UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2002
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from:__________________ to __________________
Commission File Number 0-19297
First Community Bancshares, Inc.
(Exact name of Registrant as specified in its charter)
Nevada 55-0694814
(State or other jurisdiction(IRS Employer Identification No.)
of incorporation or organization)
One Community Place, Bluefield, Virginia 24605-0989
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (276) 326-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each className of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _________
Indicate by check mark whether Registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2). Yes [X] No [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 28, 2002.
$310,967,768 based on the closing sales price at that date
Common Stock, $1 par value
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of March 5, 2003.
Common Stock, $1 par value- 9,852,891
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the First Community Bancshares, Inc. 2002 Annual Report to Security
Holders are incorporated by reference in Part I and II hereof.
Portions of the Proxy Statement for the annual meeting of shareholders to be
held April 22, 2003 are incorporated by reference in Part III of this Form 10-K.
Form 10-K Information
Table of Contents
2002 Form 10-K Annual Report
Page
Part I.
Item 1. Business........................................................................... 3
Item 2. Properties......................................................................... 17
Item 3. Legal Proceedings.................................................................. 17
Item 4. Submission of Matters to a Vote of Security Holders................................ 18
Part II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............. 18
Item 6. Selected Financial Data............................................................ 18
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations...................................................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk......................... 18
Item 8. Financial Statements and Supplementary Data........................................ 18
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................... 18
Part III.
Item 10. Directors and Executive Officers of the Registrant................................. 18
Item 11. Executive Compensation............................................................. 19
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.................................................... 19
Item 13. Certain Relationships and Related Transactions..................................... 19
Item 14. Controls and Procedures............................................................ 19
Part IV.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.................... 20
Signatures......................................................................... 22
Certifications..................................................................... 23
2
PART I
ITEM 1. BUSINESS
GENERAL
First Community Bancshares, Inc. ("FCBI" or the "Company", "Corporation" or
"Registrant") is a one-bank holding company incorporated in the State of Nevada
and serves as the holding company for First Community Bank, N. A. ("FCBNA" or
the "Bank"), a national association that conducts commercial banking operations
within the states of Virginia, West Virginia and North Carolina. United First
Mortgage, Inc. ("UFM"), acquired in the latter part of 1999, is a wholly owned
subsidiary of FCBNA and serves as a wholesale and retail distribution channel
for FCBNA's mortgage banking business segment. The Company has total
consolidated assets of approximately $1.52 billion at December 31, 2002 and
conducts commercial and mortgage banking business through the 41 branches of
FCBNA and 11 mortgage brokerage offices.
On November 30, 2002, the Company acquired Monroe Financial, Inc. and its
banking subsidiary, Bank of Greenville. Bank of Greenville's three branch
facilities, Greenville and Lindside in Monroe County, West Virginia and Hinton
in Summers County, West Virginia, were simultaneously merged with and into the
Bank. The completion of this transaction resulted in the addition of $29.8
million in assets, including $17.4 million in loans and added an additional
$28.0 million in deposits to the Bank at December 31, 2002. The excess of the
fair market value of the net assets acquired over purchase price of $931,000 was
reallocated to the non financial assets acquired.
In January 2003, the Bank completed the acquisition of Stone Capital Management,
Inc. ("Stone Capital"), with an office in Beckley, West Virginia This
acquisition will expand the Bank's operations to include a broader range of
financial services, including wealth management, asset allocation, financial
planning and investment advice. Stone Capital at December 31, 2002 had total
assets of $94 million under management and will continue to operate under its
name in conjunction with First Community's Trust and Financial Services
Division.
On January 27, 2003, the Company announced the signing of a definitive merger
agreement pursuant to which the Bank will acquire The CommonWealth Bank, a
Virginia-chartered commercial bank ("CommonWealth Bank") for total consideration
of approximately $25.0 million. The merger is expected to close during the
second quarter of 2003, pending the receipt of all requisite regulatory
approvals and the approval of CommonWealth Bank's shareholders. At December 31,
2002, Commonwealth Bank had total assets of $134.1 million, net loans of $106.2
million and total deposits of $107.3 million.
Currently, the Registrant is a bank holding company and the banking operations
are expected to remain the principal business and major source of revenue. The
Registrant provides a mechanism for ownership of the subsidiary banking
operations, provides capital funds as required and serves as a conduit for
distribution of dividends to stockholders. The Registrant also considers and
evaluates options for growth and expansion of the existing subsidiary banking
operations. The Registrant currently derives substantially all of its revenues
from dividends paid by its subsidiary bank. Dividend payments by the bank are
determined in relation to earnings, asset growth and capital position and are
subject to certain restrictions by regulatory agencies as described more fully
under Regulation and Supervision of this item.
At December 31, 2002, the principal assets of FCBI included all of the
outstanding shares of common stock of FCBNA, Bluefield, Virginia. FCBNA is a
nationally chartered bank organized under the banking laws of the United States.
FCBNA engages in general commercial and retail banking business in West
Virginia, Virginia and North Carolina through 41 branch facilities. It provides
safe deposit services and makes all types of loans, including commercial,
mortgage and personal loans. FCBNA also provides trust services and its deposits
are insured by the FDIC. FCBNA is a member of the Federal Reserve System and is
a member of the Federal Home Loan Bank (FHLB) of Atlanta. Regulatory oversight
of the banking subsidiary is conducted by the Office of the Comptroller of the
Currency (OCC). FCBNA, through its wholly owned subsidiary, UFM, provides for
the origination and sale of mortgages to secondary sources. With the addition of
Stone Capital in January, 2003, FCBNA's range of financial services will be
expanded to include wealth management, asset allocation, financial planning and
investment advice. The required information concerning reportable segments and
the required disclosures are set forth in Note 17 of the financial statements
included in the Annual Report to Shareholders as Exhibit 13 hereof.
3
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements with respect to the financial
condition, results of operations and business of FCBI. This Annual Report on
Form 10-K 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 to
shareholders. 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 Condition and Results of
Operations are, or may be 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 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 exclusive.
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 and is included pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
RISK FACTORS
FCBI AND ITS SUBSIDIARY'S BUSINESS ARE SUBJECT TO INTEREST RATE RISK AND
VARIATIONS IN INTEREST RATES MAY NEGATIVELY AFFECT ITS FINANCIAL PERFORMANCE. We
are unable to predict actual fluctuations of market interest rates with complete
accuracy. Rate fluctuations are affected by many factors, including:
inflation;
recession;
a rise in unemployment;
tightening money supply; and
domestic and international disorder and instability in domestic and
foreign financial markets.
Changes in the interest rate environment may reduce profits. We expect that the
Company and FCBNA will continue to realize income from the differential or
"spread" between the interest earned on loans, securities and other
interest-earning assets, and interest paid on deposits, borrowings and other
interest-bearing liabilities. Net interest spreads are affected by the
difference between the maturities and repricing characteristics of
interest-earning assets and interest-bearing liabilities. The Company is
vulnerable to continued declines in interest rates because of its slightly
asset-sensitive balance sheet profile, in which its assets will reprice downward
at rates exceeding the repricing characteristics of liabilities. As a result,
material and prolonged declines in interest rates would decrease the Company's
net interest income. Conversely, an increase in the general level of interest
rates may adversely affect the ability of some
4
borrowers to pay the interest on and principal of their obligations.
Accordingly, changes in levels of market interest rates could materially and
adversely affect the Company's net interest spread, asset quality, levels of
prepayments and cash flows as well as the market value of its securities
portfolio and overall profitability.
Changes in interest rates affect the net interest income earned on the Company's
debt securities portfolios as well as the value of the securities portfolio. In
addition, changes in interest rates affect the net interest income FCBNA and UFM
earn on loans held for investment and loans held for sale. To the extent UFM
pools loans in the future and is not adequately hedged, its interest rate and
market risk with respect to its loans held for sale may increase. Consequently,
changes in the levels of market interest rates could materially and adversely
affect the Company's net interest spread, the market value of the loans and
securities and the overall profitability.
FCBNA'S ABILITY TO PAY DIVIDENDS IS SUBJECT TO REGULATORY LIMITATIONS WHICH, TO
THE EXTENT FCBI REQUIRES SUCH DIVIDENDS IN THE FUTURE, MAY AFFECT FCBI'S ABILITY
TO PAY ITS OBLIGATIONS AND PAY DIVIDENDS. FCBI is a separate legal entity from
FCBNA and its subsidiaries and does not have significant operations of its own.
FCBI currently depends on FCBNA's cash and liquidity as well as dividends from
the subsidiary to pay FCBI's operating expenses and dividends to shareholders.
No assurance can be made that in the future FCBNA will have the capacity to pay
the necessary dividends and that the Company will not require dividends from
FCBNA to satisfy FCBI's obligations. The availability of dividends from FCBNA is
limited by various statutes and regulations. It is possible, depending upon the
financial condition of the Company and other factors, that the OCC could assert
that payment of dividends or other payments by FCBNA are an unsafe or unsound
practice. In the event FCBNA is unable to pay dividends sufficient to satisfy
FCBI's obligations and FCBNA is unable to pay dividends to the Company, FCBI may
not be able to service its obligations as they become due, or pay dividends on
the Company's common stock. Consequently, the inability to receive dividends
from FCBNA could adversely affect FCBI's financial condition, results of
operations, cash flows and prospects.
FCBI'S ALLOWANCE FOR LOAN LOSSES MAY NOT BE ADEQUATE TO COVER ACTUAL LOSSES.
Like all financial institutions, we maintain an allowance for loan losses to
provide for loan defaults and non-performance. FCBI's allowance for loan losses
may not be adequate to cover actual loan losses, and future provisions for loan
losses could materially and adversely affect FCBI's operating results. FCBI's
allowance for loan losses is determined by analyzing historical loan losses,
current trends in delinquencies and charge-offs, plans for problem loan
resolution, the opinions of our regulators, changes in the size and composition
of the loan portfolio and industry information. Also included in management's
estimates for loan losses are considerations with respect to the impact of
economic events, the outcome of which are uncertain. The amount of future losses
is susceptible to changes in economic, operating and other conditions, including
changes in interest rates, that may be beyond FCBI's control, and these losses
may exceed current estimates. Federal regulatory agencies, as an integral part
of their examination process, review FCBI's loans and allowance for loan losses.
While we believe that FCBI's allowance for loan losses is adequate to cover
current losses, we cannot assure you that we will not need to increase FCBI's
allowance for loan losses or that regulators will not require us to increase
this allowance. Either of these occurrences could materially and adversely
affect FCBI's earnings and profitability.
FCBI'S BUSINESS IS SUBJECT TO VARIOUS LENDING AND OTHER ECONOMIC RISKS THAT
COULD ADVERSELY IMPACT FCBI'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Changes in economic conditions, particularly an economic slowdown, could hurt
FCBI's business. FCBI's business is directly affected by political and market
conditions, broad trends in industry and finance, legislative and regulatory
changes, changes in governmental monetary and fiscal policies and inflation, all
of which are beyond FCBI's control. A deterioration in economic conditions, in
particular an economic slowdown within the Company's geographic region, could
result in the following consequences, any of which could hurt FCBI's business
materially:
loan delinquencies may increase;
problem assets and foreclosures may increase;
demand for FCBI's products and services may decline; and
collateral for loans made by the Company may decline in value, in turn
reducing a client's borrowing power, and reducing the value of assets
and collateral associated with FCBI's loans held for investment.
5
A downturn in the real estate market could hurt FCBI's business. FCBI's business
activities and credit exposure are concentrated in West Virginia, Virginia,
North Carolina and the surrounding mid-Atlantic region. A downturn in this
regional real estate market could hurt FCBI's business because of the geographic
concentration within this regional area. If there is a significant decline in
real estate values, the collateral for FCBI's loans will provide less security.
As a result, FCBI's ability to recover on defaulted loans by selling the
underlying real estate would be diminished, and we would be more likely to
suffer losses on defaulted loans.
THE COMPANY'S LEVEL OF CREDIT RISK IS INCREASING DUE TO THE EXPANSION OF ITS
COMMERCIAL LENDING, AND THE CONCENTRATION ON MIDDLE MARKET CUSTOMERS WITH
HEIGHTENED VULNERABILITY TO ECONOMIC CONDITIONS. At December 31, 1997,
commercial loans totaled $285.1 million. At December 31, 2002, this portfolio
has increased to $360.0 million. The level of credit risk has increased as a
result of this shift in the loan portfolio mix. Commercial real estate loans
generally are considered riskier than single-family residential loans because
they have larger balances to a single borrower or group of related borrowers.
Commercial business loans involve risks because the borrower's ability to repay
the loan typically depends primarily on the successful operation of the business
or the property securing the loan. Most of the commercial business loans are
made to middle market customers who may have a heightened vulnerability to
economic conditions. Moreover, a portion of these loans have been made by the
Company in the last several years and the borrowers may not have experienced a
complete business or economic cycle.
FCBNA MAY SUFFER LOSSES IN ITS LOAN PORTFOLIO DESPITE ITS UNDERWRITING
PRACTICES. FCBNA seeks to mitigate the risks inherent in FCBNA's loan portfolio
by adhering to specific underwriting practices. These practices include analysis
of a borrower's prior credit history, financial statements, tax returns and cash
flow projections, valuation of collateral based on reports of independent
appraisers and verification of liquid assets. Although FCBNA believes that its
underwriting criteria are appropriate for the various kinds of loans it makes,
FCBNA may incur losses on loans that meet its underwriting criteria, and these
losses may exceed the amounts set aside as reserves in FCBNA's allowance for
loan losses.
THE COMPANY AND ITS SUBSIDIARIES ARE SUBJECT TO EXTENSIVE REGULATION WHICH COULD
ADVERSELY AFFECT THEM. FCBI and its subsidiaries' operations are subject to
extensive regulation by federal, state and local governmental authorities and
are subject to various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of FCBI's operations. FCBI believes
that it is in substantial compliance in all material respects with applicable
federal, state and local laws, rules and regulations. Because FCBI's business is
highly regulated, the laws, rules and regulations applicable to it are subject
to regular modification and change. There are currently proposed various laws,
rules and regulations that, if adopted, would impact FCBI's operations,
including, among other things, matters pertaining to corporate governance,
requirements for listing and maintenance on national securities exchanges and
over the counter markets, SEC rules pertaining to public reporting disclosures
and banking regulations governing the amount of loans that a financial
institution, such as FCBNA, can acquire for investment from an affiliate, such
as UFM. In addition, the Financial Accounting Standards Board, or FASB, is
considering changes which may require, among other things, the expensing of the
costs relating to the issuance of stock options. There can be no assurance that
these proposed laws, rules and regulations, or any other laws, rules or
regulations, will not be adopted in the future, which could make compliance more
difficult or expensive, restrict FCBI's ability to originate, broker or sell
loans, further limit or restrict the amount of commissions, interest or other
charges earned on loans originated or sold by FCBNA or UFM or otherwise
adversely affect FCBI's business, financial condition or prospects.
FCBI FACES STRONG COMPETITION FROM OTHER FINANCIAL INSTITUTIONS, FINANCIAL
SERVICE COMPANIES AND OTHER ORGANIZATIONS OFFERING SERVICES SIMILAR TO THOSE
OFFERED BY THE COMPANY AND ITS SUBSIDIARIES, WHICH COULD HURT FCBI'S BUSINESS.
FCBI's business operations are centered primarily in West Virginia, Virginia,
North Carolina and the surrounding mid-Atlantic region. Increased competition
within this region may result in reduced loan originations and deposits.
Ultimately, we may not be able to compete successfully against current and
future competitors. Many competitors offer the types of loans and banking
services that we offer. These competitors include other savings associations,
national banks, regional banks and other community banks. FCBI also faces
competition from many other types of financial institutions, including finance
companies, brokerage firms, insurance companies, credit unions, mortgage banks
and other financial intermediaries. In particular, FCBNA's competitors include
other state and national banks and major financial companies whose greater
resources may afford them a marketplace advantage by enabling them to maintain
numerous banking locations and mount extensive promotional and advertising
campaigns.
Additionally, banks and other financial institutions with larger capitalization
and financial intermediaries not subject to bank regulatory restrictions have
larger lending limits and are thereby able to serve the credit needs of larger
clients. These institutions, particularly to the extent they are more
diversified than FCBI, may be able to offer the same loan products and services
that FCBI offers at more competitive rates and prices. If FCBI is unable to
attract and retain banking clients, FCBI may be unable to continue FCBNA's loan
and deposit growth and the Company's business, financial condition and prospects
may be negatively affected.
6
EMPLOYEES
The Registrant and its subsidiary, FCBNA, employed 539 full time equivalent
employees at December 31, 2002, while UFM employed 110 people. Management
considers employee relations to be excellent.
REGULATION AND SUPERVISION
The following discussion sets forth the material elements of the regulatory
framework applicable to the Company and the Bank. This regulatory framework
primarily is intended for the protection of depositors and the deposit insurance
funds that insure deposits of banks, and not for the protection of security
holders. To the extent that the following information describes statutory and
regulatory provisions, it is qualified in its entirety by reference to those
provisions. A change in the statutes, regulations or regulatory policies
applicable to the Company or its subsidiaries may have a material effect on its
business.
Regulation of the Company
General. The Company is a bank holding company within the meaning of the Bank
Holding Act of 1956, as amended ("BHCA"), and is registered as such with the
Board of Governors of the Federal Reserve System. The registrant is required to
file with the Board of Governors quarterly reports of the Company and the Bank
and such other information as the Board of Governors may require. The Federal
Reserve makes periodic examinations of the Company, typically on an annual
basis.
BHCA Activities and Other Limitations. The BHCA prohibits a bank holding company
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any bank, or increasing such ownership or control of any bank,
without prior approval of the Federal Reserve Board.
The BHCA also prohibits a bank holding company, with certain exceptions, from
acquiring more than 5% of the voting shares of any company that is not a bank
and from engaging in any business other than banking or managing or controlling
banks. Under the BHCA, the Federal Reserve Board is authorized to approve the
ownership of shares by a bank holding company in any company, the activities of
which the Federal Reserve Board has determined to be so closely related to
banking or to managing or controlling banks as to be a proper incident thereto.
In making such determinations, the Federal Reserve Board is required to weigh
the expected benefit to the public, such as greater convenience, increased
competition or gains in efficiency, against the possible adverse effects, such
as undue concentration of resources, decreased or unfair competition, conflicts
of interest or unsound banking practices.
The Federal Reserve Board has by regulation determined that certain activities
are closely related to banking within the meaning of the BHCA. These activities
include operating a mortgage company, finance company, credit card company,
factoring company, trust company or savings association; performing certain data
processing operations; providing limited securities brokerage services; acting
as an investment or financial advisor; acting as an insurance agent for certain
types of credit-related insurance; leasing personal property on a full-payout,
non-operating basis; providing tax planning and preparation services; operating
a collection agency; and providing certain courier services. The Federal Reserve
Board also has determined that certain other activities, including real estate
brokerage and syndication, land development, property management and
underwriting of life insurance not related to credit transactions, are not
closely related to banking and a proper incident thereto.
Capital Requirements. The Federal Reserve Board has adopted capital adequacy
guidelines pursuant to which it assesses the adequacy of capital in examining
and supervising a bank holding company and in analyzing applications to it under
the BHCA. The Federal Reserve Board capital adequacy guidelines generally
require bank holding companies to maintain total capital equal to 8% of total
risk-adjusted assets, with at least one-half of that amount consisting of Tier I
or core capital and up to one-half of that amount consisting of Tier II or
supplementary capital. Tier I capital for bank holding companies generally
consists of the sum of common stockholders' equity and perpetual preferred stock
(subject in the case of the latter to limitations on the kind and amount of such
stocks which may be included as Tier I capital), less goodwill and, with certain
exceptions, intangibles. Tier II capital generally consists of hybrid capital
instruments; perpetual preferred stock which is not eligible to be included as
Tier I capital; term subordinated debt and intermediate-term preferred stock;
and, subject to limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account different risk
characteristics, with the categories ranging from 0% (requiring no additional
capital) for assets such as cash to 100% for the bulk of assets which are
typically held by a bank holding company, including multi-
7
family residential and commercial real estate loans, commercial business loans
and consumer loans. Single-family residential first mortgage loans which are not
past-due (90 days or more) or non-performing and which have been made in
accordance with prudent underwriting standards are assigned a 50% level in the
risk-weighting system, as are certain privately-issued mortgage-backed
securities representing indirect ownership of such loans. Off-balance sheet
items also are adjusted to take into account certain risk characteristics. At
December 31, 2002, the Company's Tier I capital and total capital ratios were
12.06% and 13.33%, respectively.
In addition to the risk-based capital requirements, the Federal Reserve Board
requires bank holding companies to maintain a minimum leverage capital ratio of
Tier I capital to total assets of 3.0%. Total assets for this purpose does not
include goodwill and any other intangible assets and investments that the
Federal Reserve Board determines should be deducted from Tier I capital. The
Federal Reserve Board has announced that the 3.0% Tier I leverage capital ratio
requirement is the minimum for the top-rated bank holding companies without any
supervisory, financial or operational weaknesses or deficiencies or those which
are not experiencing or anticipating significant growth. Other bank holding
companies are expected to maintain Tier I leverage capital ratios of at least
4.0% to 5.0% or more, depending on their overall condition. The Company's
leverage ratio, at December 31, 2002, was 8.10%.
Financial Support of Affiliated Institutions. Under Federal Reserve Board
policy, the Company is expected to act as a source of financial strength to the
Bank and to commit resources to support the Bank in circumstances when it might
not do so absent such policy. In addition, any capital loans by a bank holding
company to a subsidiary bank are subordinate in right of payment to deposits and
to certain other indebtedness of such subsidiary bank. In the event of a bank
holding company's bankruptcy, any commitment by the bank holding company to a
federal bank regulatory agency to maintain the capital of a subsidiary bank will
be assumed by the bankruptcy trustee and entitled to a priority of payment.
REGULATION OF THE BANK
General. The Bank is a nationally chartered bank organized under the banking
laws of the United States and is subject to extensive regulation and examination
by the OCC and the FDIC. The federal laws and regulations which are applicable
to banks regulate, among other things, the scope of their business, their
investments, their reserves against deposits, the timing of the availability of
deposited funds and the nature and amount of and collateral for certain loans.
There are periodic examinations by the aforementioned regulatory authorities to
test the Bank's compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive framework of activities in which an
institution can engage and is intended primarily for the protection of the
insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulation, whether by
the OCC, the FDIC or the U.S. Congress could have a material adverse impact on
the Company and its operations.
FDIC Insurance Assessments. The deposits of the Bank are insured up to
regulatory limits by the FDIC, and, accordingly, are subject to deposit
insurance assessments to maintain the Bank Insurance Fund (the "BIF"), which is
administered by the FDIC. The FDIC has adopted regulations establishing a
permanent risk-related deposit insurance assessment system. Under this system,
the FDIC places each insured bank in one of nine risk categories based on (1)
the bank's capitalization and (2) supervisory evaluations provided to the FDIC
by the institution's primary Federal regulator. Each insured bank's insurance
assessment rate is then determined by the risk category in which it is
classified by the FDIC. The annual insurance premiums on bank deposits insured
by the BIF currently vary between $0.00 per $100 of deposits for banks
classified in the highest capital and supervisory evaluation categories to $0.27
per $100 of deposits for banks classified in the lowest capital and supervisory
evaluation categories.
The FDIC may terminate the deposit insurance of any insured depository
institution, including the Bank, if it determines after a hearing that the
institution has engaged or is engaging in unsafe or unsound practices, is in an
unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent withdrawals, shall
continue to be insured for a period of six months to two years, as determined by
the FDIC. Management is aware of no existing circumstances which would result in
termination of the Bank's deposit insurance.
Prompt Corrective Action. The Federal Deposit Insurance Corporation Act, as
amended ("FDICIA"), among other things, requires the federal banking agencies to
take "prompt corrective action" in respect of depository institutions that do
not meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." An FDIC-insured bank will
be "well capitalized" if it has a total capital ratio of
8
10% or greater, a Tier 1 capital ratio of 6% or greater and a leverage ratio of
5% or greater and is not subject to any order or written directive by any such
regulatory authority to meet and maintain a specific capital level for any
capital measure. A depository institution's capital tier will depend upon where
its capital levels compare to various relevant capital measures and certain
other factors, as established by regulation. As of December 31, 2002, the Bank
had capital levels that qualify it as being "well capitalized" under such
regulations.
Capital Requirements. The Bank is subject to capital requirements adopted by the
OCC similar to the capital requirements for the Company. The capital ratios of
the Bank are set forth in Note 13 to the Consolidated Financial Statements in
the Annual Report included in Item 15, Exhibit 13 hereof.
Payment of Dividends and Borrowings. The Bank is subject to certain restrictions
which limit the amounts and the manner in which it may loan funds to the
Company. The Bank is further subject to restrictions on the amount of dividends
that can be paid to the Company in any one calendar year without prior approval
by primary regulators. Payment of dividends by the Bank to the Company cannot
exceed net profits, as defined, for the current year combined with net profits
for the two preceding years. In addition, any distribution that might reduce the
Bank's equity capital to unsafe levels or which, in the opinion of regulatory
agencies, is not in the best interests of the public, could be prohibited. For
additional information, see Note 13 to the Consolidated Financial Statements in
the Annual Report included in Item 15, Exhibit 13 hereof.
Community Reinvestment Act and the Fair Lending Laws. The Bank has a
responsibility under the Community Reinvestment Act and related regulations to
help meet the credit needs of its community, including low- and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act prohibit lenders from discriminating in their lending practices on
the basis of characteristics specified in those statutes. An institution's
failure to comply with the provisions of the Community Reinvestment Act could,
at a minimum, result in regulatory restrictions on its activities and the denial
of applications. In addition, an institution's failure to comply with the Equal
Credit Opportunity Act and the Fair Housing Act could result in the applicable
federal regulatory agencies and/or the Department of Justice taking enforcement
actions against the institution. Based on its most recent examination, the Bank
received a satisfactory rating with respect to its performance pursuant to the
Community Reinvestment Act.
Federal Home Loan Bank System. The Bank is a member of the FHLB system. Among
other benefits, each FHLB serves as a reserve or central bank for its members
within its assigned region. Each FHLB is financed primarily from the sale of
consolidated obligations of the FHLB system. Each FHLB makes available loans or
advances to its members in compliance with the policies and procedures
established by the board of directors of the individual FHLB. As an FHLB member,
the Bank is required to own capital stock in the FHLB of Atlanta. The Bank's
required investment in FHLB stock, based on December 31, 2002 financial data,
was $5.50 million. At December 31, 2002, the Bank had $6.25 million of FHLB
Atlanta stock.
Federal Reserve System. The Federal Reserve Board requires all depository
institutions to maintain noninterest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW, and Super NOW
checking accounts) and non personal time deposits. At December 31, 2002, the
Bank was in compliance with these requirements.
RECENT BANKING LEGISLATION
USA Patriot Act of 2001. In October 2001, the USA Patriot Act of 2001 was
enacted in response to the terrorist attacks in New York, Pennsylvania and
Washington, D.C. which occurred on September 11, 2001. The Patriot Act is
intended to strengthen U.S. law enforcement's and the intelligence communities'
abilities to work cohesively to combat terrorism on a variety of fronts. The
potential impact of the Patriot Act on financial institutions of all kinds is
significant and wide ranging. The Patriot Act contains sweeping anti-money
laundering and financial transparency laws and imposes various regulations,
including standards for verifying client identification at account opening, and
rules to promote cooperation among financial institutions, regulators and law
enforcement entities in identifying parties that may be involved in terrorism or
money laundering.
Financial Services Modernization Legislation. In November 1999, the
Gramm-Leach-Bliley Act of 1999 (the "GLB") was enacted. The GLB repeals
provisions of the Glass-Steagall Act which restricted the affiliation of
commercialbanks with firms "engaged principally" in specified securities
activities, and which restricted officer, director or employee interlocks
between a member bank and any company or person "primarily engaged" in specified
securities activities.
In addition, the GLB also contains provisions that expressly preempt any state
law restricting the establishment of financial affiliations, primarily related
to insurance. The general effect of the law is to establish a comprehensive
framework to permit affiliations among
9
commercial banks, insurance companies, securities firms and other financial
service providers by revising and expanding the Bank Holding Company Act
framework to permit a holding company to engage in a full range of financial
activities through a new entity known as a "financial holding company."
"Financial activities" is broadly defined to include not only banking, insurance
and securities activities, but also merchant banking and additional activities
that the Federal Reserve Board, in consultation with the Secretary of the
Treasury, determines to be financial in nature, incidental to such financial
activities or complementary activities that do not pose a substantial risk to
the safety and soundness of depository institutions or the financial system
generally.
The GLB also permits national banks to engage in expanded activities through the
formation of financial subsidiaries. A national bank may have a subsidiary
engaged in any activity authorized for national banks directly or any financial
activity, except for insurance underwriting, insurance investments, real estate
investment or development, or merchant banking, which may only be conducted
through a subsidiary of a financial holding company. Financial activities
include all activities permitted under new sections of the Bank Holding Company
Act or permitted by regulation.
Sarbanes-Oxley Act of 2002. On July 30, 2002, President Bush signed into law the
Sarbanes-Oxley Act of 2002 (the "SOA".) The stated goals of the SOA are to
increase corporate responsibility, to provide for enhanced penalties for
accounting and auditing improprieties of publicly traded companies and to
protect investors by improving the accuracy and reliability of corporate
disclosures pursuant to the securities laws. The SOA is the most far-reaching
U.S. securities legislation enacted in some time. The SOA generally applies to
all companies, both U.S. and non-U.S., that file or are required to file
periodic reports with the Securities and Exchange Commission (the "SEC",) under
the Securities Exchange Act of 1934 (the "Exchange Act".) Given the extensive
SEC role in implementing rules relating to many of the SOA's new requirements,
the final scope of these requirements remains to be determined.
The SOA includes very specific additional disclosure requirements and new
corporate governance rules, requires the SEC and securities exchanges to adopt
extensive additional disclosure, corporate governance and other related rules
and mandates further studies of certain issues by the SEC and the Comptroller
General. The SOA represents significant federal involvement in matters
traditionally left to state regulatory systems, such as the regulation of the
accounting profession, and to state corporate law, such as the relationship
between a board of directors and management and between a board of directors and
its committees.
The SOA addresses, among other matters: audit committees for all reporting
companies; certification of financial statements by the chief executive officer
and the chief financial officer; the forfeiture of bonuses or other
incentive-based compensation and profits from the sale of an issuer's securities
by directors and senior officers in the twelve month period following initial
publication of any financial statements that later require restatement; a
prohibition on insider trading during pension plan black out periods; disclosure
of off-balance sheet transactions; a prohibition on personal loans to directors
and officers; expedited filing requirements for Form 4's; disclosure of a code
of ethics and filing a Form 8-K for a change or waiver of such code; "real time"
filing of periodic reports; the formation of a public accounting oversight
board; auditor independence; and various increased criminal penalties for
violations of securities laws.
The SOA contains provisions which became effective upon enactment on July 30,
2002 and provisions which will become effective from within 30 days to one year
from enactment. The SEC has been delegated the task of enacting rules to
implement various provisions with respect to, among other matters, disclosure in
periodic filings pursuant to the Exchange Act.
Regulation W. Transactions between a bank and its "affiliates" are governed by
Sections 23A and 23B of the Federal Reserve Act. The Federal Reserve Board has
also recently issued Regulation W, which codifies prior regulations under
Sections 23A and 23B of the Federal Reserve Act and provides interpretative
guidance with respect to affiliate transactions. Affiliates of a bank include,
among other entities, the bank's holding company and companies that are under
common control with the bank. The Company is considered to be an affiliate of
the Bank. In general, subject to certain specified exemptions, a bank or its
subsidiaries are limited in their ability to engage in "covered transactions"
with affiliates: to an amount equal to 10% of the bank's capital and surplus, in
the case of covered transactions with any one affiliate, and to an amount equal
to 20% of the bank's capital and surplus, in the case of covered transactions
with all affiliates.
In addition, a bank and its subsidiaries may engage in covered transactions and
other specified transactions only on terms and under circumstances that are
substantially the same, or at least as favorable to the bank or its subsidiary,
as those prevailing at the time for comparable transactions with nonaffiliated
companies. A "covered transaction" includes: a loan or extension of credit to an
affiliate; a purchase of, or an investment in, securities issued by an
affiliate; a purchase of assets from an affiliate, with some exceptions; the
acceptance of securities issued by an affiliate as collateral for a loan or
extension of credit to any party; and the issuance of a guarantee, acceptance or
letter of credit on behalf of an affiliate.
10
In addition, under Regulation W, a bank and its subsidiaries may not purchase a
low-quality asset from an affiliate; covered transactions and other specified
transactions between a bank or its subsidiaries and an affiliate must be on
terms and conditions that are consistent with safe and sound banking practices;
and with some exceptions, each loan or extension of credit by a bank to an
affiliate must be secured by collateral with a market value ranging from 100% to
130%, depending on the type of collateral, of the amount of the loan or
extension of credit. Regulation W generally excludes all non-bank and
non-savings association subsidiaries of banks from treatment as affiliates,
except to the extent that the Federal Reserve Board decides to treat these
subsidiaries as affiliates.
Under a present exemption from compliance with the quantitative limits and
collateral requirements of Regulation W and Section 23A, a bank can purchase
loans, or other extensions of credit, from an affiliate without being subject to
the 10% and 20% limitation for "covered transactions" as long as: the extension
of credit is originated by the affiliate; the bank makes an independent
evaluation of the creditworthiness of the borrower before the affiliate makes or
commits to make the extension of credit; the bank commits to purchase the
extension of credit before the affiliate makes or commits to make the extension
of credit; the bank does not make a blanket advance commitment to purchase
extensions of credit from the affiliate; and the dollar amount of the extension
of credit, when aggregated with the dollar amount of all other extensions of
credit purchased from the affiliate during the preceding 12 calendar months by
the bank and its FDIC insured depository institution affiliates, does not
represent more than 50% of the dollar amount of extensions of credit originated
by the affiliate during the preceding 12 calendar months.
Concurrently with the adoption of Regulation W, the Federal Reserve Board has
proposed a regulation which would limit the amount of loans that could be
purchased by a bank from an affiliate under this exemption to not more than 100%
of the bank's capital and surplus. Comments on the proposed rule were due by
January 13, 2003.
11
ADDITIONAL STATISTICAL DISCLOSURE FOR BANK HOLDING COMPANIES
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY, INTEREST RATES
AND INTEREST DIFFERENTIAL
A.& B. AVERAGE BALANCE SHEETS-NET INTEREST INCOME ANALYSIS
(AMOUNTS IN THOUSANDS, EXCEPT %)
2002 2001
--------- ---------
AVERAGE INTEREST YIELD/RATE AVERAGE INTEREST YIELD/RATE
BALANCE (1)(5) (1) BALANCE (1)(5) (1)
------------------------------------- -------------------------------------
Earning Assets:
Loans:
Held for Sale $ 57,116 $ 3,584 6.27% $ 41,511 $ 2,956 7.12%
Held for Investment (2)
Taxable 910,790 72,065 7.91% 836,807 72,120 8.62%
Tax-Exempt 6,559 538 8.21% 7,118 711 9.99%
------------- --------- ---- ------------- --------- ----
917,349 72,603 7.91% 843,925 72,831 8.63%
Reserve for Loan
Losses (14,436) (12,753)
------------- --------- ---- ------------- --------- ----
Net Total 902,913 72,603 8.04% 831,172 72,831 8.76%
Securities Available For
Sale:
Taxable 245,001 12,906 5.27% 167,672 10,094 6.02%
Tax-Exempt 95,164 7,239 7.61% 81,507 6,269 7.69%
------------- --------- ---- ------------- --------- ----
Total 340,165 20,145 5.92% 249,179 16,363 6.57%
Investment Securities:
Taxable 1,459 95 6.51% 2,511 165 6.57%
Tax-Exempt 39,587 3,253 8.22% 39,755 3,253 8.18%
------------- --------- ---- ------------- --------- ----
Total 41,046 3,348 8.16% 42,266 3,418 8.09%
Interest Bearing
Deposits 25,061 380 1.52% 22,197 842 3.79%
Fed Funds Sold 288 4 1.39% - - -
------------- --------- ---- ------------- --------- ----
Total Earning Assets 1,366,589 $ 100,064 7.32% 1,186,325 $ 96,410 8.13%
Other Assets 105,655 99,989
------------- -------------
Total $ 1,472,244 $ 1,286,314
============= =============
Interest-Bearing Liabilities:
Demand Deposits $ 189,200 1,916 1.01% $ 145,107 2,150 1.48%
Savings Deposits 170,297 1,903 1.12% 131,699 1,698 1.29%
Time Deposits 576,833 21,546 3.74% 528,267 28,036 5.31%
Short-term Borrowings 209,154 9,040 4.32% 191,660 9,913 5.17%
Long-term Borrowings 10,081 603 5.98% 10,171 612 6.02%
------------- --------- ---- ------------- --------- ----
Total Interest-bearing
Liabilities 1,155,565 35,008 3.03% 1,006,904 42,409 4.21%
Demand Deposits 157,339 134,726
Other Liabilities 15,249 15,401
Stockholders' Equity 144,091 129,283
------------- -------------
Total $ 1,472,244 $ 1,286,314
============= --------- ============= ---------
Net Interest Income $ 65,056 $ 54,001
========= =========
Net Interest Rate Spread (3) 4.29% 3.91%
==== ====
Net Interest Margin (4) 4.76% 4.55%
==== ====
2000
---------
AVERAGE INTEREST YIELD/RATE
BALANCE (1)(5) (1)
-------------------------------------
Earning Assets:
Loans:
Held for Sale $ 3,503 $ 281 8.02%
Held for Investment (2)
Taxable 736,519 67,568 9.17%
Tax-Exempt 8,051 869 10.79%
------------- --------- -----
744,570 68,437 9.19%
Reserve for Loan
Losses (12,195)
------------- --------- -----
Net Total 732,375 68,437 9.34%
Securities Available For Sale:
Taxable 172,079 11,228 6.52%
Tax-Exempt 36,171 2,464 6.81%
------------- --------- -----
Total 208,250 13,692 6.57%
Investment Securities:
Taxable 4,467 314 7.03%
Tax-Exempt 70,213 6,113 8.71%
------------- --------- -----
Total 74,680 6,427 8.61%
Interest Bearing
Deposits 6,075 393 6.47%
Fed Funds Sold 330 20 6.06%
------------- --------- -----
Total Earning Assets 1,025,213 $ 89,250 8.71%
Other Assets 102,466
-------------
Total $ 1,127,679
=============
Interest-Bearing Liabilities:
Demand Deposits $ 131,432 2,936 2.23%
Savings Deposits 135,417 2,905 2.15%
Time Deposits 461,813 24,878 5.39%
Short-term Borrowings 149,193 8,050 5.40%
Long-term Borrowings 10,204 611 5.99%
------------- --------- -----
Total Interest-bearing
Liabilities 888,059 39,380 4.43%
Demand Deposits 117,165
Other Liabilities 13,788
Stockholders' Equity 108,667
-------------
Total $ 1,127,679
============= ---------
Net Interest Income $ 49,870
=========
Net Interest Rate Spread (3) 4.27%
====
Net Interest Margin (4) 4.86%
====
(1) Fully Taxable Equivalent at the rate of 35%.
(2) Non-accrual loans are included in average balances outstanding but with
no related interest income during the period of non-accrual.
(3) Represents the difference between the yield on earning assets and cost of
funds.
(4) Represents tax equivalent net interest income divided by average interest
earning assets.
(5) Loan interest income also includes loan fee income of $1.3 million, $1.0
million and $0.9 million in 2002, 2001 and 2000, respectively.
12
C. RATE AND VOLUME ANALYSIS OF INTEREST
(Amounts in Thousands)
2002 Compared to 2001 2001 Compared to 2000
$ Increase/(Decrease) due to $ Increase/(Decrease) due to
-------------------------------------- ---------------------------------------
Volume Rate Total Volume Rate Total
----------- --------- ---------- ----------- --------- ----------
Interest Earned On:(1)
Loans $ 7,063 $ (6,663) $ 400 $ 11,430 $ (4,361) $ 7,069
Investment securities available
for sale 5,237 (1,455) 3,782 3,168 (497) 2,671
Investment securities
held to maturity (82) 12 (70) (2,642) (367) (3,009)
Interest-bearing deposits
with other banks 97 (559) (462) 670 (221) 449
Federal funds sold 4 -- 4 (10) (10) (20)
----------- --------- ---------- ----------- --------- ----------
Total interest-earning assets 12,319 (8,665) 3,654 12,616 (5,456) 7,160
----------- --------- ---------- ----------- --------- ----------
Interest Paid On:
Demand deposits 552 (786) (234) 281 (1,067) (786)
Savings deposits 452 (247) 205 (78) (1,129) (1,207)
Time deposits 2,397 (8,887) (6,490) 3,532 (374) 3,158
Short-term borrowings 210 (1,088) (878) 2,483 (615) 1,868
Long-term debt (5) 1 (4) (2) (2) (4)
----------- --------- ---------- ----------- --------- ----------
Total interest-bearing liabilities 3,606 (11,007) ( 7,401) 6,216 (3,187) 3,029
----------- --------- ---------- ----------- --------- ----------
Change in net interest income $ 8,713 $ 2,342 $ 11,055 $ 6,400 $ (2,269) $ 4,131
=========== ========= ========== =========== ========== ==========
(1) Fully taxable Equivalent using a rate of 35%.
The preceding table sets forth a summary of the changes in interest earned and
paid resulting from changes in volume of earning assets and paying liabilities
and changes in rates thereon. For purposes of this analysis, the change in
interest due to both rate and volume has been allocated to volume and rate
changes in proportion to the relationship of the absolute dollar amounts.
13
II. INVESTMENT PORTFOLIO
A. Amortized Cost of Investment Securities Held to Maturity:
December 31,
(Amounts in Thousands) 2002 2001 2000
------------ ------------ ------------
U. S Government Agencies and Corporations $ 336 $ 743 $ 2,103
States and Political Subdivisions 40,303 39,768 72,264
Other Securities 375 1,373 1,369
------------ ------------ ------------
$ 41,014 $ 41,884 $ 75,736
============ ============ ============
Market Value of Securities Available for Sale:
December 31,
(Amounts in Thousands) 2002 2001 2000
------------ ------------ ------------
U. S Government Agencies and Corporations $ 143,987 $ 196,203 $ 134,157
States and Political Subdivisions 95,706 97,449 34,648
Other Securities 61,192 60,355 38,757
------------ ------------ ------------
$ 300,885 $ 354,007 $ 207,562
============ ============ ============
B. Maturity and Yields:
The required information pertaining to the amount of investment securities, in
each investment category listed above, which are due within specified time
periods and the weighted-average yield for each of the range of maturities is
incorporated by reference to the tables in Note 3 & 4 presented on pages 53
through 55 of the 2002 Annual Report as Exhibit 13 herein.
C. There are no issues included in obligations of states and political
subdivisions or other securities that exceed ten percent of stockholders'
equity.
III. LOAN PORTFOLIO
A. Loan Summary:
Domestic Loans
December 31,
----------------------------------------------------------------------------
(Amounts in Thousands) 2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Commercial, Financial and
Agricultural $ 74,186 $ 96,641 $ 86,887 $ 92,739 $ 77,233
Real Estate-Commercial 285,847 259,717 222,571 208,228 170,683
Real Estate-Construction 72,275 77,402 73,087 24,684 8,988
Real Estate-Residential 364,087 332,671 293,732 251,332 228,540
Consumer 131,385 138,426 135,692 128,541 127,169
Other 726 961 649 62 894
------------ ------------ ------------ ------------ ------------
Total 928,506 905,818 812,618 705,586 613,507
Less Unearned Income 885 1,322 1,362 1,490 2,014
------------ ------------ ------------ ------------ ------------
927,621 904,496 811,256 704,096 611,493
Less Reserve for Loan Losses 14,410 13,952 12,303 11,900 11,404
------------ ------------ ------------ ------------ ------------
Net Loans $ 913,211 $ 890,544 $ 798,953 $ 692,196 $ 600,089
============ ============ ============ ============ ============
The Company maintained no Foreign Loans in the periods presented.
14
B. Maturities and Rate Sensitivity of Loan Portfolio at December 31, 2002:
(Amounts in Thousands) Remaining Maturities
-------------------------------------------
Over One
One Year to Over Five
and Less Five Years Years Total Percent
------------ ---------- ----------- ------------ -------
Commercial, Financial and
Agricultural $ 38,115 $ 24,192 $ 11,879 $ 74,186 8.00%
Real Estate-Commercial 83,677 110,033 92,137 285,847 30.82%
Real Estate-Construction 33,804 23,978 14,493 72,275 7.79%
Real Estate-Mortgage 41,330 145,079 177,656 364,065 39.25%
Consumer 20,396 99,254 10,872 130,522 14.07%
Other 149 409 168 726 0.08%
------------ ---------- ----------- ------------ ------
$ 217,471 $ 402,945 $ 307,205 $ 927,621 100.00%
============ ========== =========== ============ ======
Rate Sensitivity:
Pre-determined Rate $ 50,649 $ 322,553 $ 291,191 $ 664,393 71.62%
Floating or Adjustable Rate 166,822 80,392 16,014 263,228 28.38%
------------ ---------- ----------- ------------ ------
$ 217,471 $ 402,945 $ 307,205 $ 927,621 100.00%
============ ========== =========== ============ ======
23.44% 43.44% 33.12% 100.00%
C. Risk Elements: The required information for risk elements involving the
aggregate amounts of and related information on non-performing loans and
performing loans considered by management to be impaired is included below and
incorporated by reference to pages 29, 30, 57 and 58 of the 2002 Annual Report.
Nonperforming Loans:
December 31,
(Amounts in Thousands) 2002 2001 2000 1999 1998
------------ ---------- ----------- ------------ -------
Non-accruing Loans $ 3,075 $ 3,633 $ 5,397 $ 7,889 $ 7,763
Loans Past Due Over 90 Days 91 1,351 1,208 1,259 377
Restructured Loans Performing
in Accordance with Modified Terms 345 518 502 505 509
Gross Interest Income Which
Would Have Been Recorded
Under Original Terms of
Non-Accruing and Restructured Loans 222 291 409 436
Actual Interest Income During
the Period 108 97 105 78
Potential Problem Loans: In addition to loans which are classified as
non-performing and impaired, the company closely monitors certain loans which
could develop into problem loans. These potential problem loans present
characteristics of weakness or concentrations of credit to one borrower. Among
these loans at December 31, 2002 were two loans to separate borrowers which
warrant close monitoring. The first of these is a $12.8 million loan to a
borrower within the hospitality industry. The loan represents the retained
portion of a $16 million total loan shared with a participating bank. As with
other hospitality industry firms, the borrower has experienced reduced cash flow
associated with declines in the level of hotel occupancy. The loan is secured by
real estate improved with a national franchise hotel and parking building in a
major southeast city. The loan is further secured by the guarantee of the
principals of the borrowing entity. This loan, which was originated in 1999,
performed according to terms until it displayed delinquency in February and
March 2003 and was subsequently brought current. The loan remains current as to
principal and interest at the date of this report. The loan has not been
converted to non-accrual status based upon its secured position, historical
performance and strength of guarantors. This loan does, however, represent one
of the Company's largest credits and is within an industry which has suffered
from declining performance in 2001 and 2002.
The second loan of $2 million was for land development in eastern Virginia. The
borrower has been in the process of negotiating a sale of the raw land to other
developers. The company has renewed this loan as the borrower has been unable to
consummate a sale to date. The borrower has recently entered into a letter of
intent with a new prospective buyer and is continuing to pursue the sale;
however, this transaction may be delayed or may not be consummated. The borrower
is also indebted to the company on another $6.0 million loan which is secured by
land improved with an 18-hole golf course and surrounding developable acreage in
northern Virginia. This loan continues to perform in accordance with loan terms.
There were no specific allocations of the allowance for loan losses for any of
the foregoing potential problem loans as of December 31, 2002.
Foreign Outstandings: The Company had no foreign loans outstanding at December
31, 2002.
Loan Concentrations: The Company had no concentrations of loans representing 10%
or more of outstanding loans at December 31, 2002.
15
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. 1. Summary of Loan Loss Experience:
Years Ended December 31,
------------------------------------------------------------------------
(Amounts in Thousands, Except Percent Data) 2002 2001 2000 1999 1998
----------- ---------- ----------- ------------ -------
Balance of reserve at beginning of period $ 13,952 $ 12,303 $ 11,900 $ 11,404 $11,406
Acquisition balances 395 484 1,051
Charge-offs:
Commercial, financial and agricultural 2,162 1,979 2,911 562 3,602
Real estate-residential 464 720 629 268 367
Installment 2,243 2,181 1,996 2,178 3,019
----------- ---------- ----------- ------------ -------
Total Charge-offs 4,869 4,880 5,536 3,008 6,988
----------- ---------- ----------- ------------ -------
Recoveries:
Commercial, financial and agricultural 167 155 267 74 190
Real estate-residential 129 298 82 60 31
Installment 428 458 553 477 515
----------- ---------- ----------- ------------ -------
Total Charge-offs 724 911 902 611 736
----------- ---------- ----------- ------------ -------
Net charge-offs 4,145 3,969 4,634 2,397 6,252
Provision charged to operations 4,208 5,134 3,986 2,893 6,250
----------- ---------- ----------- ------------ -------
Balance of reserve at end of period $ 14,410 $ 13,952 $ 12,303 $ 11,900 $11,404
=========== ========== =========== ============ =======
Ratio of net charge-offs to average loans
outstanding 0.45% 0.47% 0.62% 0.38% 0.97%
Ratio of reserve to total loans outstanding 1.55% 1.54% 1.52% 1.70% 1.86%
A. 2. The required information describing the factors which influenced
management's judgment in determining the allowance for loan losses is
incorporated by reference to pages 28 through 30, 57 and 58 of the 2002 Annual
Report in Exhibit 13 hereof.
B. Allocation of Reserve for Loan Losses:
(Amounts in Thousands, Except Percent Data)
--------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---------------- --------------- --------------- --------------- ---------------
Commercial, Financial
and Agricultural $ 8,905 47.00% $ 8,399 47.00% $ 6,798 38.00% $ 4,919 43.00% $ 4,054 40.00%
Real Estate-Mortgage 1,684 39.00% 3,543 38.00% 3,289 46.00% 2,578 39.00% 2,297 39.00%
Consumer 3,821 14.00% 2,010 15.00% 1,861 16.00% 1,413 18.00% 1,378 21.00%
Unallocated -- 0.00% -- 0.00% 355 0.00% 2,990 0.00% 3,675 0.00%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total $14,410 100.00% $13,952 100.00% $12,303 100.00% $11,900 100.00% $11,404 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
The percentages in the table above represent the percent of loans in each
category of total loans.
16
V. Deposits
A. The required information for average deposits and rates paid by type is
included on page 12 of this report and on page 31 in Exhibit 13 hereof.
B. Not applicable.
C. Not applicable.
D. The required information for time deposits, including certificates of
deposit, of $100,000 or more is incorporated by reference to page 59 of
the 2002 Annual Report in Exhibit 13 hereof.
E. Not applicable.
VI. RETURN ON EQUITY AND ASSETS
A. The required information showing return on equity and assets and other
relevant financial ratios is incorporated by reference to page 15 of the 2002
Annual Report in Exhibit 13 hereof.
VII. SHORT-TERM BORROWINGS
A. Securities Sold Under Agreements to Repurchase and Other Short-Term
Borrowings:
The Company uses various short-term funding sources including term repurchase
agreements, structured term borrowings from the FHLB, customer repurchase
agreements and Federal funds purchased. The Company's short-term borrowings and
rates paid are summarized as follows (Amounts in Thousands, Except Percent
Data):
2002 2001 2000
------------------- --------------------- ----------------------
Amount Rate Amount Rate Amount Rate
------------------- --------------------- ----------------------
At year-end $ 206,183 4.38% $ 240,918 5.78% $ 174,016 5.52%
Average during the year 209,154 4.32% 191,660 5.17% 149,193 5.40%
Maximum month-end balance 228,976 240,918 182,187
B. Advances from the FHLB
Further information pertaining to short-term borrowings from the FHLB is
incorporated by reference to pages 31, 32 and 58 through 59 of the 2002 Annual
Report included in Exhibit 13 hereto.
ITEM 2. PROPERTIES
The principal offices of the Corporation and FCBNA are located at One Community
Place, Bluefield, Virginia, where the Company owns and occupies approximately
36,000 square feet of office space. Additional details regarding the physical
location and number of banking offices is located on pages 78 in the 2002 Annual
Report and incorporated herein by reference. The Corporation's banking
subsidiary owns in fee 36 offices while others are leased or are located on
leased land. United First Mortgage, Inc., a wholly-owned subsidiary of FCBNA,
maintains 11 leased office facilities in Virginia with a geographic area ranging
from Virginia Beach, Virginia to Harrisonburg, Virginia.
ITEM 3. LEGAL PROCEEDINGS
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
17
financial position of the Company.
The Company reports the favorable outcome of litigation last reported in its
report on Form 10-Q for the period ended September 30, 2002 styled "Ann Tierney
Smith, as Executrix of the Estate of Katherine B. Tierney, Ann Barclay Smith and
Laurence E. Tierney Smith vs. FCFT, Inc., et al, Civil Action No. 97-CV-408-K".
This litigation ended on December 9, 2002, when the West Virginia Court of
Appeals affirmed the trial court's directed verdict as originally rendered in
favor of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 2002.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The number of common stockholders of record on December 31, 2002 was 3,358 and
outstanding shares totaled 9,888,482. The required information is incorporated
by reference to page 16 and 17 of the 2002 Annual Report included in Exhibit 13
hereto.
ITEM 6. SELECTED FINANCIAL DATA
The required information is incorporated by reference to page 15 of the 2002
Annual Report included in Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The required information is incorporated by reference to pages 6 through 39 of
the 2002 Annual Report included in Exhibit 13 hereto.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The required information is incorporated by reference to pages 34 through 36 of
the 2002 Annual Report included in Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required information is incorporated by reference to pages 40 through 75 of
the 2002 Annual Report included in Exhibit 13 hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information concerning directors has been omitted in accordance
with General Instruction G. Such information regarding directors appears on
pages 3, 4, 5, and 6 of the Proxy Statement relating to the 2003 Annual Meeting
of Stockholders and is incorporated herein by reference.
A portion of the information relating to executive officers has been omitted in
accordance with General Instruction G. Such information regarding executive
officers appears on pages 7, 8, 10 and 11 of the Proxy Statement relating to the
2003 Annual Meeting of Stockholders and is incorporated herein by reference.
18
ITEM 11. EXECUTIVE COMPENSATION
The required information concerning management remuneration has been omitted in
accordance with General Instruction G. Such information appearing on pages 9, 10
and 12 through 15 of the Proxy Statement relating to the 2003 Annual Meeting of
Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The required information concerning security ownership of certain beneficial
owners and management has been omitted in accordance with General Instruction G.
Such information appearing on pages 7 through 9 of the Proxy Statement relating
to the 2003 Annual Meeting of Stockholders is incorporated herein by reference.
The following table presents information for all equity compensation plans with
individual compensation arrangements (whether with employees or non-employees
such as directors), in effect as of December 31, 2002.
NUMBER OF NUMBER OF SECURITIES
SECURITIES TO BE REMAINING AVAILABLE
ISSUED UPON WEIGHTED-AVERAGE FOR FUTURE ISSUANCE
EXERCISE OF EXERCISE PRICE OF UNDER EQUITY
OUTSTANDING OUTSTANDING COMPENSATION PLANS
PLAN CATEGORY OPTIONS, WARRANTS OPTIONS, WARRANTS (EXCLUDING SECURITIES
---------------- AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (a))
(a) (b) (c)
----------------- ----------------- ------------------------
Equity compensation plans approved by
security holders - $ - -
Equity compensation plans not approved by
security holders 265,153 $ 21.18 130,849
------- -------
Total 265,153 130,849
======= =======
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information concerning certain relationships and related
transactions has been omitted in accordance with General Instruction G. Such
information appearing on pages 7 of the Proxy Statement relating to the 2003
Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer along
with the Company's Chief Financial Officer, of the effectiveness of the design
and operation of the Company's disclosure controls and procedures pursuant to
the Securities Exchange Act of 1934 ("Exchange Act") Rule 13a-14. Based upon
that evaluation, the Company's President and Chief Executive Officer along with
the Company's Chief Financial Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic Securities and Exchange
Commission ("SEC") filings. There have been no significant changes in the
Company's internal controls or in other factors which could significantly affect
these controls subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are Company controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files under the
Exchange Act is accumulated and communicated to the Company's management,
including its President and Chief
19
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a)(1) Financial Statements
The Consolidated Financial Statements of First Community Bancshares,
Inc. and subsidiaries together with the independent Auditors' Report
dated January 27, 2003 are incorporated by reference to pages 40
through 75 of the 2002 Annual Report included herein as Exhibit 13.
(2) Financial Statement Schedules
All applicable financial statement schedules required by Regulation S-X
are included in the Notes to the 2002 Consolidated Financial Statements
and are incorporated by reference to pages 46 through 73 of the 2002
Annual Report included herein as Exhibit 13.
(b) Reports on Form 8-K filed during the last quarter of the period covered by
this report were as follows:
On October 16, 2002 a report on Form 8-K was filed in conjunction
with announcement of the Company's third quarter operating results.
On November 14, 2002 a report on Form 8-K was filed containing
Officer Certifications required pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(c) Exhibits
- ----------------------------------------------------------------------------------------------------------------
EXHIBIT NO. EXHIBIT
- ----------------------------------------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of January 27, 2003, and amended as of February 25, 2003,
among First Community Bancshares, Inc., First Community Bank, National Association, and The
CommonWealth Bank. (1)
- ----------------------------------------------------------------------------------------------------------------
3(i) Articles of Incorporation of First Community Bancshares, Inc., as amended. (2)
- ----------------------------------------------------------------------------------------------------------------
3(ii) Bylaws of First Community Bancshares, Inc., as amended. (2)
- ----------------------------------------------------------------------------------------------------------------
4.1 Specimen stock certificate of First Community Bancshares, Inc.
- ----------------------------------------------------------------------------------------------------------------
10.1 First Community Bancshares, Inc. 1999 Stock Option Plan. (2)(3)
- ----------------------------------------------------------------------------------------------------------------
10.2 First Community Bancshares, Inc. 2001 Non-Qualified Directors Stock Option Plan. (4)
- ----------------------------------------------------------------------------------------------------------------
10.3 Employment Agreement dated January 1, 2000 and amended October 17, 2000, between First
Community Bancshares, Inc. and John M. Mendez. (2)(5)
- ----------------------------------------------------------------------------------------------------------------
10.4 First Community Bancshares, Inc. 2000 Executive Retention Plan. (3)
- ----------------------------------------------------------------------------------------------------------------
10.5 First Community Bancshares, Inc. Split Dollar Plan and Agreement. (3)
- ----------------------------------------------------------------------------------------------------------------
10.6 First Community Bancshares, Inc. 2001 Directors Supplemental Retirement Plan. (2)
- ----------------------------------------------------------------------------------------------------------------
10.7 First Community Bancshares, Inc. Wrap Plan.
- ----------------------------------------------------------------------------------------------------------------
11 Statement regarding computation of earnings per share (6)
- ----------------------------------------------------------------------------------------------------------------
12.1 Computation of Ratios.
- ----------------------------------------------------------------------------------------------------------------
20
- ----------------------------------------------------------------------------------------------------------------
13.0 Annual Report.
- ----------------------------------------------------------------------------------------------------------------
21.0 Subsidiaries of the Registrant:
First Community Bank, National Association.
- ----------------------------------------------------------------------------------------------------------------
23.1 Consent of Independent Accountants.
- ----------------------------------------------------------------------------------------------------------------
- ------------------
(1) Incorporated by reference to the corresponding exhibit previously filed
as an exhibit to the Form 8-K filed with the Commission on January 28,
2003 and February 26, 2003.
(2) Incorporated by reference from the Quarterly Report on Form 10-Q for
the period ended June 30, 2002 filed on August 14, 2002.
(3) Incorporated by reference from the Annual Report on Form 10-K for the
period ended December 31, 1999 filed on April 13, 2000.
(4) The options agreements entered into pursuant to the 1999 Stock Option
Plan and the 2001 Non-Qualified Directors Stock Option Plan are
incorporated by reference from the Quarterly Report on Form 10-Q for
the period ended June 30, 2002 filed on August 14, 2002.
(5) First Community Bancshares, Inc. has entered into substantially
identical agreements with Messrs. Buzzo and Lilly, with the only
differences being with respect to titles, salary and the use of a
vehicle.
(6) Incorporated by reference from footnote 1 of the Annual Report to
Stockholders included herein as Exhibit 13.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BY: /s/ John M. Mendez
-----------------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
BY: /s/ Robert L. Schumacher
------------------------------------
Principal Accounting Officer
Signature Title Date
/s/ Allen T. Hamner Director 03/21/2003
- -------------------------------------
(Allen T. Hamner)
/s/ B. W. Harvey Director 03/21/2003
- -------------------------------------
(B.W. Harvey)
/s/ I. Norris Kantor Director 03/21/2003
- -------------------------------------
(I. Norris Kantor)
/s/ John M. Mendez President, Chief Executive 03/21/2003
- ------------------------------------- Officer and Director (Principal
(John M. Mendez) Executive Officer)
/s/ A. A. Modena Director 03/21/2003
- -------------------------------------
(A. A. Modena)
/s/ Robert E. Perkinson, Jr. Director 03/21/2003
- -------------------------------------
(Robert E. Perkinson, Jr.)
/s/ William P. Stafford Chairman of the Board of Directors 03/21/2003
- -------------------------------------
(William P. Stafford)
/s/ William P. Stafford, II Director 03/21/2003
- -------------------------------------
(William P. Stafford, II)
/s/ W. W. Tinder, Jr. Director 03/21/2003
- -------------------------------------
(W. W. Tinder, Jr.)
22
CERTIFICATIONS
I, John M. Mendez, certify that:
1. I have reviewed this annual report on Form 10-K of First Community
Bancshares, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) Evaluated the effectiveness of the registrant 's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls;
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ John M. Mendez
------------------
President and Chief Executive Officer
23
I, Robert L. Schumacher, certify that:
1. I have reviewed this annual report on Form 10-K of First Community
Bancshares, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
(c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls;
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ Robert L. Schumacher
------------------------
Chief Financial Officer
24