities available for sale exceeded book value at
year-end 2001 by $1.2 million. The increase in the fair value of the securities
available for sale is a direct result of the inverse relationship between
existing market rates and the pricing of the securities. When market rates
decrease, as they did in 2001, for similar instruments that are currently in the
portfolio, the corresponding price of the security rises and an opposite effect
occurs as rates rise. The tax equivalent purchase yield on securities available
for sale, which was relatively unchanged in the current year, was 6.52% in 2001
and 6.54% in 2000.
The average final maturity of the available for sale portfolio was 14.8
years and 11.5 years at December 31, 2001, and 2000, respectively. The increase
in average final maturity was the result of a $232 million investment in
securities to achieve higher tax equivalent yields in response to the declining
interest rate environment. The securities purchased consisted of callable
agencies (78%), municipals (14%) and corporate notes (8%). The lives and average
maturities of these longer-term securities are expected to be substantially
shorter because of callability and prepayment provisions. The average maturity,
based on market assumptions for prepayment, changes to 5.4 years and 4.0 years,
respectively, at December 31, 2001 and 2000.
LOAN PORTFOLIO
LOANS HELD FOR SALE
Loans held for sale were $65.5 million at December 31, 2001, compared with
$11.6 million at December 31, 2000, an increase of $53.9 million, or 466.40%.
The increase is due to a substantial increase in mortgage refinance activity
prompted by the lower interest rate environment during 2001. Loans originated
for sale during the current year were $563.0 million versus $106.2 million in
2000.
LOANS HELD FOR INVESTMENT
The held for investment loan portfolio is geographically diversified among
loan types and industry segments. Commercial and commercial real estate loans
represent 46.6% of the total portfolio. During 2001, commercial real estate
loans increased by $37.1 million to $260 million comprising 28.7% of total
loans. Commercial loans experienced the largest dollar and percentage growth,
increasing by $75.3 million and representing 17.9% of total loans. The combined
commercial and commercial real estate sectors increased by $112.4 million, or
36.3% in
[2000 & 2001 PIE CHART]
2000 2001
Real Estate-Commercial 27% 28.7%
Real Estate-Construction 8.9% 8.6%
Real Estate-Residential 37.1% 29.5%
Commercial, Financial & Agricultural 10.6% 17.9%
Loans to Individuals 16.4% 15.3%
17
2001. Real estate construction loans, which comprised 8.6% of the portfolio,
grew $4.3 million. This category includes both residential and commercial
construction with the increase attributable to a number of development projects.
Additionally, consumer loans increased by $2.7 million, or 2.1%, from $134.3
million at December 31, 2000, to $137.1 million at the close of 2001. Consumer
loans represented 15.3% and 16.6% of the portfolio at the close of 2001 and
2000, respectively. Residential real estate loans increased by $27.4 million, or
9.0% in 2001 and represented 29.5% of the total portfolio at the end of 2001.
Loans held for investment, net of unearned income, were $904.5 million at
December 31, 2001. The increase of $93.2 million represents 11.5% growth from
the $811.3 million level at December 31, 2000. The fourth quarter acquisition of
four branches from BB&T and F&M accounted for $31.0 million of this growth. The
addition of these loans did not materially affect the distribution of loan
product types within the portfolio. First Community continues to place a
strategic emphasis on relationship management and development. This style has
continued to result in substantial increases in the total loan portfolio.
The total loan to deposit ratio, a measure of the volume of loans
supported by the customer deposit base, declined slightly, in comparison, from
the prior year level of 91% to 90% at December 31, 2001. The decrease in the
loan to deposit ratio is reflective of the $147.2 million increase in the loan
portfolio (including loans held for sale) coupled with a larger and offsetting
increase in deposits of $178.4 million. In addition to the previously mentioned
increase in loans as a result of the recent branch acquisitions completed in the
fourth quarter of 2001, a similar but larger increase in deposits was achieved
in this acquisition of $113.5 million in deposits. The additional deposits and
loans acquired in the branch acquisition accounted for approximately 12.6% and
3.8% of the total annual increase in deposits and loans held for investment
respectively.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level sufficient to
absorb probable loan losses inherent in the loan portfolio. The allowance is
increased by charges to earnings in the form of provisions for loan losses and
recoveries of prior loan charge-offs, and decreased by loans charged off. The
provision for loan losses is calculated to bring the reserve to a level which,
according to a systematic process of measurement, is reflective of the required
amount needed to absorb probable losses inherent in the loan portfolio.
Management performs quarterly assessments to determine the appropriate
level of allowance. Differences between actual loan loss experience and
estimates are reflected through adjustments that are made by either increasing
or decreasing the loss provision based upon current measurement criteria.
Commercial, consumer and mortgage loan portfolios are separated for purposes of
determining the allowance. The specific components of the allowance include
allocations to individual commercial credits and allocations to the remaining
non-homogeneous and homogeneous pools of loans. Management's allocations are
based on judgment of qualitative and quantitative factors about both the macro
and micro economic conditions reflected within the portfolio of loans and the
economy as a whole. Factors considered in this evaluation include, but are not
necessarily limited to, probable losses from loan and other credit arrangements,
the general economic conditions, changes in credit concentrations or pledged
collateral, historical loan loss experience, trends in portfolio volume,
maturity, composition, delinquencies and non-accruals. The current economic
climate and impacts of the events of September 11, 2001, have resulted in the
need for enhanced portfolio scrutiny in certain sectors of the portfolio and, as
a result, the necessity for a higher level of the allowance for loan losses.
18 FCB Annual Report 2001
Exhibit 13
DECEMBER 31,
NON-PERFORMING ASSETS 2001 2000 1999 1998 1997
--------- --------- --------- --------- ---------
(Amounts in Thousands)
Non-accrual Loans $ 3,633 $ 5,397 $ 7,889 $ 7,763 $ 9,988
Loans 90 Days or more Past Due 1,351 1,208 1,259 377 4,391
Other Real Estate Owned 3,029 2,406 1,950 3,547 1,472
--------- --------- --------- --------- ---------
$ 8,013 9,011 11,098 11,687 15,851
Non-performing loans as a percentage of total loans % 0.6 % 0.8 % 1.3 % 1.3 % 2.1
Non-performing assets as a percentage of total loans
and other real estate owned 0.9 1.1 1.6 1.9 2.4
Allowance for loan losses as a percentage of non-performing loans 279.9 186.3 130.1 140.1 79.3
Allowance for loan losses as a percentage of non-performing assets % 174.1 % 136.5 % 107.2 % 97.6 % 72.0
As the fourth quarter progressed, with reports of business reductions and
large-scale layoffs, it became apparent that the general model for quantifying
the adequacy of the allowance required adjustment to reflect recessionary
pressures and economic uncertainty. As a result of this review, the allowance
for loan losses increased by approximately $1.6 million as of December 31, 2001,
compared to December 31, 2000. Included in this increase was $0.5 million
designated for loans acquired in the branch acquisition completed in the fourth
quarter of 2001. While management has attributed the allowance for loan losses
to various portfolio segments, the allowance is available for the entire
portfolio.
The allowance for loan losses represents 280% of non-performing loans at
year-end 2001 versus 186% and 130% at December 31, 2000, and 1999, respectively.
When other real estate is combined with non-performing loans, the allowance
equals 174% of non-performing assets at the end of 2001 versus 137% and 107% at
December 31, 2000 and 1999, respectively.
Net charge-offs were $4.0 million in 2001, compared with $4.6 million in
2000 and $2.4 million in 1999, respectively. The $0.6 million decrease in net
charge-offs in 2001 is principally attributable to a commercial loan charge-off
in 2000 relating to the foreclosure of a residential land development loan in
Beckley, West Virginia, as well as the write-down of a commercial loan in 2000
to reflect the estimated current market value at that time of the real estate
securing the loan (a vacant convenience store) and surrounding property. A
subsequent, but smaller, write-down of this loan was effected again in late
2001, based on the lack of resolution of the asset at the previously adjusted
carrying value. The current year decrease in net charge-offs was achieved
despite the substantial increase in the size of the loan portfolio. Net
charge-offs for 1999 are reflective of the volume of loans outstanding during
that year and the level of charge-off activity experienced.
NON-PERFORMING ASSETS
Non-performing assets include loans on which interest accruals have
ceased, loans contractually past due 90 days or more and still accruing
interest, and other real estate owned (OREO) pursuant to foreclosure
proceedings. Total non-performing assets were $8.0 million at December 31, 2001
compared to $9.0 million at December 31, 2000. The levels of non-performing
assets for the last five years are presented in the table above.
Non-performing assets decreased $998,000 between 2000 and 2001, led
primarily by a $1.8 million or 32.7% decline in non-accrual loans; however, this
decline was partially offset by an
19
increase of $623,000 in other real estate owned and an increase of $143,000 in
loans 90 days past due. The decrease in non-accrual loans resulted from the
resolution or liquidation of a number of commercial loan relationships as well
as the write-down of a commercial loan to reflect the net realizable value of
the asset. Additionally, loans past due over 90 days increased by only $143,000
despite the substantial increases in the loan portfolio over the past two years.
DEPOSITS
Total deposits at December 31, 2001, increased $178.4 million or 19.8%
when compared to December 31, 2000. Approximately $113.5 million of the increase
related to deposits acquired through the branch acquisitions of Clifton Forge,
Emporia and Drakes Branch, Virginia, on December 7, 2001. Not considering the
acquisition, deposits increased for the year by $64.7 million. The Company
utilized short-term advances from the Federal Home Loan Bank to supplement the
funding needs of the Company throughout 2000 and 2001. In 2001, the average rate
paid on interest bearing liabilities was 4.21%, down from the 4.43% in 2000.
Average deposits increased to $939.8 million for 2001 versus $845.8
million in 2000, an increase of 11.1%, reflecting the effectiveness of new
product offerings and marketing campaigns introduced during the year as well as
a full year's impact in 2001 of the deposits from Citizens Southern which was
acquired in October 2000. Average savings deposits decreased slightly by $3.7
million while time deposits increased by $66.5 million. Average interest-bearing
demand and noninterest bearing demand deposits increased by $13.7 million and
$17.7 million, respectively. Also affecting the general increase in average
deposits were the branch acquisitions completed in the fourth quarter of 2001.
SHORT-TERM BORROWINGS
The Company's short-term borrowings consist primarily of overnight Federal
Funds purchased from the FHLB and securities sold under agreements to
repurchase. This category of funding is a source of moderately priced short-
term funds. Short-term borrowings increased on average approximately $3.6
million in comparison to the prior year. The increase in average short-term
borrowings in 2001, along with the increase in average deposits of $94.0 million
was accompanied by an offsetting increase in total loans as these funds were
used to finance the loan portfolio growth. The price sensitivity of funding cost
is managed by the Company's "Product Group", which monitors product and pricing
initiatives including, among other things, the management of the overall cost of
funds to assist in maintaining an acceptable net interest margin, and to act as
a resource in developing new products and establishing pricing guidelines.
OTHER INDEBTEDNESS
FHLB borrowings and other indebtedness, which represent long-term advances
from the FHLB, and structured term borrowings from the FHLB increased by $10.0
million in 2001. The increase is attributable to the substantial loan growth
experienced throughout the current year. Fixed rate FHLB advances and applicable
interest rates were $10.0 million (4.30%), $8.0 million (5.95%) and $2.0 million
(6.27%) maturing in 12/2002, 9/2003 and 9/2008, respectively. Additional
borrowings, which represent indebtedness of approximately $125.0 million, are
comprised of structured term convertible advances from the FHLB with
final maturities between two and ten years. These convertible advances are
callable by the FHLB based upon predefined factors in quarterly increments after
a lockout period that may substantially shorten the lives of these instruments.
The callability of these instruments is controlled by and at the option of the
FHLB. The convertible advance with the earliest maturity ($25.0 million) occurs
in June 2002, while the remainder ($100.0 million) matures in 2010.
20 FCB ANNUAL REPORT 2001
STOCKHOLDERS' EQUITY
Risk-based capital ratios are a measure of the Company's capital adequacy.
At December 31, 2001, the Company's Tier 1 capital ratio was 10.82% compared
with 11.68% in 2000. Federal regulatory agencies use risk-based capital ratios
and the leverage ratio to measure the capital adequacy of banking institutions.
Risk-based capital guidelines, risk weight balance sheet assets, and off-balance
sheet commitments are used in determining capital adequacy. The Company's total
risk-based capital-to-asset ratio was 12.10% at the close of 2001 compared with
12.93% in 2000. Both of these ratios are well above the current minimum level of
8% prescribed for bank holding companies as depicted on Page 52 of the footnotes
to the financial statements.
The leverage ratio is the measurement of total tangible equity to total
assets. The Company's leverage ratio at December 31, 2001 was 7.93% versus 8.37%
at December 31, 2000, both of which are well above the minimum levels prescribed
by the Federal Reserve as depicted on Page 52 of the footnotes to the financial
statements.
TRUST AND INVESTMENT MANAGEMENT SERVICES
As part of its community banking services, the Company offers trust
management and estate administration services through its Trust and Financial
Services Division (Trust Division). The Trust Division reported market value of
assets under management of $486 million and $495 million at December 31, 2001,
and 2000, respectively. The Trust Division manages intervivos trusts and trusts
under will, develops and administers employee benefit plans and individual
retirement plans and manages and settles estates. Fiduciary fees for these
services are charged on a schedule related to the size, nature and complexity
of the account.
The Trust Division employs 17 professionals and support staff with a wide
variety of estate and financial planning, investing and plan administration
skills. Trust Division operating expenses totaled $1.3 million in 2001 and $1.4
million in 2000. These costs are comprised primarily of salaries and related
benefits, investment services, asset custody fees and the cost of information
processing systems. The Trust Division is located within the Company's banking
offices in Bluefield, West Virginia. Services and trust development activities
to other branch locations and primary markets are provided as an extension of
this Bluefield location.
LIQUIDITY
Liquidity represents the Company's ability to respond to demands for funds and
is primarily derived from maturing investment securities, overnight investments,
periodic repayment of loan principal, and the Company's ability to generate new
deposits. The Company also has the ability to attract short-term sources of
funds and draw on credit lines that have been established at financial
institutions to meet cash needs.
Total liquidity of $526.9 million at December 31, 2001, is comprised of
the following: cash on hand and deposits with other financial institutions of
$47.8 million; securities available for sale of $354.0 million; investment
securities held to maturity due within one year of $1.0 million; and Federal
Home Loan Bank credit availability of $124.1 million.
INTEREST RATE SENSITIVITY, INTEREST RATE RISK AND ASSET/LIABILITY MANAGEMENT
The Bank's profitability is dependent to a large extent upon its net
interest income (NII), which is the difference between its interest income on
interest-earning assets, such as loans and securities, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. The Bank, like
other financial institutions, is subject to interest rate risk to the degree
that its interest-earning assets reprice differently than its interest-bearing
liabilities. The Bank manages its mix of assets and liabilities with the goals
of limiting its exposure to interest rate risk, ensuring adequate liquidity, and
coordinating its sources and uses of funds while
21
maintaining an acceptable level of NII given the current interest rate
environment.
The Company's primary component of operational revenue, NII, is subject to
variation as a result of changes in interest rate environments in conjunction
with unbalanced repricing opportunities in earning assets and interest-bearing
liabilities. Interest rate risk has four primary components including repricing
risk, basis risk, yield curve risk and option risk. Repricing risk occurs when
earning assets and paying liabilities reprice at differing times as interest
rates change. Basis risk occurs when the underlying rates on the assets and
liabilities the institution holds change at different levels or in varying
degrees. Yield curve risk is the risk of adverse consequences as a result of
unequal changes in the spread between two or more rates for different maturities
for the same instrument. Lastly, option risk is due to "embedded options" often
called put or call options given or sold to holders of financial instruments.
In order to mitigate the effect of changes in the general level of
interest rates, the Company manages repricing opportunities and thus, its
interest rate sensitivity. The Bank seeks to control its interest rate risk
(IRR) exposure to insulate net interest income and net earnings from
fluctuations in the general level of interest rates. To measure its exposure to
IRR, quarterly simulations of NII are performed using financial models that
project NII through a range of possible interest rate environments including
rising, declining, most likely and flat rate scenarios. The results of these
simulations indicate the existence and severity of IRR in each of those rate
environments based upon the current balance sheet position, assumptions as to
changes in the volume and mix of interest-earning assets and interest-paying
liabilities and management's estimate of yields attained in those future rate
environments and rates that will be paid on various deposit instruments and
borrowings. Specific strategies for management of IRR have included shortening
the amortized maturity of new fixed-rate loans, increasing the volume of
adjustable rate loans to reduce the average maturity of the Bank's
interest-earning assets and monitoring the term structure of liabilities to
maintain a balanced mix of maturity and repricing structures to mitigate the
potential exposure. The simulation model used by the Company captures all
earning assets, interest-bearing liabilities and all off balance sheet financial
instruments and combines the various factors affecting rate sensitivity into an
earnings outlook. Based upon the latest simulation, the Company believes that it
is slightly biased toward an asset sensitive position. Absent adequate
management, asset sensitive positions can negatively impact net interest income
in a falling rate environment or, alternatively, positively impact net interest
income in a rising rate environment.
The Company has established policy limits for tolerance of interest rate
risk that allow for no more than a 10% reduction in projected net interest
income based on quarterly income simulations. The most recent simulation
indicates that current exposure to interest rate risk is within the Company's
defined policy limits.
The following table summarizes the impact on NII and the Market Value of
Equity (MVE) as of December 31, 2001, and 2000, respectively, of immediate and
sustained rate shocks in the interest rate environment of plus and minus 100 and
200 basis points from the flat rate simulation. The results of the rate shock
analysis depicted below differ from the results in quarterly simulations, in
that all changes are assumed to take effect immediately; whereas, in the
quarterly income simulations, changes in interest rates take place over a
24-month horizon simulating a more likely scenario for a changing rate
environment. This table, which illustrates the prospective effects of
hypothetical interest rate changes, is based upon numerous assumptions including
relative and estimated levels of key interest rates over a twelve-month time
period. This type of modeling technique, although useful,
22 FCB ANNUAL REPORT 2001
RATE SHOCK ANALYSIS
(AMOUNTS IN THOUSANDS) 2001
------------------------------------------------------------
INCREASE (DECREASE) IN NET INTEREST % MARKET VALUE %
INTEREST RATES (BASIS POINTS) INCOME CHANGE OF EQUITY CHANGE
200 $ 1,950 3.5 (4,674) (3.3)
100 1,059 1.9 (1,338) (1.0)
(100) (907) (1.6) 637 0.5
(200) (3,692) (6.6) 1,396 1.0
2000
------------------------------------------------------------
Increase (Decrease) in Net Interest % Market Value %
Interest Rates (Basis Points) Income Change of Equity Change
200 $ 98 0.2 (12,496) (9.8)
100 698 1.5 (6,275) (4.9)
(100) (2,301) (4.8) 1,113 0.9
(200) (4,354) (9.1) 2,675 2.1
does not take into account all strategies that management might undertake in
response to a sudden and sustained rate shock as depicted. Also, as market
conditions vary from those assumed in the sensitivity analysis, actual results
will also differ due to: prepayment/refinancing levels likely deviating from
those assumed, the varying impact of interest rate change caps or floors on
adjustable rate assets, the potential effect of changing debt service levels on
customers with adjustable rate loans, deposit or early withdrawals and product
preference changes, and other internal/external variables.
When comparing the impact of the rate shock analysis between 2001 and
2000, the 2001 changes in net interest income reflect the impact of the change
in the balance sheet composition of assets and liabilities and as the structure
moved toward greater asset sensitivity. Much of the change in balance sheet
composition is attributed to the declining interest rate environment and the
increased level of asset prepayments; whereas, the prior year interest rate
environment was almost an inverse relationship, which reflected increasing rates
throughout the year and corresponding lower prepayment levels. The inverse
relationship is also displayed, to a certain degree, in the variances in
projected net interest income and MVE for 2001 and 2000. Consequently, the
hypothetical changes in interest rates have a larger effect on net interest
income and the market value of equity in the prior year. The Company began to
experience a shift in the balance sheet toward asset sensitivity in 2000, which
was attributed to the reduced life of certain assets and the control measures
taken in prior years, which continued throughout 2001, to reduce deposit cost
and identify opportunities for product and net interest income enhancement. As a
result, the deposit repricing led to a reduction in customer deposits during
1999, a corresponding increased reliance on non-core funding sources and an
increase in the overall duration of equity. Since 1999, the overall duration of
the balance sheet has declined and the mix of assets and liabilities is more
closely matched; however, the Company continues to use short-term borrowing
sources, including the FHLB as a means of funding asset growth and satisfying
liquidity needs.
BANKERS INSURANCE
To further enhance its community banking services, the Company in 1999
purchased an equity interest (currently 3.62%) in a company, which has now
become known as Bankers Insurance, L.L.C. (Bankers Insurance). Bankers
Insurance, a limited liability company, was formed through a consortium of banks
with
23
physical presence in Virginia, West Virginia, North Carolina, Tennessee and
Maryland. The pool of capital developed was utilized to purchase five insurance
agencies to date. These acquisitions are enabling the participating banks to
collectively enter the property, casualty, life and health insurance sales
market. With 14 office locations, Bankers Insurance is the fourth largest
insurance agency in Virginia. Insurance products are now available in the bank's
branches through referrals to Bankers Insurance. The Company believes that
through its extensive network of bank branches and its thousands of customer
relationships, it will be in a position to market significant volumes of
insurance, particularly property and casualty insurance for homes and
automobiles. The Company's entry into the insurance line of business is designed
to provide new sources of fee revenue and further solidify the financial
relationship between the company and its present customers.
RECENT LEGISLATION
UPDATE ON THE GRAMM-LEACH-BLILEY ACT OF 1999
The Gramm-Leach-Bliley Act of 1999 (The Act) added important new consumer
protections related to financial privacy. The law, which modernized financial
services by allowing commercial banks, securities firms and insurance industries
to compete with each other, also requires banks and other financial institutions
to create and disclose privacy policies to their customers.
These policies, which institutions began mailing in 2001, spell out how
each bank collects, uses and safeguards customer information. Banks which share
information with an unaffiliated company, in some cases, must offer customers
the right to "opt out." The policies explain how to opt out by providing a
response form or special phone number consumers may call.
The protection of personal identifying information is an ongoing challenge
for consumers, the government and the private sector. Like other businesses,
banks are using technologies to make their products and services more convenient
than ever. At the same time, banks are working to ensure their policies and
practices are in sync with our customers' expectations of privacy.
Additionally, The Act also protects consumers by directing regulators to
establish standards that ensure the security and confidentiality of customer
information; prohibit the transfer of credit card or other account numbers to
third-party marketers; and outlawing pretext calling (which involves information
brokers calling banks to obtain customer information with the intent to defraud
the bank or customer).
The Act also authorizes the establishment of Financial Holding Companies
and Financial Subsidiaries which are eligible to engage in activities that are
"financial in nature or incidental to financial in nature," or activities that
are "complementary to financial activities." In addition, the Act blesses as
"financial in nature" the acquisition of interests in, and control of, any
company, "whether financial or not," through securities underwriting, merchant
banking, or insurance company investments. In the case of securities affiliates,
the investment must be part of a bona fide underwriting or merchant or
investment banking activity, including investment activities engaged in for the
purpose of appreciation and ultimate resale or disposition of investment. In the
case of insurance companies, the portfolio investment must be made in the
ordinary course of business of the insurance company in accordance with relevant
state law governing such investments. The Act authorizes the Federal Reserve
Board to determine, for bank holding company affiliates, what activities are
financial in nature or incidental to financial in nature, or complementary to a
financial activity. To date, First Community has not opted to qualify as a
financial holding company and has not initiated any new financial subsidiaries.
24 FCB ANNUAL REPORT 2001
First Community, as well as the industry, supported these provisions in
The Act and remains committed to continuing its tradition of safeguarding
confidential financial information.
BASEL COMMITTEE CAPITAL ACCORD
The Basel Committee continues to work toward the development of the "New
Basel Accord." The Accord provides the conceptual framework for assessing
capital adequacy in a bank through three mutually reinforcing "pillars". The
pillars address the adequate capitalization of a bank through risk assessment
capital charges for risk inherent in the balance sheet and off balance sheet
positions held, the strength of the control environment operated by the
institution and market discipline of the bank to adequately disclose the risk
and capital positions of the bank in such a way that these positions are more
transparent.
The proposed implementation of the Basel Committee's new Capital Accord
(final document anticipated in 2002) is not until 2005. However, financial
institutions affected by the Accord are preparing to make systems and process
changes much sooner. The Accord is intended to provide banks with incentives to
evolve toward an advanced Internal Risk Based framework while ensuring that
banking organizations remain competitive and adequately capitalized. However,
the proposals are complex and are not fully developed; therefore, the full
impact of this legislation is not entirely understood at this time but will be
studied in great detail to understand the necessary preplanning and
implementation concerns and their overall impact. Additionally, continued
consultations and lobbying relating to the issues are anticipated as well as are
subsequent proposals from the Basel Committee.
ANTI-TERRORISM LEGISLATION AND DEVELOPMENTS AS A RESULT OF SEPTEMBER 11, 2001
Although there were a number of rules and proposals that were introduced
subsequent to September 11, 2001, two that have a significant impact upon the
banking industry include House Resolutions (H.R.) 3004 and 3162. Banks strongly
support the legislative developments embodied within H.R. 3004, the "Financial
Anti-Terrorism Act of 2001" that intensifies efforts to thwart money laundering
and terrorist financing activities. The Nation's war on terrorism has had a
major impact on the urgency placed on understanding and knowing customers.
Importantly, H.R. 3004 extends the reach of current laws applicable to banks to
other sectors of the financial system. In order to assist identification of
certain transactions, the Federal Bureau of Investigation has developed a new
model, which is intended to spot suspicious activity and money laundering
schemes. Rule 3162 entitled "Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, "or
the USA Patriot Act, has a number of provisions including enhanced domestic
security against terrorism, enhanced surveillance procedures, an act entitled
"International Money Laundering Abatement and Anti-Terrorist Financing Act of
2001," provisions for protecting the borders, removing obstacles to
investigating terrorism, providing for victims of terrorism and their families,
the requirement for increased information sharing for critical infrastructure
protection, strengthening the criminal laws against terrorism and improved
intelligence, among other provisions.
25
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 27
Consolidated Statements of Income 28
Consolidated Statements of Cash Flow 29
Consolidated Statements of Stockholders' Equity 31
Notes to Consolidated Financial Statements 32
Report of Independent Auditors 61
Report on Management's Responsibilities 62
26 FCB ANNUAL REPORT 2001
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED
BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
DECEMBER 31,
2001 2000
----------- -----------
ASSETS
Cash and due from banks $ 47,566 $ 38,457
Interest-bearing balances - Federal Home Loan Bank 249 11,786
Securities available for sale (amortized cost of $352,759, 2001; $210,126, 2000) 354,007 207,562
Securities held to maturity (market value, $43,393, 2001; $78,030, 2000) 41,884 75,736
Loans held for sale 65,532 11,570
Loans held for investment, net of unearned income 904,496 811,256
Less allowance for loan losses 13,952 12,303
----------- -----------
Net loans held for investment 890,544 798,953
Premises and equipment 21,713 18,786
Other real estate owned 3,029 2,406
Interest receivable 8,765 9,261
Other assets 18,468 19,299
Intangible assets 26,478 24,201
----------- -----------
TOTAL ASSETS $ 1,478,235 $ 1,218,017
=========== ===========
LIABILITIES
Deposits
Non-interest-bearing deposits $ 161,346 $ 128,584
Interest-bearing deposits 916,914 771,319
----------- -----------
TOTAL DEPOSITS 1,078,260 899,903
Interest, taxes and other liabilities 15,852 13,238
Federal funds purchased 26,500 --
Securities sold under agreements to repurchase 79,262 46,179
FHLB borrowings and other indebtedness 145,320 138,015
----------- -----------
TOTAL LIABILITIES 1,345,194 1,097,335
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value; 15,000,000 shares authorized in 2001 and 2000;
9,955,425 shares issued in 2001 and 9,052,112 in 2000; and 9,936,442 and
9,040,370 shares outstanding in 2001 and 2000, respectively 9,955 9,052
Additional paid-in capital 60,189 35,273
Retained earnings 62,566 78,097
Treasury stock, at cost (424) (202)
Accumulated other comprehensive income (loss) 755 (1,538)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 133,041 120,682
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,478,235 $ 1,218,017
=========== ===========
See Notes to Consolidated Financial Statements.
27
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Share and Per Share Data)
YEARS ENDED DECEMBER 31,
2001 2000 1999
---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans held for investment $ 72,582 $ 68,132 $ 57,978
Interest on loans held for sale 2,956 281 58
Interest on securities-taxable 10,259 11,543 11,882
Interest on securities-nontaxable 6,190 5,575 5,689
Interest on federal funds sold and deposits in banks 842 427 885
---------- ---------- ----------
TOTAL INTEREST INCOME 92,829 85,958 76,492
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits 31,884 30,718 29,137
Interest on short-term borrowings 9,913 8,045 2,332
Interest on other indebtedness 612 616 781
---------- ---------- ----------
TOTAL INTEREST EXPENSE 42,409 39,379 32,250
---------- ---------- ----------
NET INTEREST INCOME 50,420 46,579 44,242
---------- ---------- ----------
Provision for loan losses 5,134 3,986 2,893
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 45,286 42,593 41,349
---------- ---------- ----------
NON-INTEREST INCOME
Fiduciary income 1,815 1,804 2,092
Service charges on deposit accounts 5,966 4,007 3,640
Other service charges, commissions and fees 1,435 1,361 1,095
Mortgage banking income 9,582 4,651 1,204
Net securities gains 181 1 --
Other operating income 1,296 668 2,701
---------- ---------- ----------
TOTAL NON-INTEREST INCOME 20,275 12,492 10,732
---------- ---------- ----------
NON-INTEREST EXPENSE
Salaries and employee benefits 19,830 16,046 13,132
Occupancy expense of bank premises 2,615 2,482 2,128
Furniture and equipment expense 1,814 1,698 1,743
Goodwill and core deposit amortization 2,285 2,154 2,049
Other operating expense 11,481 8,588 8,405
---------- ---------- ----------
TOTAL NON-INTEREST EXPENSE 38,025 30,968 27,457
---------- ---------- ----------
Income before income taxes 27,536 24,117 24,624
Income tax expense 8,402 7,054 7,772
---------- ---------- ----------
NET INCOME $ 19,134 $ 17,063 $ 16,852
========== ========== ==========
WEIGHTED AVERAGE BASIC SHARES OUTSTANDING 9,944,310 9,607,217 9,642,830
========== ========== ==========
WEIGHTED AVERAGE DILUTED SHARES OUTSTANDING 9,980,919 9,607,217 9,642,830
========== ========== ==========
BASIC AND DILUTED EARNINGS PER COMMON SHARE $ 1.92 $ 1.78 $ 1.75
========== ========== ==========
See Notes to Consolidated Financial Statements.
28 FCB ANNUAL REPORT 2001
CONSOLIDATED STATEMENTS OF CASH FLOW
(Amounts in Thousands)
YEARS ENDED DECEMBER 31,
2001 2000 1999
--------- --------- ---------
OPERATING ACTIVITIES
Cash flows from operating activities:
Net income $ 19,134 $ 17,063 $ 16,852
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Provision for loan losses 5,134 3,986 2,893
Depreciation of premises and equipment 1,490 1,396 1,413
Amortization of intangibles 2,119 2,156 2,020
Net investment amortization and accretion 485 233 483
Net gain on the sale of assets (7,659) (2,517) (832)
Mortgage loans originated for sale (563,018) (106,169) --
Proceeds from sale of mortgage loans 516,812 100,148 --
Decrease (increase) in interest receivable 874 (861) (1,060)
(Increase) decrease in other assets (175) 8,454 (3,668)
Increase (decrease) in other liabilities 2,728 66 (754)
Other, net (17) (296) 80
--------- --------- ---------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (22,093) 23,659 17,427
--------- --------- ---------
INVESTING ACTIVITIES
Cash flows from investing activities:
Proceeds from sales of securities available for sale 18,907 2,163 8,203
Proceeds from maturities and calls of securities available for sale 102,458 17,849 30,881
Proceeds from maturities and calls of investment securities 1,602 3,016 5,278
Purchase of securities available for sale (232,056) (4,591) (69,611)
Net increase in loans made to customers (67,115) (66,918) (87,986)
Purchase of bank-owned life insurance -- (4,100) --
Cash provided by (used in) branch acquisitions, net 77,021 3,065 (1,417)
Purchase of premises and equipment (3,462) (1,019) (2,222)
Proceeds from sale of equipment 127 466 82
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES (102,518) (50,069) (116,792)
--------- --------- ---------
29
CONSOLIDATED STATEMENTS OF CASH FLOW (continued)
(Amounts in Thousands)
YEARS ENDED DECEMBER 31,
2001 2000 1999
----------------------------------------------------
FINANCING ACTIVITIES
Cash flows from financing activities:
Net increase (decrease) in demand and savings deposits $ 36,144 $ (7,755) $ (23,154)
Net increase (decrease) in time deposits 28,625 22,731 (19,579)
Net increase in short-term debt 66,902 35,126 80,082
Repayment of long-term debt (14) (39) (7,993)
Acquisition of treasury stock (599) (2,869) (1,542)
Cash paid in lieu of fractional shares -- -- (18)
Dividends paid (8,875) (8,338) (7,730)
--------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 122,183 38,856 20,066
--------- -------- ---------
CASH AND CASH EQUIVALENTS
Net (decrease) increase in cash and cash equivalents (2,428) 12,446 (79,299)
Cash and cash equivalents at beginning of year 50,243 37,797 117,096
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 47,815 $ 50,243 $ 37,797
========= ======== =========
See Notes to Consolidated Financial Statements.
30 FCB ANNUAL REPORT 2001
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands, Except Share and Per Share Information)
Accumulated
Other
Compre-
Additional Unallocated hensive
Common Paid-in Retained Treasury ESOP Income
Stock Capital Earnings Stock Shares (Loss) Total
------- -------- -------- ------- ------- -------- ---------
BALANCE DECEMBER 31, 1998 $ 8,992 $ 34,306 $ 60,250 $(1,403) $(1,664) $ 1,238 $ 101,719
Comprehensive income:
Net income -- -- 16,852 -- -- -- 16,852
Other comprehensive income
Unrealized holding losses on securities
available for sale, net of tax -- -- -- -- -- (6,711) (6,711)
Less reclassification adjustment for
gains realized in net income, net of tax -- -- -- -- -- -- --
------- -------- -------- ------- ------- -------- ---------
Comprehensive income -- -- 16,852 -- -- (6,711) 10,141
Common dividends declared ($.80 per share) -- -- (7,730) -- -- -- (7,730)
Purchase 71,589 treasury shares at $21.54 per share -- -- -- (1,542) -- -- (1,542)
Allocation of ESOP shares -- (42) -- -- 942 -- 900
------- -------- -------- ------- ------- -------- ---------
BALANCE DECEMBER 31, 1999 8,992 34,264 69,372 (2,945) (722) (5,473) 103,488
Comprehensive income:
Net income -- -- 17,063 -- -- -- 17,063
Other comprehensive income
Unrealized holding gains on securities
available for sale, net of tax -- -- -- -- -- 3,935 3,935
Less reclassification adjustment for
gains realized in net income, net of tax -- -- -- -- -- -- --
------- -------- -------- ------- ------- -------- ---------
Comprehensive income -- -- 17,063 -- 3,935 20,998
Common dividends declared ($.86 per share) -- -- (8,338) -- -- -- (8,338)
Retirement of treasury shares (374) (5,238) -- 5,612 -- -- --
Issuance of common stock 434 6,343 -- -- -- -- 6,777
Purchase 145,682 treasury shares at $19.70 per share -- -- -- (2,869) -- -- (2,869)
Allocation of ESOP shares -- (96) -- -- 722 -- 626
------- -------- -------- ------- ------- -------- ---------
BALANCE DECEMBER 31, 2000 9,052 35,273 78,097 (202) -- (1,538) 120,682
COMPREHENSIVE INCOME:
NET INCOME -- -- 19,134 -- -- -- 19,134
OTHER COMPREHENSIVE INCOME
UNREALIZED HOLDING GAINS ON SECURITIES
AVAILABLE FOR SALE, NET OF TAX -- -- -- -- -- 2,402 2,402
LESS RECLASSIFICATION ADJUSTMENT FOR
GAINS REALIZED IN NET INCOME, NET OF TAX -- -- -- -- -- (109) (109)
------- -------- -------- ------- ------- -------- ---------
COMPREHENSIVE INCOME -- -- 19,134 -- -- 2,293 21,427
COMMON DIVIDENDS DECLARED ($.89 PER SHARE) -- -- (8,875) -- -- -- (8,875)
PURCHASE 27,036 TREASURY SHARES AT $22.17 PER SHARE -- -- -- (599) -- -- (599)
ALLOCATION OF ESOP SHARES -- 29 -- 377 -- -- 406
EFFECT OF 10% STOCK DIVIDEND 903 24,887 (25,790) -- -- -- --
------- -------- -------- ------- ------- -------- ---------
BALANCE DECEMBER 31, 2001 $ 9,955 $ 60,189 $ 62,566 $ (424) $ -- $ 755 $ 133,041
======= ======== ======== ======= ======= ======== =========
See Notes to Consolidated Financial Statements.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounting and reporting policies of First Community Bancshares, Inc.
("First Community" or the "Company") and subsidiary conform to accounting
principles generally accepted in the United States and to predominant practices
within the banking industry. In preparing financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ from those estimates.
Assets held in an agency or fiduciary capacity are not assets of the Company and
are not included in the accompanying consolidated balance sheets. Certain
amounts in the 2000 and 1999 financial statements have been reclassified to
conform to the 2001 presentation. Subsequent to year-end, a 10% stock dividend
was declared on February 19, 2002 for distribution on March 28, 2002 to
shareholders of record March 1, 2002. As a result of the stock dividend, all per
share amounts except stock prices have been retroactively adjusted in accordance
with generally accepted accounting principles.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of First Community include the accounts of
its wholly-owned subsidiary. All significant inter-company balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, federal funds sold,
and interest-bearing balances on deposit with the Federal Home Loan Bank that
are available for immediate withdrawal. Interest and income taxes paid were as
follows:
2001 2000 1999
---------------------------------------
(Amounts in Thousands)
Interest $42,968 $37,526 $33,175
Income taxes 6,945 7,206 8,195
Pursuant to agreements with the Federal Reserve Bank, the Company maintains a
cash balance of approximately $1.0 million in lieu of charges for check clearing
and other services.
SECURITIES AVAILABLE FOR SALE
Securities to be held for indefinite periods of time including securities that
management intends to use as part of its asset/liability management strategy,
and that may be sold in response to changes in interest rates, changes in
prepayment risk, or other similar factors are classified as available for sale
and are recorded at estimated fair value. Unrealized appreciation or
depreciation in fair value above or below amortized cost is included in
stockholders' equity net of income taxes which is entitled "Other Comprehensive
Income." Premiums and discounts are amortized to expense or accreted to income
over the life of the security. Gain or loss on sale is based on the specific
identification method.
SECURITIES HELD TO MATURITY
Investments in debt securities that management has the ability and intent to
hold to maturity are carried at cost. Premiums and discounts are amortized to
expense and accreted to income over the lives of the securities. Gain or loss on
the call or maturity of investment securities, if any, is recorded
32 FCB ANNUAL REPORT 2001
based on the specific identification method. At December 31, 2001 and 2000, no
securities were held for trading purposes and no trading account was maintained.
LOANS HELD FOR SALE AND DERIVATIVE FINANCIAL INVESTMENTS
Loans held for sale primarily consist of one to four family residential loans
originated for sale in the secondary market and are carried at the lower of cost
or fair value determined on an aggregate basis. Gains and losses on sales of
loans held for sale are included in mortgage banking income in the Consolidated
Statements of Income.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, as
amended. The Statement requires the Company to recognize all derivatives on the
balance sheet at fair value. Statement 133 also specifies new methods of
accounting for hedging transactions, prescribes the items and transactions that
may be hedged, and specifies detailed criteria to be met to qualify for hedge
accounting. Derivatives that are not hedges must be adjusted to fair value
through income. If the derivative is a hedge, depending upon the nature of the
hedge, changes in the fair value of derivatives are either offset against the
changes in the fair value of assets, liabilities or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. As required, the Company adopted Statement 133 on
January 1, 2001. Because of the limited use of derivatives on January 1, 2001,
the adoption did not have a material impact on the Company's financial
statements.
For loans to be sold, the Company enters into forward commitments or derivatives
to manage the risk inherent in interest rate lock commitments made to potential
borrowers. The inventory of loans and loan commitments (both retail and
wholesale) are hedged to protect the Company from unusual fluctuations in the
cash flows derived upon settlement of the loans with secondary market
purchasers, and consequently, to achieve a desired margin upon delivery. The
hedge transactions are used for risk mitigation and are not for trading
purposes. The derivative financial instruments derived from these hedging
transactions are recorded at fair value in the Consolidated Balance Sheets and
the changes in fair value are reflected in the Consolidated Statements of
Income. For the year ended December 31, 2001, the net accumulated derivative
expense reflected in the Consolidated Statements of Income was $1.2 million.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level to absorb probable losses
inherent in the loan portfolio. The Company consistently applies a monthly
review process to continually evaluate loans for changes in credit risk. This
process serves as the primary means by which the Company evaluates the adequacy
of the allowance for loan losses. The Company's recorded allowance for loan
losses is comprised of two components that relate to: i) the allowance allocated
to specifically identified loan relationships that are on nonaccrual status, 90
days past due or more and loans with elements of credit weakness and ii) an
allowance allocated to the remaining loans, grouped by similar characteristics,
based on historical loss factors.
The allowance is allocated to specific loans to cover loan relationships
identified with
33
significant cash flow weakness and for which a collateral deficiency may be
present. The reserves established under the specific reserve method are judged
based upon the borrower's estimated cash flow and projected liquidation value of
related collateral. The allowance is allocated to pools of loans based on
historical loss experience to cover the homogeneous and nonhomogeneous loans not
individually evaluated. Pools of loans are grouped by specific category and risk
characteristics. To determine the amount of allowance needed for each loan
category, an estimated loss percentage is developed based upon historical loss
experience. The calculated percentage is used to determine the estimated
allowance excluding any relationships specifically identified and evaluated.
While allocations are made to specific loans and classifications within the
various categories of loans, the reserve is available for all loan losses. In
developing the allowance for loan losses, the Company also considers various
inherent risk factors, such as current economic conditions, the level of
delinquencies and nonaccrual loans, trends in the volume and term of loans,
anticipated impact from changes in lending policies and procedures, and any
concentration of credits in certain industries or geographic areas.
The allowance for loan losses related to impaired loans is based upon the
discounted cash flows or fair value of collateral when it is probable that all
amounts due pursuant to contractual terms of the loan will not be collected and
the recorded investment in the loan exceeds the fair value. The impaired status
of all loans designated as nonaccrual or which have been classified as
"substandard" or "doubtful" is evaluated through the Company's loan review
process. Certain smaller balance, homogeneous loans, such as consumer
installment loans and residential mortgage loans, are evaluated for impairment
on an aggregate basis in accordance with the Company's policy.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on the straight-line method over estimated useful
lives. Maintenance and repairs are charged to current operations while
improvements are capitalized. Disposition gains and losses are reflected in
current operations. Long-lived assets to be disposed of and certain intangibles
are evaluated for impairment.
INCOME RECOGNITION
Accrual of interest on loans is based generally on the daily amount of principal
outstanding. It is the Company's policy to discontinue the accrual of interest
on loans based on the payment status and evaluation of the related collateral
and the financial strength of the borrower. The accrual of interest income is
normally discontinued when a loan becomes 90 days past due as to principal or
interest. Management may elect to continue the accrual of interest when the loan
is well secured and in process of collection. When interest accruals are
discontinued, interest accrued and not collected in the current year is reversed
and interest accrued and not collected from prior years is charged to the
reserve for possible loan losses. Consumer revolving credit loans that become
180 days past due are automatically charged to the allowance for loan losses.
LOAN FEE INCOME
Loan origination and underwriting fees are recorded as a reduction of direct
costs associated with loan processing, including salaries, review of legal
documents,
34 FCB ANNUAL REPORT 2001
obtainment of appraisals, and other direct costs. Fees in excess of those
related direct costs are deferred and amortized over the life of the related
loan. Loan commitment fees are deferred and amortized over the related
commitment period.
OTHER REAL ESTATE OWNED
Other real estate owned and acquired through foreclosure is stated at the lower
of cost or fair value less estimated costs to sell. Loan losses arising from the
acquisition of such properties are charged against the reserve for possible loan
losses. Expenses incurred in connection with operating the properties,
subsequent write-downs and gains or losses upon sale are included in other
noninterest income and expense.
UNALLOCATED ESOP SHARES
The cost of unallocated employee stock ownership plan shares was included as a
component of stockholders' equity. The plan shares were allocated to participant
accounts over a period not to exceed seven years based upon relative employee
compensation.
STOCK OPTIONS
The Company has a stock option plan for certain executives and directors
accounted for under the intrinsic value method. Because the exercise price of
the Company's employee/director stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
INTANGIBLE ASSETS
The excess of the cost of an acquisition over the fair value of the net assets
acquired is recorded as goodwill and amortized on a straight-line basis over
varying periods of 15 to 20 years. The unamortized balance of goodwill was
$25,349,000 and $23,794,000 at December 31, 2001 and 2000, respectively. A
portion of the cost of purchased subsidiaries has been allocated to values
associated with the future earnings potential of acquired deposits and is being
amortized over the estimated lives of the deposits, ranging from seven to ten
years. The unamortized balance of identified intangibles associated with
acquired deposits was $1,128,000 and $407,000 at December 31, 2001 and 2000,
respectively.
In July 2001, the Financial Accounting Standards Board (FASB) issued Statement
141, Business Combinations, and Statement 142, Goodwill and Other Intangible
Assets. Statement 141 requires that all business combinations initiated after
June 30, 2001 be accounted for under the purchase method of accounting. Use of
the pooling-of-interests method is no longer permitted. While Statement 141 will
impact the way in which future business combinations are accounted for, it had
no effect on the Company's financial position or results of operations.
Statement 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed for impairment. This change is intended to provide investors
with greater transparency regarding the economic value of goodwill and its
impact on earnings. The amortization of goodwill, except for the portion of
goodwill recorded and amortized in accordance with FASB Statement 72, Accounting
for Certain Acquisitions of Banking or Thrift Institutions, ceases upon adoption
of Statement 142 on January 1, 2002. During 2002, the Company will perform the
required impairment tests of goodwill and indefinite lived intangible assets in
accordance with the new standard. Application of the nonamortization provisions
of Statement 142 will result in the elimination of goodwill amortization. Net
income and basic and diluted earnings per share would
35
have been $20.6 million, or $2.07 basic and $2.06 diluted earnings per share for
the year ended December 31, 2001. Since management has not completed an
impairment analysis, the potential for impairment cannot currently be
determined.
RECENT ACCOUNTING DEVELOPMENTS
In August 2001, the FASB issued Statement 143, Accounting for Asset Retirement
Obligations, effective for fiscal years beginning after June 15, 2002 with
earlier application encouraged. The standard requires entities to record the
fair value of a liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially recorded, the entity
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, the entity either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement.
Implementation of Statement 143 is not expected to have a material impact on the
Company's financial position or results of operations.
In October 2001, the FASB issued Statement 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, that is applicable to financial statements issued
for fiscal years beginning after December 15, 2001 (January 2002 for calendar
year-end companies). The FASB's new rules on asset impairment supersede FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-lived Assets to Be Disposed Of, and provide a single accounting model for
long-lived assets to be disposed of. Implementation of Statement 144 is not
expected to have a material impact on the Company's financial position or
results of operations.
INCOME TAXES
Deferred income taxes, which are included in other assets, are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
tax rates to the differences between the financial statement carrying amounts
and the tax bases of existing assets and liabilities. The components of other
comprehensive income have been computed using a 40% effective tax rate.
EARNINGS PER SHARE
Basic earnings per share is determined by dividing net income by the weighted
average number of shares outstanding. Diluted earnings per share is determined
by dividing net income by the weighted average shares outstanding increased by
the dilutive effect of stock options. The incremental shares for dilutive
earnings per share related to the stock options were 36,609 in 2001. There was
no such dilutive effect for 2000 and 1999.
NOTE 2. STOCK DIVIDEND
On February 19, 2002, the Company's Board of Directors authorized a 10%
stock dividend to shareholders of record March 1, 2002. Average shares
outstanding and per share amounts included in the consolidated financial
statements have been adjusted to give effect to the stock dividend.
NOTE 3. MERGER AND ACQUISITIONS
On December 7, 2001, the Company completed the acquisition of several branches
of Branch Banking and Trust Company of Virginia ("BB&T") and F& M Bank--Southern
Virginia ("F&M") located in Clifton Forge, Emporia, and Drakes Branch, Virginia.
The total consideration paid of $3.6 million resulted in an intangible
36 FCB ANNUAL REPORT 2001
asset of approximately $3.8 million. The consummation of this transaction
resulted in $77 million in cash, an additional $114 million in deposits to the
Bank, and $31 million in additional loans.
On October 31, 2000, First Community Bank, N. A. ("FCBNA"), the Company's
wholly-owned banking subsidiary, acquired 100% of the common stock of Citizens
Southern Bank, Inc., ("Citizens"), headquartered in Beckley, West Virginia. Upon
acquisition, Citizens, formerly a state-chartered bank, had assets of
approximately $67.8 million with two offices located in Beckley, West Virginia.
Pursuant to the Agreement, the Company exchanged 1.74 shares of the Company's
common stock for each of Citizens' 250,000 common shares. The total
consideration paid resulted in an intangible asset of approximately $3.3
million. The acquisition was accounted for under the purchase method of
accounting. Accordingly, results of operations of Citizens are included in the
consolidated results from the date of acquisition. Had Citizens been included in
the Company's results for the entire year of 2000, results would not have been
materially different than those reported herein.
NOTE 4. SECURITIES AVAILABLE FOR SALE
As of December 31, the amortized cost and estimated fair value of securities
classified as available for sale are as follows:
2001
--------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
U.S. Government agency securities $195,689 $ 981 $ (467) $196,203
States and political subdivisions 97,683 1,230 (1,464) 97,449
Other securities 59,387 1,022 (54) 60,355
-------- ------ ------- --------
TOTAL $352,759 $3,233 $(1,985) $354,007
======== ====== ======= ========
2000
--------------------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government agency securities $135,459 $ 194 $(1,496) $134,157
States and political subdivisions 34,664 565 (581) 34,648
Other securities 40,003 323 (1,569) 38,757
-------- ------ ------- --------
TOTAL $210,126 $1,082 $(3,646) $207,562
======== ====== ======= ========
37
Securities available for sale with estimated fair values of $180,086,000 and
$156,389,000 at December 31, 2001 and 2000, respectively, were pledged to secure
public deposits, securities sold under agreements to repurchase and other
short-term borrowings and for other purposes.
As a condition to membership in the Federal Home Loan Bank ("FHLB") system,
FCBNA is required to subscribe to a minimum level of stock in the FHLB of
Atlanta. At December 31, 2001, FCBNA owned approximately $8.6 million in
stock which is classified as available for sale.
The amortized cost and estimated fair value of securities available for sale by
contractual maturity, at December 31, 2001, are shown below. Expected maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties. During
2001, sales of securities available for sale resulted in gains of $209,000 and
losses of $28,000; there were no sales of securities available for sale during
2000 and 1999.
U.S. STATES TAX
GOVERNMENT AND EQUIVALENT
AGENCIES & POLITICAL OTHER PURCHASE
CORPORATIONS SUBDIVISIONS SECURITIES TOTAL YIELD
- ----------------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS)
AMORTIZED COST
Maturity:
Within one year $ -- $ 846 $ -- $ 846 8.38%
After one year through five years 21,388 20,646 23,162 65,196 6.11%
After five years through ten years 53,662 19,601 23,403 96,666 6.46%
After ten years 120,639 56,590 12,822 190,051 6.68%
-------- ------- ------- --------
TOTAL AMORTIZED COST $195,689 $97,683 $59,387 $352,759 --
======== ======= ======= ========
Tax equivalent purchase yield 5.84% 8.25% 5.91% 6.52% --
Average maturity (in years) 17.31 12.39 10.48 14.80 --
FAIR VALUE
Maturity:
Within one year $ -- $ 858 $ -- $ 858 --
After one year through five years 21,395 21,194 23,540 66,129 --
After five years through ten years 53,842 20,064 23,454 97,360 --
After ten years 120,966 55,333 13,361 189,660 --
-------- ------- ------- --------
TOTAL FAIR VALUE $196,203 $97,449 $60,355 $354,007 --
======== ======= ======= ========
38 FCB Annual Report 2001
NOTE 5. SECURITIES HELD TO MATURITY
The following table presents amortized cost and approximate fair values of
investment securities held to maturity at December 31:
2001
--------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---- ----- ------ -----
(AMOUNTS IN THOUSANDS)
U.S. Government agency securities $ 743 $ 16 $ -- $ 759
States and political subdivisions 39,768 1,487 -- 41,255
Other securities 1,373 6 -- 1,379
------- ------ ------- -------
TOTAL $41,884 $1,509 $ -- $43,393
======= ====== ======= =======
2000
--------------------------------------------------------
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
(Amounts in Thousands)
U.S. Government agency securities $ 2,103 $ 5 $(14) $ 2,094
States and political subdivisions 72,264 2,298 -- 74,562
Other securities 1,369 6 (1) 1,374
------- ------ ---- -------
TOTAL $75,736 $2,309 $(15) $78,030
======= ====== ==== =======
Various investment securities classified as held to maturity with an amortized
cost of approximately $4,439,000 and $6,804,000 were pledged at December 31,
2001 and 2000, respectively, to secure public deposits and for other purposes
required by law.
As permitted upon adopting Statement 133 on January 1, 2001, the Company
transferred securities with a carrying value of $31,954,000 from held to
maturity to available for sale. At the date of transfer, these securities had an
unrealized gain of approximately $792,000.
39
The following table presents maturities of investments by type on both an
amortized cost and estimated fair value basis at December 31, 2001:
U.S. STATES
GOVERNMENT AND TAX
AGENCIES & POLITICAL OTHER PURCHASE
CORPORATIONS SUBDIVISIONS SECURITIES TOTAL YIELD
------------ ------------ ---------- ----- -----
(AMOUNTS IN THOUSANDS)
AMORTIZED COST
Maturity:
Within one year $ -- $ -- $ 998 $ 998 8.07%
After one year through five years 562 4,011 75 4,648 8.22%
After five years through ten years 181 12,561 300 13,042 8.60%
After ten years -- 23,196 -- 23,196 8.69%
---- ------- ------ -------
TOTAL AMORTIZED COST $743 $39,768 $1,373 $41,884 --
==== ======= ====== =======
Tax equivalent purchase yield 6.22% 8.67% 7.67% 8.59% --
Average maturity (in years) 3.14 10.18 2.00 9.79 --
FAIR VALUE
Maturity:
Within one year $ -- $ -- $1,004 $ 1,004 --
After one year through five years 569 4,254 75 4,898 --
After five years through ten years 190 13,045 300 13,535 --
After ten years -- 23,956 -- 23,956 --
---- ------- ------ -------
TOTAL FAIR VALUE $759 $41,255 $1,379 $43,393 --
==== ======= ====== =======
NOTE 6. LOANS
Loans consist of the following at December 31:
2001 2000
-------- --------
(Amounts in Thousands)
Real estate-commercial $259,717 $222,571
Real estate-construction 77,402 73,087
Real estate-residential 267,139 293,732
Commercial, financial and agricultural 162,173 86,887
Loans to individuals for household and other consumer expenditures 137,104 134,330
All other loans 961 649
-------- --------
$904,496 $811,256
======== ========
40 FCB ANNUAL REPORT 2001
The banking subsidiary of the Company is a party to financial instruments with
off-balance sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, standby letters of credit and financial guarantees. These
instruments involve, to varying degrees, elements of credit and interest rate
risk beyond the amount recognized on the balance sheet. The contractual amounts
of those instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit and financial guarantees written is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for on-
balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is not a violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by the Company, upon extension of credit is based on
management's credit evaluation of the counterparts. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a customer to
a third party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.
To the extent deemed necessary, collateral of varying types and amounts is held
to secure customer performance under certain of those letters of credit
outstanding at December 31, 2001.
Financial instruments whose contract amounts represent credit risk at December
31, 2001 are commitments to extend credit (including availability of lines of
credit) - $88.4 million, and standby letters of credit and financial guarantees
written - $6.8 million. At December 31, 2001, FCBNA's subsidiary, United First
Mortgage, Inc. ("UFM"), had commitments to originate loans of $32.2 million.
Loan commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral deemed
necessary by the Company is based on management's credit evaluation and
underwriting guidelines for the particular loan. The total commitments
outstanding at December 31, 2001 are summarized in the following table.
41
2001
----------------------------------
AMOUNT RATE
(AMOUNTS IN THOUSANDS)
Real estate-commercial (fixed) $ 6,084 6.00 -- 11.00%
Real estate-commercial (variable) 22,371 4.41 -- 10.00%
Real estate-construction (fixed) 12,930 3.91 -- 10.50%
Real estate-construction (variable) 5,538 4.30 -- 9.00%
Real estate-residential (fixed) 35,890* 6.25 -- 18.00%
Real estate-residential (variable) 12,894 4.25 -- 14.00%
Commercial, financial, agricultural (fixed) 10,642 3.93 -- 18.00%
Commercial, financial, agricultural (variable) 15,219 4.63 -- 10.50%
Loans to individuals for household and other consumer
expenditures (fixed) 4,863 4.15 -- 18.50%
Loans to individuals for household and other consumer
expenditures (variable) 953 4.25 -- 14.50%
--------
TOTAL $127,384
========
* Includes $32.2 million in loan commitments by UFM
Management analyzes the loan portfolio regularly for concentrations of credit
risk, including concentrations in specific industries and geographic location.
At December 31, 2001, commercial real estate loans comprised 43% of the total
loan portfolio. Commercial loans include loans to small to mid-size industrial,
commercial and service companies that include but are not limited to coal mining
companies, manufacturers, automobile dealers, and retail and wholesale
merchants. Commercial real estate projects represent several different sectors
of the commercial real estate market, including residential land development,
apartment building operators, commercial real estate lessors, and hotel/motel
developers. Management believes that concentration risk from these loans is
minimal, as these loans are geographically diverse and are generally located in
economically strong metropolitan markets in Virginia and North Carolina.
Additionally, strict underwriting standards requiring comprehensive reviews and
independent evaluations are performed on virtually all commercial loans by
Credit Administration and Loan Committees prior to approval. Updates to these
loan reviews are done periodically on a semiannual or annual basis depending on
the size of the loan relationship.
The majority of the loans in the current portfolio, other than commercial and
commercial real estate, were made and collateralized in West Virginia, Virginia,
North Carolina and the surrounding mid-Atlantic area. Although sections of the
West Virginia and Southwestern Virginia economies are closely related to natural
resource production, they are supplemented by service industries. The current
economies of the Company's markets are seen as relatively stable and are not
seen as highly subject to
42 FCB ANNUAL REPORT 2001
volatile economic change. The Company's presence in three states, West Virginia,
Virginia, and North Carolina, provides additional diversification against
geographic concentrations of credit risk.
In the normal course of business, the banking subsidiary of the Company has made
loans to directors and executive officers of the Company and its subsidiary. All
loans and commitments made to such officers and directors and to companies in
which they are officers, or have significant ownership interest, have been made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons. The
aggregate dollar amount of such loans was $7.8 million and $10.2 million at
December 31, 2001 and 2000, respectively. Advances and repayments of these loans
during 2001 were $1.2 million and $3.6 million, respectively.
NOTE 7. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses was as follows:
2001 2000 1999
-------- -------- --------
(Amounts in Thousands)
Balance, January 1 $ 12,303 $ 11,900 $ 11,404
Recoveries credited to reserve 911 902 610
Provision for loan losses 5,134 3,986 2,893
Acquisition balance 484 1,051 --
-------- -------- --------
18,832 17,839 14,907
Loans charged-off (4,880) (5,536) (3,007)
-------- -------- --------
Balance, December 31 $ 13,952 $ 12,303 $ 11,900
======== ======== ========
The following table presents the Company's investment in loans considered to be
impaired and related information on those impaired loans:
2001 2000
---- ----
(Amounts in Thousands)
Recorded investment in loans considered to be impaired $5,129 $2,795
Loans considered to be impaired that were on a nonaccrual basis 1,229 2,795
Allowance for loan losses related to loans considered to be impaired 1,310 419
Average recorded investment in impaired loans 5,674 3,001
Total interest income recognized on impaired loans 255 15
During 2001, 2000 and 1999, $2,116,000, $2,530,000 and $1,667,000 of assets were
acquired through foreclosure and transferred to real estate owned.
43
NOTE 8. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following as of December 31:
2001 2000
------- -------
(Amounts in Thousands)
Land $ 7,123 $ 5,807
Bank premises 22,258 20,703
Equipment 15,831 15,199
------- -------
45,212 41,709
Less: accumulated depreciation and amortization 23,499 22,923
------- -------
TOTAL 21,713 18,786
======= =======
NOTE 9. OTHER INDEBTEDNESS
Other indebtedness includes structured term borrowings from the FHLB of
$135,000,000 in the form of convertible and callable advances of $125,000,000
and noncallable advances of $10,000,000. The callable advances may be called
based on predefined factors in quarterly increments after a lockout period,
which may substantially shorten the lives of these instruments. If these
advances are called, the debt may be paid in full, converted to another FHLB
credit product or converted to an adjustable rate advance. Contractual
maturities are $35,000,000 in 2002 and $100,000,000 in 2010. The weighted
average rate for this debt is 5.86%.
The Company's banking subsidiary is a member of the FHLB which provides credit
in the form of short-term and long-term advances collateralized by various
mortgage assets. At December 31, 2001, credit availability with the FHLB totaled
approximately $124.1 million. Advances from the FHLB are secured by stock in the
FHLB of Atlanta, qualifying first mortgage loans of $382.7 million,
mortgage-backed securities, and certain other investment securities. The FHLB
advances are subject to restrictions or penalties in the event of prepayment.
Additional indebtedness consists of term borrowings with the FHLB of $10,000,000
as of December 31, 2001 and 2000. This debt has a weighted average interest rate
of 6.01% and $8,000,000 matures in 2003, while $2,000,000 matures in 2008. Other
various debt obligations of the Company approximated $320,000 at December 31,
2001 and $3,015,000 at December 31, 2000.
44 FCB ANNUAL REPORT 2001
NOTE 10. DEPOSITS
At December 31, 2001, the scheduled maturities of certificates of deposit are as
follows:
(In Thousands)
2002 $476,725
2003 69,806
2004 13,155
2005 15,115
2006 and thereafter 15,589
--------
$590,390
========
Time deposits, including Certificates of Deposit issued in denominations of
$100,000 or more, amounted to $173.0 million and $136.6 million at December 31,
2001 and 2000, respectively. Interest expense on these certificates was $6.7
million, $6.5 million, and $5.4 million for 2001, 2000, and 1999, respectively.
At December 31, 2001, the scheduled maturities of certificates of deposit of
$100,000 or more are as follows:
(In Thousands)
Three Months or Less $ 51,729
Over Three to Six Months 52,867
Over Six to Twelve Months 23,943
Over Twelve Months 44,503
--------
TOTAL $173,042
========
NOTE 11. INCOME TAXES
YEARS ENDED DECEMBER 31,
2001 2000 1999
------ ------ ------
INCOME TAXES ARE AS FOLLOWS: (Amounts in Thousands)
Income exclusive of securities gains $8,330 $7,053 $7,772
Net securities gains 72 1 --
------ ------ ------
$8,402 $7,054 $7,772
====== ====== ======
YEARS ENDED DECEMBER 31,
2001 2000 1999
------- ------- -------
INCOME TAX PROVISIONS CONSIST OF: (Amounts in Thousands)
Current tax expense $ 8,734 $ 7,150 $ 8,324
Deferred tax (benefit) expense (332) (96) (552)
------- ------- -------
$ 8,402 $ 7,054 $ 7,772
======= ======= =======
45
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts deducted for income tax purposes. The tax effects of significant
items comprising the Company's net deferred tax assets as of December 31, 2001
and 2000 are as follows:
2001 2000
------ ------
(Amounts in Thousands)
DEFERRED TAX ASSETS:
Allowance for loan losses $5,514 $4,834
Unrealized losses on assets 203 161
Deferred compensation 916 908
Deferred insurance premiums 256 253
Other 148 --
Unrealized loss on securities available for sale -- 1,025
------ ------
Total deferred tax assets $7,037 $7,181
====== ======
DEFERRED TAX LIABILITIES:
Intangible and purchase accounting adjustments $ 601 $ 970
Fixed assets 267 287
Deferred loan fees 397 93
Unrealized gain on securities available for sale 494 --
Other 1,145 962
------ ------
Total deferred tax liabilities 2,904 2,312
------ ------
Net deferred tax assets $4,133 $4,869
====== ======
The reconciliation between the federal statutory tax rate and the effective
income tax rate is as follows:
YEARS ENDED DECEMBER 31,
2001 2000 1999
------- ------- -------
Tax at statutory rate 35.00% 35.00 % 35.00 %
(Reductions) increase resulting from:
Tax-exempt interest on investment securities and loans (7.31)% (7.77)% (7.90)%
State income taxes, net of federal benefit 2.55 % 2.36 % 2.62 %
Amortization of purchase accounting adjustments 1.57 % 1.90 % 1.80 %
Other, net (1.30)% (2.19)% 0.08 %
------- ------- -------
Effective tax rate 30.51 % 29.30 % 31.60 %
======= ======= =======
46 FCB ANNUAL REPORT 2001
NOTE 12. EMPLOYEE BENEFITS
EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains an Employee Stock Ownership and Savings Plan ("KSOP").
Coverage under the plan is provided to all employees meeting minimum eligibility
requirements. Annual contributions to the stock portion of the plan are made at
the discretion of the Board of Directors, and are allocated to plan participants
on the basis of relative compensation. Substantially all plan assets are
invested in common stock of the Company. Total expense recognized by the Company
related to the Employee Stock Ownership Plan was $948,000, $992,000 and $918,000
in 2001, 2000 and 1999, respectively.
EMPLOYEE SAVINGS PLAN
The Company provides a 401(k) Savings feature within the KSOP that is available
to substantially all employees meeting minimum eligibility requirements. The
cost of Company contributions under the Savings Plan component of the KSOP was
$216,000, $66,000, and $149,000 in 2001, 2000 and 1999, respectively. The
Company's matching contributions are at the discretion of the Board up to 100%
of elective deferrals of no more than 6% of compensation. The Company matching
rate was 50% for 2001, and 25% for 2000 and 1999.
EMPLOYEE WELFARE PLAN
The Company provides various medical, dental, vision, life, accidental death and
dismemberment and long-term disability insurance benefits to all full-time
employees who elect coverage under this program (basic life, accidental death
and dismemberment, and long-term disability coverage are automatic). The health
plan is managed by a third party administrator ("TPA"). Monthly employer and
employee contributions are made to the trust, against which the TPA processes
and pays claims. Stop loss insurance coverage limits the Company's funding
requirements and risk of loss to $50,000 and $1.9 million for individual and
aggregate claims, respectively. Total cost incurred under the plan was $1.5
million, $1.20 million, and $0.95 million in 2001, 2000 and 1999, respectively.
The Company has a post-retirement obligation for a certain group of retirees
that relates to benefits received prior to 1993. The obligation, which
approximated $186,000 and $224,000 at December 31, 2001 and 2000, is being
amortized over the average remaining life expectancy of the retirees.
Amortization expense approximated $37,000 in 2001, 2000 and 1999.
DEFERRED COMPENSATION PLANS
The banking subsidiary of the Company has deferred compensation agreements with
certain current and former officers providing for benefit payments over various
periods commencing at retirement or death. The liability at December 31, 2001
and 2000 was approximately $750,000 and $790,000, respectively. The expenses
associated with this plan for 2001, 2000 and 1999 were $91,000, $138,000 and
$76,000, respectively. The obligation is based upon the present value of the
expected payments and estimated life expectancies.
EXECUTIVE RETENTION PLAN
The Company maintains an Executive Retention Plan for key members of senior
management. This Plan provides for a benefit at normal retirement (age 65)
targeted at 35% of final compensation projected at an assumed 3% salary
progression rate. Benefits under the Plan become payable at age 62. Actual
benefits payable under the Retention Plan are dependant on an indexed
47
retirement benefit formula which accrues benefits equal to the aggregate
after-tax income of associated life insurance contracts less the Company's
tax-effected cost of funds for that plan year. Benefits under the Plan are
dependent on the performance of the insurance contracts and are not guaranteed
by the Company. Additionally, during 2001, the Company entered into a similar
retirement plan arrangement as described below with nonemployee board members of
the Company.
The Company funded the contracts through the purchase of bank-owned life
insurance, (BOLI), which is anticipated to fully fund the projected benefit
payout after retirement. The total amount invested in BOLI for the Executive
Retention Plan during 2000 and the corresponding cash surrender value at
December 31, 2001 was $4.1 million and $4.5 million, respectively. The
associated obligation expense incurred in connection with the Plan was $156,000
and $193,000 for 2001 and 2000, respectively. The income derived from policy
appreciation was $240,000 and $184,000 in 2001 and 2000, respectively. A portion
of the pre-existing life insurance contracts were reallocated and used to fund
the newly created Director Supplemental Retirement Plan referenced below.
In connection with the Executive Retention Plan, the Company has also entered
into Life Insurance Endorsement Method Split Dollar Agreements (the
"Agreements") with the individuals covered under the Plan. Under the Agreements,
the Company shares 80% of death benefits (after recovery of cash surrender
value) with the designated beneficiaries of the plan participants under life
insurance contracts referenced in the Plan. The Company as owner of the policies
retains a 20% interest in life proceeds and a 100% interest in the cash
surrender value of the policies.
The Plan also contain provisions for change of control, as defined, which allow
the participants to retain benefits, subject to certain conditions, under the
Plan in the event of a change in control. Because the Executive Retention Plan
was designed to retain the future services of key executives, no benefits are
payable under the Plan in the event of voluntary termination prior to retirement
as defined within the Plan.
DIRECTORS SUPPLEMENTAL
RETIREMENT PLAN
In 2001, the Company established a Directors Supplemental Retirement Plan for
its non-employee Directors. This Plan provides for a benefit upon retirement
from service on the Board at specified ages depending upon length of service or
death. Benefits under the Plan become payable at age 70, 75, and 78 depending
upon the individual director's age and original date of election to the Board.
Actual benefits payable under the Plan are dependent on an indexed retirement
benefit formula that accrues benefits equal to the aggregate after-tax income
associated life insurance contracts less the Company's tax-effected cost of
funds for that plan year. Benefits under the Plan are dependent on the
performance of the insurance contracts and are not guaranteed by the Company.
In connection with the Directors Supplemental Retirement Plan, the Company has
also entered into Life Insurance Endorsement Method Split Dollar Agreements (the
"Agreements") with the directors covered under the Plan. Under the Agreements,
the Company shares 80% of death benefits (after recovery of cash
48 FCB ANNUAL REPORT 2001
surrender value) with the designated beneficiaries of the executives under life
insurance contracts referenced in the Retention Plan. The Company, as owner of
the policies retains a 20% interest in life proceeds and a 100% interest in the
cash surrender value of the policies. Because the Plan was designed to retain
the future services of Board members, no benefits are payable under the Plan in
the event of voluntary or involuntary termination prior to retirement age as
defined in the Plan document.
The Plan also contains provisions for change of control, as defined, which allow
the Directors to retain benefits under the Plan in the event of a termination of
service, other than for cause, during the 12 months prior to a change in control
or anytime thereafter, unless the Director voluntarily terminates his service
within 90 days following the change in control.
The Plan expense associated with the Directors Supplemental Retirement Plan for
2001 was $32,000.
STOCK OPTIONS
In 1999, the Company instituted a Stock Option Plan to encourage and facilitate
investment in the common stock of the Company by key executives and to assist in
the long-term retention of service by those executives. The Plan covers key
executives as determined by the Company's Board of Directors from time to time.
Options under the Plan were granted in the form of non-statutory stock options
with the aggregate number of shares of common stock available for grant under
the Plan set at 302,500 (adjusted for the 10% stock dividend) shares. The
options granted under the Plan represent the rights to acquire the option shares
with deemed grant dates of January 1 for each year beginning with the initial
year granted and the following four anniversaries. All stock options granted
pursuant to the Plan vest ratably on the first through the seventh anniversary
dates of the deemed grant date. The option price of each stock option is equal
to the fair market value (as defined by the Plan) of the Company's common stock
on the date of each deemed grant during the five-year grant period. Vested stock
options granted pursuant to the Plan are exercisable for a period of five years
after the date of the grantee's retirement (provided retirement occurs at or
after age 62), and at disability, or death. If employment is terminated other
than by retirement, disability, or death, vested options must be exercised
within 90 days after the effective date of termination. Any option not exercised
within such period will be deemed cancelled.
In the fourth quarter of 2001, the Company also granted stock options to
nonemployee directors. The Director Option Plan was implemented to facilitate
and encourage investment in the common stock of the Company by nonemployee
directors whose efforts, solely as a director, are expected to contribute to the
Company's future growth and continued success. The options granted pursuant to
the Plan are exercisable at the earlier of 10 years from the date of grant or
two years after the optionee ceases to serve as a director of the Corporation.
Options not exercised within the appropriate time shall expire and be deemed
cancelled. The Plan covers nonemployee directors as determined by the Company's
Board of Directors. Options under the Plan were granted in the form of
non-statutory stock options with the
49
aggregate number of shares of common stock available for grant under the Plan
set at 99,000 (adjusted for the 10% stock dividend) shares.
Pro forma disclosure information regarding net income and earnings per share is
determined as if the Company had accounted for its employee stock options under
the fair value method. The fair value of options was estimated at the date of
grant using the Black-Scholes option pricing model using the following
assumptions: i) risk-free interest rate of 5.15%, 6.00% and 6.25% for 2001, 2000
and 1999, respectively; ii) a dividend yield of 3.40%, 5.21% and 4.50% for 2001,
2000 and 1999, respectively; iii) volatility factors for the expected market
price of the Company's common stock of 31.2%, 26.1% and 32.8% for 2001, 2000 and
1999, respectively; and iv) a weighted-average expected life of the option of
12.2, 13.7 and 14.8 years, for 2001, 2000 and 1999, respectively.
The effect of option shares on earnings per share relates to the dilutive effect
of the underlying options outstanding. To the extent the granted exercise share
price is less than the current market price, ("in the money"), there is an
economic incentive for the shares to be exercised and an increase in the
dilution effect on earnings per share.
Pro forma net income and earnings per share for the years ended December 31
would have been estimated as follows:
2001 2000 1999
---- ---- ----
(Amounts in Thousands Except Per Share Data)
Net income $18,933 $17,063 $16,852
Basic earnings per share $ 1.90 $ 1.78 $ 1.75
Fully diluted earnings per share $ 1.90 $ 1.78 $ 1.75
A summary of the Company's stock option activity, and related information for
the years ended December 31 is as follows:
2001 2000 1999
---- ---- ----
WEIGHTED- Weighted- Weighted-
OPTION AVERAGE Option Average Option Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
Outstanding, beginning of year 84,451 $19.69 59,968 $21.78 59,968 $21.78
Granted 120,601 17.90 59,968 17.60 -- --
Exercised -- -- -- -- -- --
Forfeited 2,750 15.33 35,484 19.69 -- --
------- ------ ------- ------ ------- ------
Outstanding, end of year 202,302 $18.65 84,451 $19.69 59,968 $21.78
======= ====== ======= ====== ======= ======
Exercisable at end of year 49,500 $23.91 -- $ -- -- $ --
Weighted-average fair value of
options granted during the year $ 5.28 $ 2.97 $ $4.06 $
50 FCB ANNUAL REPORT 2001
The range of exercise prices for options outstanding as of December 31, 2001 was
$15.33 to $23.91 and the estimate of the weighted-average remaining contractual
life of all options is 12.21 years. The weighted average exercise price and the
life of the exercisable options at year-end are $23.91 and five years,
respectively. These options pertain to the nonemployee director option plan
implemented in the current year.
NOTE 13. LITIGATION
In the normal course of business, the Company is a defendant in various legal
actions and asserted claims most of which involve lending and collection
activities. While the Company and legal counsel are unable to assess the
ultimate outcome of each of these matters with certainty, they are of the belief
that the resolution of these actions should not have a material adverse affect
on the financial position of the Company.
NOTE 14. REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS
The primary source of funds for dividends paid by the Company is dividends
received from its subsidiary bank. Dividends paid by the subsidiary bank are
subject to restrictions by banking regulations. The most restrictive provision
of the regulations requires approval by the Office of the Comptroller of the
Currency if dividends declared in any year exceed the year's net income, as
defined, plus retained net profit of the two preceding years. At December 31,
2001, subsidiary accumulated earnings available for distribution as dividends to
the Company without prior approval were $27.9 million plus earnings for the
period up to the dividend date.
First Community Bancshares, Inc. and First Community Bank, N. A. (collectively
referred to as "the Bank") are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's financial statements. Under the capital
adequacy guidelines and the regulatory framework for prompt corrective action,
which applies only to the Bank, the Bank must meet specific capital guidelines
that involve quantitative measures of the entity's assets, liabilities, and
certain off balance sheet items as calculated under regulatory accounting
practices. The entity's capital amounts and classifications are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require First Community Bancshares, Inc. and the Bank to maintain minimum
amounts and ratios (set forth in the following table on page 52 for total and
Tier 1 capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier 1 capital (as defined) to average assets (as defined). As
of December 31, 2001, the Company and banking subsidiary met all capital
adequacy requirements to which they are subject.
As of December 31, 2001 and 2000, the most recent notifications from the Federal
Reserve Board categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
the Bank must maintain minimum Total Risk-Based, Tier 1 Risk-Based, and Tier 1
leverage ratios as set forth in the table. There are no conditions or events
since those notifications that management believes have changed the
institution's category.
51
DECEMBER 31, 2001
-----------------
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ADEQUACY ACTION
ACTUAL PURPOSES PROVISIONS
------ -------- ----------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
TOTAL CAPITAL TO RISK-WEIGHED ASSETS
First Community Bancshares, Inc. $118,296 12.10% 78,234 8.00% N/A N/A
First Community Bank, N. A 106,957 10.98% 77,933 8.00% 97,417 10.00%
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS
First Community Bancshares, Inc. $105,809 10.82% 39,117 4.00% N/A N/A
First Community Bank, N. A 94,753 9.73% 38,967 4.00% 58,450 6.00%
TIER 1 CAPITAL TO AVERAGE ASSETS (LEVERAGE)
First Community Bancshares, Inc. $105,809 7.93% 53,398 4.00% N/A N/A
First Community Bank, N. A 94,753 7.13% 53,170 4.00% 66,462 5.00%
December 31, 2000
-----------------
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action
Actual Purposes Provisions
------ -------- ----------
Amount Ratio Amount Ratio Amount Ratio
TOTAL CAPITAL TO RISK-WEIGHED ASSETS
First Community Bancshares, Inc. $108,535 12.93% 67,162 8.00% N/A N/A
First Community Bank, N. A 96,717 11.57% 66,858 8.00% 83,573 10.00%
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS
First Community Bancshares, Inc. $ 98,019 11.68% 33,581 4.00% N/A N/A
First Community Bank, N. A 86,247 10.32% 33,429 4.00% 50,144 6.00%
TIER 1 CAPITAL TO AVERAGE ASSETS (LEVERAGE)
First Community Bancshares, Inc. $ 98,019 8.37% 46,827 4.00% N/A N/A
First Community Bank, N. A 86,247 7.39% 46,684 4.00% 58,354 5.00%
52 FCB ANNUAL REPORT 2001
NOTE 15. OTHER OPERATING EXPENSES
Included in other operating expenses are certain functional costs, the total of
which exceeds one percent of combined interest income and noninterest income.
Following are such costs for the years indicated:
YEARS ENDED DECEMBER 31,
2001 2000 1999
---- ---- ----
(Amounts in Thousands)
Advertising and public relations $1,223 $ * $ *
Other service fees 1,261 * *
* Cost did not exceed the one percent requirement for the reported period.
NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized on the balance sheet, for which it is practical to
estimate the value. FASB Statement 107 defines a financial instrument as cash,
evidence of ownership in an entity, or a contract that conveys or imposes on an
entity that contractual right or obligation to either receive or deliver cash
for another financial instrument. Fair value is defined as the amount at which a
financial instrument could be exchanged in a current transaction between willing
parties, other than in a forced sale or liquidation, and is best evidenced by a
quoted market price if one exists.
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments presented below.
The information used to determine fair value is highly subjective and judgmental
in nature and, therefore, the results may not be precise. Subjective factors
include, among other things, estimates of cash flows, risk characteristics,
credit quality, and interest rates all of which are subject to change. Since the
fair value is estimated as of the balance sheet date, the amounts that will
actually be realized or paid upon settlement or maturity on these various
instruments could be significantly different.
53
2001 2000
---- ----
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
(Amounts in Thousands)
ASSETS:
Cash and due from banks $ 47,815 $ 47,815 $ 50,243 $ 50,243
Securities available for sale 354,007 354,007 207,562 207,562
Securities held to maturity 41,884 43,393 75,736 78,030
Derivative financial instruments 480 480 -- --
Loans held for sale 65,532 65,532 11,570 11,570
Loans held for investment (net of allowance for loan loss) 890,544 905,361 798,953 806,751
Interest receivable 8,765 8,765 9,261 9,261
LIABILITIES:
Demand deposits 161,347 161,347 128,584 128,584
Interest-bearing demand deposits 183,685 183,685 137,763 137,763
Savings deposits 142,839 142,839 131,039 131,039
Time deposits 590,390 593,548 502,517 499,961
Federal funds purchased 26,500 26,500 -- --
Securities sold under agreements to repurchase 79,262 79,524 46,179 46,179
Interest, taxes and other obligations 15,852 15,852 13,238 13,238
Other indebtedness 145,320 155,104 138,015 142,368
FINANCIAL INSTRUMENTS WITH BOOK VALUE EQUAL TO FAIR VALUE
The book values of cash and due from banks, federal funds sold and purchased,
interest receivable, and interest, taxes and other liabilities are considered to
be equal to fair value as a result of the short-term nature of these items.
SECURITIES AVAILABLE FOR SALE
For securities available for sale, fair value is based on current market
quotations, where available. If quoted market prices are not available, fair
value has been based on the quoted price of similar instruments.
INVESTMENT SECURITIES
For investment securities, fair value has been based on current market
quotations, where available. If quoted market prices are not available, fair
value has been based on the quoted price of similar instruments.
54 FCB ANNUAL REPORT 2001
DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments are recorded at estimated fair value based upon
current market pricing for similar instruments.
LOANS
The estimated value of loans held for investment is measured based upon
discounted future cash flows and using the current rates for similar loans.
Loans held for sale are recorded at lower of cost or estimated fair value. The
fair value of loans held for sale is determined based upon the market sales
price of similar loans.
DEPOSITS AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Deposits without a stated maturity, including demand, interest-bearing demand,
and savings accounts, are reported at their carrying value in accordance with
Statement No. 107. No value has been assigned to the franchise value of these
deposits. For other types of deposits with fixed maturities, fair value has been
estimated by discounting future cash flows based on interest rates currently
being offered on deposits with similar characteristics and maturities.
OTHER INDEBTEDNESS
Fair value has been estimated based on interest rates currently available to the
Company for borrowings with similar characteristics and maturities.
COMMITMENTS TO EXTEND CREDIT, STAND-BY LETTERS OF CREDIT, AND FINANCIAL
GUARANTEES
The amount of off-balance sheet commitments to extend credit, stand-by letters
of credit, and financial guarantees is considered equal to fair value. Because
of the uncertainty involved in attempting to assess the likelihood and timing of
commitments being drawn upon, coupled with the lack of an established market and
the wide diversity of fee structures, the Company does not believe it is
meaningful to provide an estimate of fair value that differs from the given
value of the commitment.
NOTE 17. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information related to First Community Bancshares, Inc. as
of December 31, 2001 and 2000, and for each of the three years in the period
ended December 31, 2001, 2000 and 1999 is as follows:
55
CONDENSED BALANCE SHEETS
DECEMBER 31,
2001 2000
--------------------------
(Amounts in Thousands)
ASSETS
Cash $ 5,820 $ 8,515
Investment in subsidiary 121,679 108,722
Other assets 6,056 3,746
--------- ---------
Total Assets $ 133,555 $ 120,983
========= =========
Liabilities
Other liabilities $ 514 $ 301
STOCKHOLDERS' EQUITY
Common stock 9,955 9,052
Additional paid-in capital 60,189 35,273
Retained earnings 62,566 78,097
Treasury stock (424) (202)
Accumulated other comprehensive income 755 (1,538)
--------- ---------
Total Stockholders' Equity 133,041 120,682
--------- ---------
Total Liabilities and Stockholders' Equity $ 133,555 $ 120,983
========= =========
CONDENSED STATEMENTS OF INCOME
December 31,
2001 2000 1999
----------------------------------------
(Amounts in Thousands,
Except Per Share Data)
Cash dividends received from subsidiary banks $ 8,500 $ 7,000 $ 6,500
Other Income 338 339 275
Operating expense (559) (278) (468)
-------- -------- --------
8,279 7,061 6,307
Income tax benefit (expense) 72 (18) 62
Equity in undistributed earnings of subsidiary 10,783 10,020 10,483
-------- -------- --------
Net Income $ 19,134 $ 17,063 $ 16,852
======== ======== ========
Basic and diluted earnings per share $ 1.92 $ 1.78 $ 1.75
======== ======== ========
56 PCB Annual Report 2001
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDING DECEMBER 31,
2001 2000 1999
----------------------------------------
(Amounts in Thousands)
Cash flows from operating activities:
Net income $ 19,134 $ 17,063 $ 16,852
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed earnings of subsidiary (10,783) (10,020) (10,483)
Decrease in other assets 85 132 118
Gain on sale of assets (9) - -
Increase in other liabilities 621 138 51
-------- -------- --------
Net cash provided by operating activities 9,048 7,313 6,538
-------- -------- --------
Cash flows from investing activities:
Purchase of securities available for sale (2,855) (1,038) -
Proceeds from sale of securities available for sale 586 26 -
Proceeds from investment in subsidiary - - 24,719
-------- -------- --------
Net cash (used in) provided by investing activities (2,269) (1,012) 24,719
-------- -------- --------
Cash flows from financing activities:
Repayment of long-term debt - - (9,378)
Acquisition of treasury stock (599) (2,869) (1,542)
Dividends paid (8,875) (8,338) (7,730)
-------- -------- --------
Net cash used in financing activities (9,474) (11,207) (18,650)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (2,695) (4,906) 12,607
Cash and cash equivalents at beginning of year 8,515 13,421 814
-------- -------- --------
Cash and cash equivalents at end of year $ 5,820 $ 8,515 $ 13,421
======== ======== ========
NOTE 18. SEGMENT INFORMATION
The Company operates two business segments: community banking and
mortgage banking. These segments are primarily identified by the products
services offered and the channels which they are offered. The banking segment
consists of or full-service banks that offer customers through traditional
banking products and services community through various delivery channels. The
Company's mortgage banking segment consists of
57
mortgage brokerage facilities that originate, acquire, and sell mortgage
products. The accounting policies for each of the business segments are the same
as those of the Company described in Note 1. Information for 2001 and 2000 for
each of the segments is included below. Information for the mortgage banking
segment is not material for years prior to 2000 and the consolidated financial
information for 1999, as reported, is reflective of the community banking
segment.
DECEMBER 31, 2001
-----------------------------------------------------------------------------
COMMUNITY MORTGAGE
BANKING BANKING PARENT ELIMINATIONS TOTAL
(AMOUNTS IN THOUSANDS)
Net interest income $ 49,379 $ 462 $ 315 $ 264 $ 50,420
Provision for loan losses 5,134 - - - 5,134
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 44,245 462 315 264 45,286
Other income 10,839 9,582 16 (162) 20,275
Other expenses 29,285 8,086 552 102 38,025
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 25,799 1,958 (221) - 27,536
Income tax expense (benefit) 7,806 669 (73) - 8,402
---------- ---------- ---------- ---------- ----------
Net income $ 17,993 $ 1,289 $ (148) $ - $ 19,134
========== ========== ========== ========== ==========
Average assets $1,365,164 $ 45,271 $ 128,732 $ (252,853) $1,286,314
========== ========== ========== ========== ==========
DECEMBER 31, 2000
----------------------------------------------------------------------------
COMMUNITY MORTGAGE
BANKING BANKING PARENT ELIMINATIONS TOTAL
(AMOUNTS IN THOUSANDS)
Net interest income $ 45,969 $ 65 $ 339 $ 206 $ 46,579
Provision for loan losses 3,986 - - - 3,986
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 41,983 65 339 206 42,593
Other income 7,911 4,651 - (70) 12,492
Other expenses 25,560 4,994 278 136 30,968
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 24,334 (278) 61 - 24,117
Income tax expense (benefit) 7,122 (86) 18 - 7,054
---------- ---------- ---------- ---------- ----------
Net income $ 17,212 $ (192) $ 43 $ - $ 17,063
========== ========== ========== ========== ==========
Average assets $1,124,304 $ 7,024 $ 108,133 $ (111,782) $1,127,679
========== ========== ========== ========== ==========
58 FBC Annual Report 2001
NOTE 19.SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)
FIRST COMMUNITY BANCSHARES, INC. - QUARTERLY EARNINGS SUMMARY
Quarterly earnings for the years ended December 31, 2001 and 2000 are as
follows:
2001
----------------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Interest income $22,901 $23,135 $23,390 $23,403
Interest expense 10,986 10,882 10,580 9,961
------- ------- ------- -------
Net interest income 11,915 12,253 12,810 13,442
Provision for loan losses 747 985 1,282 2,120
------- ------- ------- -------
Net interest income after provision for possible loan losses 11,168 11,268 11,528 11,322
Other income 4,218 5,003 5,486 5,568
Other expenses 8,953 9,628 9,703 9,741
------- ------- ------- -------
Income before income taxes 6,433 6,643 7,311 7,149
Income taxes 1,977 2,034 2,311 2,080
------- ------- ------- -------
Net income $ 4,456 $ 4,609 $ 5,000 $ 5,069
======= ======= ======= =======
Per share:
Basic and diluted earnings $ 0.45 $ 0.46 $ 0.50 $ 0.51
Dividends $ 0.21 $ 0.21 $ 0.21 $ 0.26
Weighted average basic shares outstanding 9,945 9,948 9,944 9,940
Weighted average diluted shares outstanding 9,952 9,967 10,003 9,992
59
2000
-----------------------------------------------
March 31 June 30 Sept 30 Dec 31
(Amounts in Thousands, Except Per Share Data)
Interest income $20,375 $21,069 $21,632 $22,882
Interest expense 8,905 9,362 10,032 11,080
------- ------- ------- -------
Net interest income 11,470 11,707 11,600 11,802
Provision for loan losses 662 1,218 842 1,264
------- ------- ------- -------
Net interest income after provision for possible loan losses 10,808 10,489 10,758 10,538
Other income 2,764 3,276 3,054 3,398
Other expenses 8,176 7,479 7,691 7,622
------- ------- ------- -------
Income before income taxes 5,396 6,286 6,121 6,314
Income taxes 1,718 1,957 1,836 1,543
------- ------- ------- -------
Net income $ 3,678 $ 4,329 $ 4,285 $ 4,771
======= ======= ======= =======
Per share:
Basic and diluted earnings $ 0.38 0.45 0.46 0.49
Dividends $ 0.20 0.21 0.21 0.24
Weighted average basic and diluted shares outstanding 9,587 9,533 9,512 9,797
60 FCB Annual Report 2001
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of First Community Bancshares, Inc.
We have audited the accompanying consolidated balance sheet of First Community
Bancshares, Inc. and subsidiary as of December 31, 2001 and 2000, and the
related consolidated statements of income, cash flow and changes in
stockholders' equity for the years then ended. 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. The accompanying consolidated statements of
income, cash flow and changes in stockholders' equity for the year ended
December 31, 1999, were audited by other auditors whose report dated January 28,
2000, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 audit provides a
reasonable basis for our opinion.
In our opinion, the 2001 and 2000 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Community Bancshares, Inc. and subsidiary at December 31, 2001 and 2000, and the
consolidated results of their operations and cash flows for the years then ended
in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst and Young LLP
Charleston, West Virginia
February 8, 2002
61
REPORT ON MANAGEMENT'S RESPONSIBILITIES
The management of First Community Bancshares, Inc. is responsible for the
integrity of its financial statements and their preparation in accordance with
accounting principles generally accepted in the United States. To fulfill this
responsibility requires the maintenance of a sound accounting system supported
by strong internal controls. The Company believes it has a high level of
internal control which is maintained by the recruitment and training of
qualified personnel, appropriate divisions of responsibility, the development
and communication of accounting and other procedures, and comprehensive internal
audits.
Our independent auditors, Ernst & Young LLP are engaged to audit, and render an
opinion on, the fairness of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States. Our
independent auditors obtain an understanding of our internal accounting control
systems, review selected transactions and carry out other auditing procedures
before expressing their opinion on our consolidated financial statements.
The Board of Directors has appointed an Audit Committee, composed of outside
directors, that periodically meets with the independent auditors, bank
examiners, management and internal auditors to review the work of each. The
independent auditors, bank examiners and the Company's internal auditors have
free access to meet with the Audit Committee without management's presence.
/s/ John Mendez
----------------------------------
John M. Mendez
President & Chief Executive Officer
/s/ Kenneth P. Mulkey
----------------------------------
Kenneth P. Mulkey
Acting Chief Financial Officer
/s/ Robert L. Schumacher
----------------------------------
Robert L. Schumacher
Senior Vice President, Finance
62 FCB Annual Report 2001
BOARD OF DIRECTORS
BOARD OF DIRECTORS,
FIRST COMMUNITY BANCSHARES, INC.
SAM CLARK
Agent, State Farm Insurance
Owner, Country Junction Company, Inc.
ALLEN T. HAMNER
Professor of Chemistry, West Virginia Wesleyan
College; Member Executive Committee and
Audit Committee
B. W. HARVEY
President, Highlands Real Estate Management, Inc.
Member Executive Committee and Audit Committee
I. NORRIS KANTOR
Partner, Katz, Kantor & Perkins, Attorneys at Law
JOHN M. MENDEZ
President and Chief Executive Officer, First
Community Bancshares, Inc.; Executive Vice
President, First Community Bank, N. A.
A. A. MODENA
Past Executive Vice President and Secretary, First
Community Bancshares, Inc.; Past President &
Chief Executive Officer, The Flat Top National Bank
of Bluefield; Member Executive Committee
ROBERT E. PERKINSON, JR.
Past Vice President-Operations, MAPCO Coal, Inc.-
Virginia Region; Member Audit Committee
WILLIAM P. STAFFORD
President, Princeton Machinery Service, Inc.
Chairman, First Community Bancshares, Inc.
Member Executive Committee and Audit Committee
WILLIAM P. STAFFORD II
Attorney at Law, Brewster, Morhous, Cameron,
Mullins, Caruth, Moore, Kersey & Stafford, PLLC
Member Executive Committee
W. W. TINDER, JR.
Chairman of the Board and Chief Executive Officer,
Tinder Enterprises, Inc.; CEO, Tinco Leasing
Corporation (Real Estate Holdings); Member
Executive Committee
OFFICERS,
FIRST COMMUNITY BANCSHARES, INC.
JOHN M. MENDEZ
President and Chief Executive Officer
ROBERT L. SCHUMACHER
Senior Vice President-Finance
ROBERT L. BUZZO
Vice President and Secretary
E. STEPHEN LILLY
Chief Operating Officer
KENNETH P. MULKEY
Acting Chief Financial Officer
63
BOARD OF DIRECTORS,
FIRST COMMUNITY BANK, N. A.
K. A. AMMAR, JR.
President and Chief Executive Officer,
Ammar's Inc. and Magic Mart
DR. JAMES P. BAILEY
Veterinarian, Veterinary Associates, Inc.
Chairman, First Community Bank, N. A.
W. C. BLANKENSHIP, JR.
Agent, State Farm Insurance
D. L. BOWLING, JR.
President, True Energy, Inc.
JUANITA G. BRYAN
Homemaker
ROBERT L. BUZZO
Vice President and Secretary,
First Community Bancshares, Inc.
President, First Community Bank, N. A.
SAM CLARK
Agent, State Farm Insurance
Owner, Country Junction Company, Inc.
C. WILLIAM DAVIS
Attorney at Law, Richardson & Davis
ALLEN T. HAMNER, PH.D.
Professor of Chemistry,
West Virginia Wesleyan College
B. W. HARVEY
President, Highlands Real Estate Management, Inc.
I. NORRIS KANTOR
Partner, Katz, Kantor & Perkins, Attorneys at Law
JOHN M. MENDEZ
President and Chief Executive Officer, First
Community Bancshares, Inc.; Executive Vice
President, First Community Bank, N. A.
A. A. MODENA
Past Executive Vice President and Secretary,
First Community Bancshares, Inc.
Past President and Chief Executive Officer,
The Flat Top National Bank of Bluefield
ROBERT E. PERKINSON, JR.
Past Vice President--Operations, MAPCO Coal, Inc.--
Virginia Region
CLYDE B. RATLIFF
President, Gasco Drilling, Inc.
RICHARD G. RUNDLE
Attorney at Law, Rundle and Rundle, LC
WILLIAM P. STAFFORD
President, Princeton Machinery Service, Inc.
WILLIAM P. STAFFORD, II
Attorney at Law, Brewster, Morhous, Cameron,
Mullins, Caruth, Moore, Kersey & Stafford, PLLC
W. W. TINDER, JR.
Chairman and Chief Executive Officer,
Tinder Enterprises, Inc.
DALE F. WOODY
President, Woody Lumber Company
64 FCB Annual Report 2001
LOCATIONS & Other Information
FIRST COMMUNITY BANK, N. A.
(A NATIONAL ASSOCIATION-MEMBER FDIC)
1001 Mercer Street Princeton, West Virginia 24740-5939 (304) 487-9000 or (304)
327-5175 Pine Plaza Branch (304) 431-2225
211 Federal Street
Bluefield, West Virginia 24701-0950
(304) 325-7151
Mercer Mall Branch (304) 327-0431
Blue Prince Road, Green Valley
Bluefield, West Virginia 24701-6160
(304) 325-3641
Highway 52, Bluewell
Bluefield, West Virginia 24701-3068
(304) 589-3301
101 Vermillion Street
Athens, West Virginia 24712
(304) 384-9010
Corner of Bank & Cedar Streets
Pineville, West Virginia 24874-0249
(304) 732-7011
East Pineville Branch (304) 732-7011
Mullens Shopping Plaza
Route 54
Mullens, West Virginia 25882
(304) 294-0700
Route 10, Cook Parkway
Oceana, West Virginia 24870-1680
(304) 682-8244
2 West Main Street
Buckhannon, West Virginia 26201-0280
(304) 472-1112
100 Market Street
Man, West Virginia 25635
(304) 583-6525
77 North Morgan Boulevard
Logan, West Virginia 25601
(304) 752-8102
Corner of Main & Latrobe Streets
Grafton, West Virginia 26354-0278
(304) 265-1111
216 Lincoln Street
Grafton, West Virginia 26354-1442
(304) 265-5111
Main Street
Rowlesburg, West Virginia 26425
(304) 454-2431
16 West Main Street
Richwood, West Virginia 26261
(304) 846-2641
Railroad and White Avenue
Richwood, West Virginia 26261
(304) 846-2641
874 Broad Street
Summersville, West Virginia 26651
(304) 872-4402
Route 20 & Williams River Road
Cowen, West Virginia 26206
(304) 226-5924
Route 55, Red Oak Plaza
Craigsville, West Virginia 26205
(304) 742-5101
111 Citizens Drive
Beckley, West Virginia 25801-2970
(304) 252-9400
50 Brookshire Lane
Beckley, West Virginia 25801-6765
(304) 254-9041
511 Main Street
Clifton Forge, Virginia 24422
(540) 862-4251
643 E. Riverside Drive
Tazewell, Virginia 24651
(276) 988-5577
302 Washington Square
Richlands, Virginia 24641
(276) 964-7454
Chase Street & Alley 7
Clintwood, Virginia 24228
(276) 926-4671
747 Fort Chiswell Road
Max Meadows, Virginia 24360
(276) 637-3122
65
8044 Main Street
Pound, Virginia 24279
(276) 796-5431
910 East Main Street
Wytheville, Virginia 24382
(276) 228-1901
101 Brookfall Dairy Road
Elkin, North Carolina 28621
(336) 835-2265
5519 Mountain View Road
Hays, North Carolina 28635
(336) 696-2265
57 N. Main Street
Sparta, North Carolina 28675
(336) 372-2265
150 N. Center Street
Taylorsville, North Carolina 28681
(828) 632-2265
4677 Main Street
Drakes Branch, Virginia 23937
(434) 568-3301
401 Halifax Street
Emporia, Virginia 23847
(434) 634-6555
431 South Main Street
Emporia, Virginia 23847-2313
(434) 634-8866
UNITED FIRST MORTGAGE, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
FIRST COMMUNITY BANK, N. A.)
1503 Santa Rosa Road, Suite 109
P. O. Box K-177
Richmond, Virginia 23288
(804) 282-5631
FINANCIAL INFORMATION
CORPORATE HEADQUARTERS
One Community Place
P.O. Box 989
Bluefield, Virginia 24605-0989
Phone: (276) 326-9000
Fax: (276) 326-9010
STOCK REGISTRAR AND TRANSFER AGENT
Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 368-5948
FORM 10-K
The Annual Report on Form 10-K, filed with the Securities and Exchange
Commission, is available to shareholders upon request to the Senior Vice
President-Finance of First Community Bancshares, Inc.
FINANCIAL CONTACT
Robert L. Schumacher
Senior Vice President-Finance
First Community Bancshares, Inc.
P. O. Box 989
Bluefield, Virginia 24605-0989
(276) 326-9000
INTERNET ACCESS
Website: www.fcbinc.com
E-mail: ir@fcbinc.com
66 FBC Annual Report 2001
NOTES
67
NOTES
68 FCB Annual Report 2001
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[FIRST COMMUNITY BANK BACK COVER]