[TYPE] 10-Q
SECURITIES AND EXCHANGE COMMISSION
450 FIFTH STREET
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the Quarterly Period Ended: September 30, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Mercer Street, Princeton, West Virginia 24740
(Address of principal executive offices) (Zip Code)
(304) 487-9000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No__
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1998
Common Stock, $1 Par Value 7,014,542
1
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<TABLE>
First Community Bancshares, Inc.
FORM 10-Q
For the quarter ended September 30, 1998
<CAPTION>
INDEX
<S> <C>
PART I. FINANCIAL INFORMATION REFERENCE
Item 1. Financial Statements
Consolidated Balance Sheets September 30, 1998 and
December 31, 1997 3
Consolidated Statements of Income and Comprehensive Income for the
Three and Nine Month Periods Ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statements of Changes in Stockholders'
Equity for the Nine Months Ended September 30,
1998 and 1997 6
Notes to Consolidated Financial Statements 7-10
Independent Accountants' Report 11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-20
Item 3. Quantitative and Qualitative Disclosures about 20
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of 21
Security Holders
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21-23
SIGNATURES 24
</TABLE>
2
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ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
<S> <C> <C>
(Unaudited) September 30 December 31
(Amounts in Thousands,Except Share Data) 1998 1997
Assets
Cash and due from banks $ 38,694 $ 34,590
Interest bearing balances - FHLB 80,066 145
Federal funds sold 34,519 12,406
Securities available for sale (amortized cost
of $133,833, September 30, 1998; $159,711
December 31, 1997) 136,199 161,795
Investment securities:
U.S. Treasury securities 1,099 4,098
U.S. Government agencies and corporations 13,100 26,377
States and political subdivisions 75,271 77,641
Other securities 1,360 1,058
Total Investment Securities (market
value, $94,940, September 30, 1998; $112,263
December 31, 1997) 90,830 109,174
Total loans, net of unearned income 627,474 671,817
Less: reserve for possible loan losses 11,460 11,406
Net loans 616,014 660,411
Premises and equipment, net 17,994 19,133
Other real estate owned 3,811 1,472
Interest receivable 6,953 7,688
Other assets 8,089 9,734
Intangible assets 24,859 25,774
Total assets $1,058,028 $1,042,322
Liabilities
Deposits, non-interest bearing $ 110,208 $ 103,846
Deposits, interest-bearing 760,486 749,661
Total Deposits 870,694 853,507
Interest, taxes and other liabilities 10,192 11,455
Federal funds purchased - 2,705
Securities sold under agreement to repurchase 52,794 52,351
Other indebtedness 23,478 24,444
Total Liabilities 957,158 944,462
Stockholders' Equity
Common stock, $1 par value,
10,000,000 shares authorized; 7,193,909 issued
in 1998 and 1997; 7,029,775 and 7,063,665 shares
outstanding in 1998 and 1997, respectively 7,194 7,194
Additional paid-in capital 36,122 36,122
Retained earnings 58,766 54,564
Unallocated common stock held by ESOP, at cost (1,274) -
Treasury stock, at cost (1,357) (1,271)
Accumulated other comprehensive income 1,419 1,251
Total Stockholders' Equity 100,870 97,860
Total Liabilities and Stockholders' Equity $1,058,028 $1,042,322
</TABLE>
See Notes to Consolidated Financial Statements.
3
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<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
<S> <C> <C> <C> <C>
(Unaudited)
(Amounts in Thousands, Except Nine Months Ended Three Months Ended
Share and Per Share Data) September 30 September 30
1998 1997 1998 1997
Interest Income:
Interest and fees on loans $ 47,649 $ 43,311 $ 15,632 $ 15,496
Interest on securities available for sale 6,595 6,758 1,704 2,248
Interest on investment securities:
U.S. Treasury securities 102 280 14 75
U.S. Government agencies and corporations 883 1,797 303 551
States and political subdivisions, tax exempt 3,002 2,179 992 836
Other securities 64 64 22 22
Interest on federal funds sold 1,181 568 437 272
Interest on deposits in banks 2,130 35 1,226 12
Total Interest Income 61,606 54,992 20,330 19,512
Interest Expense:
Interest on deposits 25,977 20,413 8,638 7,490
Interest on borrowings 2,884 3,084 995 1,119
Total Interest Expense 28,861 23,497 9,633 8,609
Net Interest Income 32,745 31,495 10,697 10,903
Provision for possible loan losses 5,825 2,453 749 736
Net Interest Income After Provision for
Possible Loan Losses 26,920 29,042 9,948 10,167
Non-Interest Income:
Fiduciary income 1,270 1,155 386 362
Service charges on deposit accounts 2,809 2,337 948 865
Other charges, commissions and fees 2,325 2,189 731 777
Gain on settlement of pension plan,
net of excise tax 1,062 - - -
Net securities gains 21 - - -
Gain on sale of credit card portfolio 841 - 841 -
Other operating income 482 429 194 119
Total Non-Interest Income 8,810 6,110 3,100 2,123
Non-Interest Expense:
Salaries and employee benefits 9,197 8,768 2,946 3,082
Occupancy expense of bank premises 1,468 1,313 510 534
Furniture and equipment expense 1,544 1,198 540 507
Goodwill amortization 1,547 864 512 382
Other operating expense 8,228 6,578 2,750 2,800
Total Non-Interest Expense 21,984 18,721 7,258 7,305
Income before income taxes 13,746 16,431 5,790 4,985
Income tax expense 4,261 5,208 1,795 1,598
Net Income 9,485 11,223 3,995 3,387
Other comprehensive income 168 505 223 449
Comprehensive Income $ 9,653 $ 11,728 $ 4,218 $ 3,836
Basic and diluted earnings per common share $ 1.35 $ 1.59 $ .57 $ .48
Weighted average shares outstanding 7,047,824 7,062,820 7,031,851 7,062,944
</TABLE>
See Notes to Consolidated Financial Statements.
4
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<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<S> <C> <C>
(Unaudited)
(Amounts in Thousands)
Nine Months Ended
September 30
1998 1997
Cash Flows From Operating Activities:
Net income $ 9,485 $11,223
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 5,825 2,453
Depreciation of premises and equipment 1,160 819
Amortization of intangibles 1,419 332
Investment amortization and accretion, net (108) (120)
Gain on the sale of assets, net (224) (74)
Other liabilities, net (1,169) (1,452)
Interest receivable 735 (30)
Other assets, net 1,454 1,523
Other, net 87 73
Net cash provided by operating activities 18,664 14,747
Cash Flows From Investment Activities:
Increase (decrease) in cash realized from:
Maturities and calls of investment securities 18,684 19,996
Maturities and calls of securities available for sale 77,393 19,285
Purchase of investment securities (300) (28,005)
Purchase of securities available for sale (51,419) (5,646)
Loans to customers, net 35,875 (21,435)
Purchase of equipment (324) (862)
Sale of equipment 287 5
Net cash provided by acquisitions - 39,714
Net cash provided by investment activities 80,196 23,052
Cash Flows From Financing Activities:
Increase (decrease) in cash realized from:
Demand and savings deposits, net 18,798 (3,962)
Time deposits, net (1,622) 22,299
Short-term borrowings, net (2,262) (23,924)
Increase in long-term debt 3,000 11,500
Payment of long-term debt (3,966) (609)
Acquisition of treasury stock (86) -
Acquisition of unnallocated ESOP shares (1,274) -
Reissuance of treasury stock - 17
Cash paid in lieu of fractional shares (27) (22)
Cash dividends paid (5,283) (5,086)
Net cash provided by financing activities 7,278 213
Net increase in cash and cash equivalents 106,138 38,012
Cash and cash equivalents at beginning of year 47,141 27,320
Cash and cash equivalents at end of quarter $ 153,279 $ 65,332
</TABLE>
See Notes to Consolidated Financial Statements.
5
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<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
(Amounts in Thousands, Except Accumulated
Per Share Data) Additional Unallocated Other
Common Paid In Retained Common Stock Treasury Comprehensive
Stock Capital Earnings Held by ESOP Stock Income
Balance beginning of
the period,
January 1, 1997 $ 7,194 $ 36,122 $ 46,815 $ - $ (1,288) $ 433
Net Income - - 11,223 - - -
Common dividends
declared ($.72
per common share) - - (5,086) - - -
Reissuance of 727 shares
at $24.38 per share - - - - 17 -
Other comprehensive income - - - - - 505
Balance, September 30, 1997 $ 7,194 $ 36,122 $ 52,952 $ - $ (1,271) $ 938
Balance beginning of
the period,
January 1, 1998 $ 7,194 $ 36,122 $ 54,564 $ - $ (1,271) $ 1,251
Net income - - 9,485 - - -
Common dividends
declared ($.75
per common share) - - (5,283) - - -
Purchase of 2,625 shares
at $32.75 per share - - - - (86) -
Purchase of unallocated common stock
by ESOP - - - (1,274) - -
Other comprehensive income - - - - - 168
Balance, September 30, 1998 $ 7,194 $ 36,122 $ 58,766 $ (1,274) $ (1,357) $ 1,419
</TABLE>
See Notes to Consolidated Financial Statements.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Unaudited Financial Statements
The unaudited consolidated balance sheet as of September 30, 1998 and the
unaudited consolidated statements of income and comprehensive income, cash
flows and changes in stockholders' equity for the periods ended September 30,
1998 and 1997 have been prepared by the management of First Community
Bancshares, Inc. (FCBI). In the opinion of management, all adjustments
(including normal recurring accruals) necessary to present fairly the
financial position of FCBI and subsidiaries at September 30, 1998 and its
results of operations, cash flows, and changes in stockholders' equity for
the periods ended September 30, 1998 and 1997, have been made. These results
are not necessarily indicative of the results of consolidated operations for the
full calendar year. The per share amounts presented for 1997 have been
restated to reflect the effect of the change in the number of outstanding shares
as a result of the March 31, 1998, five-for-four split.
The consolidated balance sheet as of December 31, 1997 has been extracted
from audited financial statements included in the Company's 1997 Annual Report
to Shareholders. Certain information and footnote disclosure normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the 1997 Annual Report of FCBI.
Note 2. Acquisitions
On April 9, 1997, FCBI acquired 100% of the common stock of Blue Ridge Bank
(Blue Ridge), headquartered in Sparta, North Carolina. Blue Ridge is a $105
million state-chartered bank with offices located in Sparta, Elkin, Hays and
Taylorsville, North Carolina. Pursuant to the Agreement and Plan of merger,
FCBI exchanged cash of $19.50 for each of Blue Ridge's 1,212,148 common
shares. In conjunction with the acquisition, Blue Ridge canceled outstanding
stock options through the payment of $727,948 representing the difference
between $19.50 and the respective option prices. Total consideration
including the payment for cancellation of the options was $24.4 million and
resulted in an intangible asset of approximately $14.1 million which is being
amortized over a 15 year period. The acquisition was partially funded with
loan proceeds of $11.5 million which the Company borrowed from an outside
source. The acquisition was accounted for under the purchase method of
accounting. Accordingly, results of operations of Blue Ridge are included in
consolidated results of FCBI from the date of acquisition. Subsequent to the
merger, Blue Ridge operates as a wholly-owned subsidiary of FCBI.
The following unaudited proforma financial information shows the effect of
the Blue Ridge Bank acquisition as if the transaction were consummated on
January 1, 1997:
<TABLE>
<CAPTION>
First Community Bancshares, Inc.
Unaudited Supplemental Proforma Financial Information
(Amounts in thousands except per share data)
<S> <C>
Nine Months Ended
September 30
1997
Net Interest Income $ 32,216
Net Income 11,207
Basic and diluted earnings per common share 1.59
</TABLE>
Note 3. Cash Flows
For the nine months ended September 30, 1998 and 1997, for purposes of
reporting cash flows, cash and cash equivalents include cash and due from
banks and interest-bearing balances available for immediate withdrawal of
$118.8 million at September 30, 1998 and $35.8 million at September 30, 1997,
and federal funds sold of $34.5 million at September 30, 1998 and $29.6
million at September 30, 1997.
7
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Note 4. Commitments and Contingencies
The Company is currently a defendant in various actions, some of which have
remained dormant for a number of years. Certain of these actions are
described in greater detail in the Company's 1997 Report on Form 10-K.
Material developments in certain of these matters as well as new actions are
discussed in Item 1, Legal Proceedings of the Company's Report on Form 10-Q.
While the Company and legal counsel are unable to assess the outcome of each
of these matters, they are of the belief that the resolution of these actions
should not have a material adverse affect on the financial position or
results of operations of the Company.
Note 5. Common Stock
On September 30, 1997, in connection with a change in the Company's state of
domicile, the par value of the Company's common stock was changed from $5 per
share to $1 per share reducing total common stock by $23.0 million.
Additionally, in the first quarter of 1998, the Company declared a five-for-
four stock split in the form of a 25% stock dividend. Accordingly, $1.4 million
was transferred from additional paid-in capital to common stock, representing
the par value of the new shares issued. Share and per share amounts for
all periods presented have been restated to reflect the stock split.
In connection with the termination and settlement of a defined benefit
pension plan in the first quarter of 1998, twenty-five percent of the
settlement amount or $1,274,000 was contributed to another Company sponsored
plan. This contribution was reflected as a prepaid contribution on the
Company's books in the first quarter. The prepaid contribution was used to
purchase shares of the Company's common stock in the second quarter of 1998.
These shares will be allocated to the employee accounts over a period not
to exceed seven years. The shares are classified as unallocated common stock
in the stockholders' equity section of the balance sheet.
First Community Bancshares, Inc. reinstituted a stock repurchase program
which was originally implemented in 1991. Under the original program,
the Company's Board of Directors authorized up to 100,000 shares of
the Company's outstanding common stock for repurchase in the open market.
Under the most recent authority for repurchase of stock, the Board has reset
the number of shares which may be purchased back to the 100,000 share level.
8
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Note 6. Other Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which requires businesses to
disclose comprehensive income and its components in their general purpose
financial statements. This statement requires the reporting of all items of
comprehensive income in a financial statement that is displayed with the same
prominence as other financial statements. This statement is effective for
fiscal years beginning after December 15, 1997, with reclassification of
comparative financial statements and is applicable to interim periods. The
Company currently has one component of other comprehensive income which
includes unrealized gains or losses on securities available for sale which
are detailed as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
For the Nine Months Ended For the Nine Months Ended
September 30, 1998 September 30, 1997
<S> <C> <C> <C> <C> <C> <C>
Before Tax Tax Net-of-Tax Before Tax Tax Net-of-Tax
Amount Expense Amount Amount Expense Amount
Unrealized gains
on securities:
Unrealized holding gains
arising during the period $ 280 $ (112) $ 168 $ 842 $ (337) $ 505
Less: reclassification adjustment
for gains realized in net income - - - - - -
Net realized gains 280 (112) 168 842 (337) 505
Total other comprehensive income $ 280 $ (112) $ 168 $ 842 $ (337) $ 505
</TABLE>
<TABLE>
<S> <C>
Accumulated Other Comprehensive Income:
Balance, January 1, 1997 $ 433
Other Comprehensive Income, net 505
Balance, September 30, 1997 938
Balance, January 1, 1998 $1,251
Other Comprehensive Income, net 168
Balance, September 30, 1998 $1,419
</TABLE>
9
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Note 7. Recent Accounting Pronouncements
Statement of Financial Accounting Standard (SFAS) No. 131 was issued in June
1997. SFAS No. 131 established standards for the way that public business
enterprises report information about different operating segments. This
Statement is effective for fiscal years beginning after December 15, 1997 and
need not be applied to interim financial statements in the initial year of
application. Management is evaluating the impact of the adoption of this
Statement.
Statement of Financial Accounting Standard (SFAS) No. 132 was issued in
February 1998. SFAS No. 132 standardizes the disclosure requirements for
pensions and other postretirement benefits in order to provide information
that is more comparable, understandable and concise. This statement
supersedes the disclosure requirements in several other Financial Accounting
Standards Board statements. FCBI terminated its defined benefit pension
plans in October of 1996 and is not required to provide the disclosures provided
in this Statement relative to the Company's defined benefit pension plan which
was terminated in 1996. Additional disclosure requirements relating to the
Company's postretirement health care obligations to selected former employees
covered under a plan which was phased out beginning in 1991, will be
addressed in the 1998 Annual Report. The Statement is effective for fiscal
years beginning after December 15, 1997.
Statement of Financial Accounting Standard (SFAS) No. 133 was issued in June
1998. SFAS No. 133 sets forth a comprehensive approach to addressing the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and hedging activities. This
standard addresses the type of activities which are included within the scope
of SFAS No. 133 and identifies the methods to be used for valuation and
income recognition. In addition to the derivative and hedging activities
addressed, the standard also allows a one time transfer of securities from the
held-to-maturity into the available-for-sale or the trading category which
can only be applied at the date of initial application of the Statement. The
Company is not presently involved in the types of derivative instruments
or hedging activities addressed by the statement, however, the Company does
possess securities in the available-for-sale and held-to-maturity categories.
The Company does not currently have plans to transfer any of these securities
between the "held to maturity" and "available for sale" portfolios. This
Statement is effective for all fiscal quarters of all years beginning after
June 15, 1999. Earlier application of the provisions of this statement is
encouraged but is permitted only as of the beginning of any fiscal quarter
that begins after issuance of this statement.
10
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INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
of First Community Bancshares, Inc.
We have reviewed the accompanying consolidated balance sheet of First
Community Bancshares, Inc. and subsidiaries as of September 30, 1998, and the
related consolidated statements of income and comprehensive income, changes
in stockholders' equity and cash flows for the periods ended September 30, 1998
and 1997. These financial statements are the responsibility of the
Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of First Community Bancshares, Inc.
and subsidiaries as of December 31, 1997, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated January 30,
1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which
it has been derived.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
October 30 , 1998
11
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FCBI
PART I. ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis is provided to address information about
the Company's financial condition and results of operations which is not
otherwise apparent from the consolidated financial statements incorporated by
reference or included in this report. This discussion and analysis should be
read in conjunction with the 1997 Annual Report to Shareholders and the other
financial information included in this report.
RESULTS OF OPERATIONS
The Company reported net income of $9.5 million for the nine month period
ended September 30, 1998, a 15.5% decrease from net income of $11.2 million
for the same period in 1997. Basic earnings per common share between the
same periods decreased 15.1%, from $1.59 to $1.35. The current years results
of operations were impacted by a write-off of a commercial loan relationship
in the second quarter of 1998 which led to a $2.75 million additional loan
loss provision. Additionally, the current years earnings reflect the effect
of the $1.062 million gain which was due to pension plan termination gain
recognized in the first quarter of 1998.
Net income for the third quarter of 1998 totaled $4.0 million, or 18.0% over
the $3.4 million for the corresponding period in 1997. Basic earnings per
share for the quarter were $.57 in 1998 versus $.48 for the three months ended
September 30, 1997.
Net income for the third quarter of 1998 was affected by an $841,000 pretax
gain recognized when the Company sold a substantial portion of its credit
card receivables comprising all of its MasterCard/Visa credit portfolio. The
increase in interest income and interest expense for the three and nine month
periods ended September 30, 1998 is reflective of the bank and branch
acquisitions occurring in 1997. Non-interest income, in addition to being
affected by the gain recognized from the credit card portfolio, is impacted by
the increases in services charges on deposits and other charges, commissions
and fees relative to the bank and branch acquisitions in 1997.
The per share amounts presented for 1997 have been restated to reflect the
effect of the change in the number of outstanding shares as a result of the
March 31, 1998, five-for-four stock split.
12
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Net Interest Income
Net interest income, the largest contributor to earnings, was $32.8 million
for the first nine months of 1998 as compared with $31.5 million for the
corresponding period in 1997. For the third quarter of 1998, net interest
income reached $10.7 million, an decrease of 1.9% from the $10.9 million
reported for the third quarter of 1997. Tax equivalent net interest income
was $35.2 million for the nine months ended September 30, 1998, a $1.8 million
increase over the $33.4 million reported for the same period in 1997. The
increase in net interest income to record levels was the result of increases
in the average balances of earning assets driven largely by the acquisition of
Blue Ridge in North Carolina and four branches in West Virginia and Virginia.
The Company's tax equivalent net interest margin, the ratio of tax equivalent
net interest income to average earning assets, of 4.88% at September 30, 1998
decreased from 5.29% at September 30, 1997. The tax equivalent net interest
margin has been impacted by the decline in yields earned in the securities
portfolio as a result of the current low rate environment coupled with an
increase in the cost of funds between September 30, 1997 and 1998.
Loans, the Company's highest yielding asset category, increased, on average,
$57.4 million ($18.6 million or 32% due to the Blue Ridge acquisition and
$33.9 million or 59% due to branch acquisitions) when comparing September 1998
average balances to the corresponding average in 1997. This increase in the
loan portfolio was funded through increases in average deposits of $131.1
million. The yield on the loan portfolio was 9.77% for the first nine months
of 1998, up slightly from 9.75% on the corresponding period in 1997. The
yield on securities available for sale declined from 6.92% in 1997 to 6.72% in
1998. The overall yield on average earning assets decreased 14 basis points
from 9.02% for the nine months ended September 30, 1997 to 8.88% for the
corresponding period in 1998.
The cost of short term borrowings increased 22 basis points over the past 12
months from 4.36% at September 30, 1997 to 4.58% at September 30, 1998. Time
deposits experienced a 22 basis point increase from 5.23% in the first nine
months of 1997 to 5.55% for the corresponding period in 1998. Market
conditions, competition for deposits and the purchase of branch deposits
resulted in increases in deposit costs and the cost of short-term borrowings.
Excluding long-term debt, the overall cost of funds increased 23 basis points
between September 30, 1997 and 1998.
In comparing the third quarter of 1998 with the corresponding period in 1997,
net interest income declined $219,000 or 2.2% due largely to the rising cost
of funds coupled with decreases in outstanding loans in 1998 and a larger
position in short-term investments which produce relatively lower yields.
13
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<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS AND
NET INTEREST INCOME ANALYSIS
Nine Months Ended Nine Months Ended
(Unaudited) September 30, 1998 September 30, 1997
<S> <C> <C> <C> <C> <C> <C>
(Amounts in Average Interest Yield/Rate Average Interest Yield/Rate
Thousands, except %'s) Balance (1) (2) (2) Balance (1) (2) (2)
Earning Assets:
Loans (3)
Taxable $643,669 $46,916 9.75% $584,264 $42,498 9.72%
Tax-Exempt 13,705 1,127 11.00% 15,718 1,253 10.66%
Total 657,374 48,043 9.77% 599,982 43,751 9.75%
Reserve for Possible
Loan Losses (11,771) (9,683)
Net Total 645,603 590,299
Investment Securities
Available for Sale:
Taxable 117,744 5,722 6.50% 121,993 6,130 6.72%
Tax-Exempt 22,741 1,343 7.89% 15,205 966 8.49%
Total 140,485 7,065 6.72% 137,198 7,096 6.92%
Investment Securities
Held to Maturity:
Taxable 22,679 1,098 6.47% 48,580 2,188 6.02%
Tax-Exempt 74,936 4,543 8.11% 53,574 3,278 8.18%
Total 97,615 5,641 7.73% 102,154 5,466 7.15%
Interest-Bearing Deposits 51,598 2,130 5.52% 444 35 10.54%
Federal Funds Sold 28,769 1,181 5.49% 13,831 568 5.49%
Total Earning Assets 964,070 64,060 8.88% 843,926 56,916 9.02%
Other Assets 94,093 73,216
Total $1,058,163 $917,142
Interest-Bearing Liabilities:
Interest-bearing Demand
Deposits $ 133,259 2,806 2.82% $105,089 2,153 2.74%
Savings Deposits 151,424 3,428 3.03% 139,133 3,195 3.07%
Time Deposits 475,774 19,749 5.55% 385,172 15,065 5.23%
Short-Term Borrowings 1,481 1,765 4.58% 62,439 2,035 4.36%
Other Indebtedness 23,620 1,113 6.30% 21,670 1,049 6.47%
Total Interest-Bearing 835,558 28,861 4.62% 713,503 23,497 4.40%
Liabilities
Demand Deposits 109,904 96,948
Other Liabilities 12,406 13,808
Stockholders' Equity 100,295 92,883
Total $1,058,163 $917,142
Net Interest Earnings $35,199 $33,419
Net Interest Spread 4.26% 4.62%
Net Interest Margin 4.88% 5.29%
</TABLE>
(1) Interest amounts represent taxable equivalent results for the first
nine months of 1998 and 1997.
(2) Fully Taxable Equivalent-using the statutory rate of 35%.
(3) Non-accrual loans are included in average balances outstanding with no
related interest income.
14
<PAGE>
Provision and Reserve for Possible Loan Losses
In order to maintain a balance in the reserve for possible loan losses which
is sufficient to absorb potential loan losses, charges are made to the
provision for possible loan losses (provision). The provision was $5.83
million for the nine months ended September 30, 1998 compared with $2.45
million for the corresponding period in 1997. The provision for third
quarter 1998 was $749,000, compared to $736,000 for third quarter 1997, an
increase of 1.8%.
Net charge-offs for the nine months ended September 30, 1998 were $5.8
million as compared with $3.3 million for the corresponding period in
1997. Expressed as a percentage of loans, net charge-offs were .92% for the
nine month period ended September 30, 1998 and .49% for the corresponding
period in 1997. Net charge-offs for the quarter ended September 30, 1998
were $1.0 million. This compares to $1.6 million in the third quarter of
1997 and represents a decline of 36.8% in comparison.
The reserve for possible loan losses totaled $11.5 million at September 30,
1998 and $11.4 million at December 31, 1997 resulting in reserve to loan
ratios of 1.83% and 1.70% for the respective balance sheet dates.
The coverage ratio represents the percentage of non-performing loans covered
through available reserves. As of September 30, 1998, this ratio was 141.6%
as compared to 73.7% at September 30, 1997 and 79.3% at December 31, 1997.
Management continually evaluates the adequacy of the reserve for possible
loan losses and makes specific adjustments to it based on the results of risk
analysis in the credit review process, the recommendation of regulatory
agencies, and other factors, such as loan loss experience and prevailing
economic conditions. Management considers the level of reserves adequate
based on the current risk profile in the loan portfolio. However, there can
be no assurance that FCBI will not sustain losses in future periods, which
could be substantial in relation to the size of the reserve at September 30,
1998.
Non-Interest Income
Non-interest income consists of all revenues which are not included in
interest and fee income related to earning assets. Total non-interest income
increased $2.7 million, or 44.2% from $6.1 million for the nine months ended
September 30, 1997 to $8.8 million for the corresponding period in 1998. The
two largest contributors to the increase include the recognition of a $1.062
million gain on the settlement of the Company's defined benefit pension plan
in the second quarter of 1998 and the $841,000 gain recognized in the third
quarter of 1998 on the sale of a substantial portion of the Company's credit
card portfolio. Bank and branch acquisitions in 1997 added an additional
$508,000 in service charges on deposit accounts and other service charges,
commissions and fees.
Non-interest income for the third quarter of 1998 increased $977,000 (46%)
from the comparable period one year earlier. Included in third quarter
results for 1998 is the impact of the $841,000 gain from the sale of the
credit card portfolio referred to previously.
Non-Interest Expense
Non-interest expense totaled $22.0 million for the nine months ended
September 30, 1998 increasing $3.3 million over the corresponding period in
1997. This increase includes the effect of the acquisitions of Blue Ridge
Bank and branch acquisitions which added an additional $1,114,000 in salaries
and benefits, $414,000 in occupancy cost and furniture & fixtures and $932,000
in other operating costs including goodwill amortization. Non-interest expense
decreased $47,000 or .6% when comparing the third quarter of 1997 to the
corresponding period in 1998.
Other operating expense of $8,228,000 for the nine months ended September 30,
1998 increased by $1.7 million from $6,578,000 in the corresponding period in
1997. The primary contributors to the increase include the $700,000
litigation reversal in the first six months of 1997 and the increased cost of
operating the new branches acquired throughout 1997. Other Real Estate (ORE)
costs increased by $86,000 and amortization of an investment in an affordable
housing investment project increased by $186,000.
15
<PAGE>
Income Tax Expense
Income tax expense decreased $947,000 from $5.2 million in 1997 to $4.3
million in 1998. This decrease in taxes is principally the result of the
decreases in pre-tax income of $2.7 million or 16.3% when comparing the nine
months ended September 30, 1998 with the corresponding period in 1997. The
effective tax rate for 1998 was 31.0% versus 31.7% in 1997.
For the third quarter of 1998, the Company reported $1.8 million in income
tax expense, an increase of $197,000 from the $1.6 million reported for the same
period one year earlier, reflecting the increase in quarterly pre-tax
earnings over the corresponding period in 1997, however, this is partially
offset by the increase in tax exempt interest earnings for the quarter. The
effective tax rate was 31% and 32% for the corresponding third quarters of 1998
and 1997, respectively.
FINANCIAL POSITION
Securities
Securities totaled $227.0 million at September 30, 1998. This represents a
decrease of $43.9 million from December 31, 1997. The funds resulting from
this 16.2% decrease, which are primarily attributable to securities called
prior to maturity and prepayments were first used to reduce wholesale
funding from the Federal Home Loan Bank (FHLB). the remaining funds
represent excess liquidity and are invested in interest-bearing bank balances
which represent overnight funds sold to various correspondents and the FHLB.
Declining investment rates have continued to result in increases in the
volume of securities called prior to final maturity. These funds continue to be
reinvested principally in the above referenced overnight funds and
replacement securities.
Securities available for sale were $136.2 million at September 30, 1998 as
compared to $161.8 million at December 31, 1997. Securities available for
sale are recorded at their fair market value at September 30, 1998 December
31, 1997. The unrealized gain or loss, which is the difference between book
value and market value, net of related deferred taxes, is recognized in the
Stockholder's Equity section of the balance sheet as accumulated other
comprehensive income. The unrealized gain after taxes of $1.27 million at
December 31, 1997, increased $168,000 to an unrealized gain of $1.42 million
at September 30, 1998.
Investment securities, which are purchased with the intent to hold until
maturity, totaled $90.8 million at September 30, 1998 as compared with $109.2
million at December 31, 1997. The market value of investment securities was
103% and 105% of book value at December 31, 1997 and September 30, 1998,
respectively.
Loans
The Company's lending strategy stresses quality growth, diversified by
product, geography, and industry. Loan quality is monitored through a common
credit underwriting structure and review process which is in place throughout
the Company. The loan portfolio continues to be diversified among loan types
and industry segments. Commercial and commercial real estate loans represent
the largest portion of the portfolio, comprising $258.0 million or 41.1% of
total loans at September 30, 1998 and $285.1 million or 42% of total loans at
December 31, 1997. Residential real estate loans decreased slightly in total
dollars to $220.9 million but increased as a percentage of the portfolio to
35.2% of total loans at September 30, 1998 as compared to $227.5 million or
31% at December 31, 1997. Loans to individuals also decreased slightly from
$148.5 million or 22% of total loans at December 31, 1997 to $137.3 million
or 21.9% of total loans at September 30, 1998.
Total loans decreased $44.3 million from $671.8 million at December 31, 1997
to $627.5 million at September 30, 1998. Likewise, the loan to deposit ratio
decreased from 79% at December 31, 1997 to 72% at September 30, 1998. The
decrease in loan outstandings reflect a number of large commercial loan
prepayments by customers who have chosen to refinance real property through
various capital market vehicles including Real Estate Investment Trusts
(REITS), as commercial lending rates fell throughout the second and third
quarters of 1998.
Average total loans increased $57.4 million between the third quarter of 1997
and 1998 due primarily to the addition of loan portfolios from Blue Ridge and
the newly acquired branches during 1997.
16
<PAGE>
Non-Performing Assets
Non-performing assets are comprised of loans on non-accrual status, loans
contractually past due 90 days or more and still accruing interest and other
real estate owned (OREO). Non-performing assets were $11.9 million at
September 30, 1998, or 1.89% of total loans and OREO, down significantly from
$16.0 million (2.40% of total loans) at September 30, 1997 and from $15.9
million (2.35% of total loans) at december 31, 1997. The following schedule
details non-performing assets by category at the close of each of the last
five quarters:
<TABLE>
<S> <C> <C> <C> <C> <C>
(In Thousands) September 30 June 30 March 31 December 31 September 30
1998 1998 1998 1997 1997
Non-Accrual $ 7,752 $ 8,725 $10,832 $ 9,988 $11,507
Ninety Days Past Due 343 1,740 5,261 4,391 2,255
Other Real Estate Owned 3,811 2,878 1,594 1,472 2,279
$11,906 $13,343 $17,687 $15,851 $16,041
Restructured loans
performing in accordance
with modified terms $ 511 $ 517 $ 524 $ 534 $ 381
</TABLE>
Non-accrual loans and loans ninety days past due decreased $2.2 million and
$4.1 million, respectively, when comparing September 30, 1998 and December
31, 1997. The decrease in non-accrual loans is the result of the June 1998
foreclosure on a furniture manufacturing facility which resulted in a $2.75
million charge-off and a $1.5 million transfer to OREO. In addition, ninety
day past due loans were reduced by the cure of a $1.0 million commercial loan
delinquency (paid current) referenced in the 1997 10-K along with the
voluntary or forced collection of number of smaller accounts which were past
due but in the process of collection at year-end 1997.
Management believes that the extent of problem loans at September 30, 1998 is
disclosed as non-performing assets in the preceding chart. However, there
can be no assurance that future circumstances, such as erosions in economic
conditions and the related potential effect that such erosions may have on
certain borrowers' ability to continue to meet payment obligations, will not
lead to an increase in problem loan totals. Management further believes
that non-performing asset carrying values will be substantially recoverable
after taking into consideration the adequacy of applicable collateral and, in
certain cases, partial writedowns which have been taken and allowances that
have been established.
The Company is currently considering various finding alternatives on a loan
relationship in the amount of $2.0 million which is presently thirty days
past due, however, possible modifications and adjustments to the loan are being
considered. The loan is secured by real estate and the collateral is
believed to be sufficient to satisfy the outstanding balance. Additionally,
the relationship is secured by a third party guarantor. The loan is not
presently considered a troubled debt restructuring under applicable
recognition criteria, however, the deficient cash flow from the project
warrants special attention to this relationship.
17
<PAGE>
Deposits
Total deposits increased $17.2 million between year-end 1997 and September
30, 1998. The strongest increase was realized in non-interest bearing deposits
which increased $6.3 million or 6.1% over year-end totals. Interest bearing
deposits increased $10.8 million, a 1.4% increase over year-end 1997. The
smaller increase in interest-bearing deposits is consistent with the
Company's reduced emphasis on time deposits due to current high levels of
liquidity. Less aggressive pricing on these deposits has resulted in slower
growth and fewer rollovers of certain jumbo deposits (greater than $100,000)
which are more rate sensitive.
Deposit balances have increased $20.5 between September 30, 1997 and 1998,
but increased $131 million when comparing average balances for the nine months
ended September 30, 1997 and 1998. The large increase in average balances
reflects the acquisitions of bank and branch deposits from two regional banks
in the second and third quarters of 1997.
Stockholders' Equity
Total stockholders' equity reached $100.9 million at September 30, 1998
increasing $3.0 million over the $97.9 million reported for December 31,
1997. The increase in stockholders' equity was the result of earnings net of
dividends of $4.2 million. Also affecting this change in stockholders'
equity was a increase in the accumulated other comprehensive income decreasing
from $1,251,000 at December 31, 1997 to $1,419,000 at September 30, 1998.
Stockholders' equity also reflects a reduction for the $1,274,000 cost of
unallocated ESOP shares purchased during the second quarter of 1998 and the
purchase of additional treasury shares for $86,000 in the third quarter of
1998.
The Federal Reserve's risk based capital guidelines and leverage ratio
measure capital adequacy of banking institutions. Risk-based capital
guidelines weight balance sheet assets and off-balance commitments based on
inherent risks associated with the respective asset types. At September 30,
1998, the company's risk adjusted capital-to-asset ratio was 11.83%. The
company's leverage ratio at September 30, 1998 was 7.23% compared with 6.96%
at December 31, 1997. Both the risk adjusted capital-to-asset ratio and the
leverage ratio exceed the current minimum levels prescribed for bank holding
companies of 8% and 3%, respectively.
Liquidity
The Company maintains a significant level of liquidity in the form of cash
and due from bank balances ($118.8 million), investment securities available for
sale ($136.2 million), federal funds sold ($34.5 million), and Federal Home
Loan Bank of Pittsburgh credit availability of $142.7 million. Cash advances
from the Federal Home Loan Bank of Pittsburgh are immediately available for
satisfaction of deposit withdrawals, customer credit needs and operations of
the Company. Investment securities available for sale represent a secondary
level of liquidity available for conversion to liquid funds in the event of
extraordinary needs.
18
<PAGE>
Year 2000
The arrival of January 1, 2000 is expected to cause serious disruption in
those computer systems with two-digit year fields, which cannot distinguish
between the years 1900 and 2000. First Community Bancshares, Inc. and
affiliates have established an oversight committee to direct and monitor its
Year 2000 readiness project. As of September 30, 1998 and the date of this
report, the project is proceeding on schedule. The principal purpose of the
project is to address issues or potential issues involving computer programs
and imbedded computer chips which may be unable to distinguish between the
Year 1900 and the Year 2000. The Project Committee is comprised of key
management and operational personnel within the Company. This committee which
has been appointed by the Company's Board of Directors has full authority to
direct resources as necessary to ensure that project objectives are achieved and
completed within prescribed time frames and well in advance of the millennium
date change. The committee has completed work in the awareness and
assessment phases by identifying those computer systems which the Company
uses to process important information, and those other systems which may
have embedded computer chips which are subject to Year 2000 problems, such as
security systems, elevators and bank vaults. The Committee then determined
which of such systems should be considered "mission critical". In order to
determine the company's exposure due to potential third-party Year 2000
problems, the oversight committee has coordinated the risk assessment of
significant loan relationships and suppliers, in order to evaluate the state of
readiness of these entities to deal with Year 2000 problems. The remediation
phase involves upgrading or replacing of hardware, software and other systems
which could be affected by Year 2000 problems. This phase is complete for most
major systems and the testing process is underway on these renovated systems
and systems provided by third parties which are certified as Year 2000
compliant.
Testing for some mission critical systems including the Federal Reserve
On-Line Exchange, and the ATM Management system has been completed. Testing
for other mission critical systems including the Comprehensive Banking
Systems (our core processing system) and loan and deposit origination
platform systems is underway and is scheduled to be complete by December 31,
1998. Additional testing for vendor provided releases on these systems will
be necessary throughout 1999 as these releases are made available.
Other systems which are not considered mission critical remain in the
remediation phase with completion of remediation and testing planned for the
end of the first quarter in 1999.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely effect the
Company's results of operations, liquidity and financial condition. For
example, if significant loan customers experience severe Year 2000
problems, their ability to repay their loan obligations in a timely manner
would be adversely affected. Due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of certain third party suppliers and customers, the Company is
unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on the Company's results of operations,
liquidity or financial condition. Completion of the Year 2000 project is
expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem and, in particular, about the Year 2000 compliance and
readiness of its material external agents and customers. The Company believes
that with the remediation of existing systems and with the implementation of
new business systems and completion of the project as scheduled, the
possibility of significant interruptions of normal operations should be reduced.
Costs
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial position.
The estimated future cost of the Year 2000 project is approximately $150,000.
The total amount expended on the project through September 30, 1998 is
relatively minor and includes a portion of the cost of existing operational
and Information ystems staff in the assessment of systems and the
administration of the project. These costs, which have been charged to
operations over the last four quarters, are comprised primarily of salaries
of existing personnel who have redirected portions of their normal activities
to serve on the Project Committee and to participate in planning,
administration and systems testing. The total remaining cost of the Year
2000 project is estimated at $150,000. Approximately $70,000 is for new
software and hardware purchases which will be capitalized as these systems
are acquired. The remaining $80,000 will be expensed as incurred over the next
five quarters.
19
<PAGE>
The costs of the project, the dates on which with Company plans to complete
Year 2000 modifications, and the impact of third party compliance are based
on management's best estimates which were derived utilizing certain assumptions
as to future events including the availability of outside resources,
cooperation from third parties and external agents of the Company as well as
the level of Year 2000 readiness by various vendors and customers. Some of
these assumptions involve contingencies which are beyond the control of the
Company. Accordingly, the actual cost and impact of Year 2000 problems which
the Company may experience, particularly those caused by third-party
difficulties, can only be estimated at this time.
Contingency Planning
The Company has developed a contingency plan for mission critical systems
designed to allow it to avoid significant business interruption in the event
current systems are affected by Year 2000 issues. This Contingency Plan
involves the maintenance of alternate processing sites, acquisition and
development of additional human resources which will be prepared for
additional remediation, if necessary, throughout 1999 and in January 2000, as
well as the development of alternate manual procedures which can be employed
as back-up processes for existing automated business processes.
The Company is currently revising its Contingency Plan to address additional
business processes in greater detail and to better integrate this Contingency
Plan with its existing contingency planning guide for disaster recovery. It
is expected that this revision of the Year 2000 Contingency Plan will be
complete by December 31, 1998. However, the plan will be continually
evaluated in light of changing circumstances.
Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk
Since December 31, 1997, the Company's balance sheet has remained in an asset
sensitive position due to increased liquidity from investment security calls
and growth in customer deposits. The result of the asset sensitivity would
have the effect of lessening interest rate risk in a rising rate environment
providing greater investment opportunities and increased returns. The
current interest rate environment has softened since December 31, 1997 and
yields available in both the long term and short term have declined as a result.
As of the most current interest rate sensitivity analysis, the following
reflects the projected impact on the Company's net interest income (NII) in
simulated immediate and sustained parallel shifts in the interest yield
curve.
The simulation model captures the impact of changing interest rates on the
interest income and interest paid on all interest-bearing assets and
liabilities reflected on the Company's balance sheet. The rate change
imposed reflects a variance from a flat rate scenario developed for the
simulation period.
<TABLE>
<S> <C> <C>
change in
NII
Rate Change Year 1 Year 2
+2.00% 6.41% 0.90%
- -2.00% 0.53% -3.68%
</TABLE>
The preceding sensitivity analysis does not present a Company forecast and
should not be relied upon as being indicative of expected operating results.
These hypothetical estimates are based upon numerous assumptions including:
the nature and timing of interest rate levels including yield curve shape,
prepayments on loans and securities, deposit decay rates, pricing decisions
on loans and deposits, reinvestment/replacement of asset and liability cash
flows, and others. While assumptions are developed based upon current economic
and local market conditions, the Company cannot make any assurances as to the
predictive nature of these assumptions including how customer preferences or
competitor influences might change. A discussion of the sensitivity analysis
performed at December 31, 1997 is included in the Company's annual report on
Form 10-K for 1997.
20
<PAGE>
FCBI, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) The following are material developments in legal proceedings during the
third quarter of 1998 and through the date of this report. A complete
discussion of material legal proceedings is included in the Company's 1997
report on Form 10-K.
The plaintiff in civil matter 97-CV-408-K styled, Ann Tierney Smith,
Executrix, et al vs. FCFT, Inc., First Community Bank, Inc., Gentry, Locke
and William Gust, filed a motion for summary judgement in this proceeding
seeking a finding that defendant First Community Bank did not possess
discretionary authority to honor the marital trust beneficiary's request for
principal distributions to facilitate execution of estate plans provided by the
beneficiaries counsel. This motion will be argued on November 30, 1998. The
Company and its legal counsel believe the Company acted appropriately in its
execution of the estate plan as outlined by the client and her legal counsel
and expects to prevail in this argument.
Civil suit number CAN-97-C-171 styled James A. Sill d/b/a Sill Trucking vs.
First Community Bank, Inc., Carla Elder and Robert Williams was filed on
October 15, 1998 alledging the Company aided a customer in converting checks
payable to the company for payment on loan accounts of the co-defendants.
The plaintiff claims to have purchased rolling stock from co-defendants pursuant
to an oral contract. The Company has no knowledge of arrangements between
the two plaintiffs. The Company has not yet filed an answer to this suit but
intends to vigorously defend this matter.
Item 2. Changes in Securities
(a) N/A
(b) N/A
(c) N/A
(d) N/A
Item 3. Defaults Upon Senior Securities
(a) N/A
(b) N/A
Item 4. Submission of Matters to a Vote of Security Holders
(a) N/A
(b) N/A
(c) N/A
(d) N/A
Item 5. Other Information
(a) N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 15 - Letter regarding unaudited interim financial
information
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter of
1998.
21
<PAGE>
Exhibit 15
November 12,1998
To the Board of Directors and Stockholders
of First Community Bancshares, Inc.
Dear Sirs:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
financial information of First Community Bancshares, Inc. and subsidiaries for
the periods ended September 30, 1998 and 1997, as indicated in our report dated
October 30, 1998; because we did not perform an audit, we expressed no
opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, is
incorporated by reference in Registration Statement No. 33-72616 on Form S-8
and Registration Statement No. 333-2996 on Form S-4.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and 11
of that Act.
Yours truly,
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
First Community Bancshares, Inc.
DATE: November 13, 1998
/s/ James L. Harrison, Sr.
______________________________
James L. Harrison, Sr.
President & Chief Executive Officer
(Duly Authorized Officer)
DATE: November 13, 1998
/s/ John M. Mendez
______________________________
John M. Mendez
Vice President & Chief Financial Officer
(Principal Accounting Officer)
23
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-1-1998
<PERIOD-END> SEP-30-1998
<CASH> $ 38,694
<INT-BEARING-DEPOSITS> 80,066
<FED-FUNDS-SOLD> 34,519
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 136,199
<INVESTMENTS-CARRYING> 90,830
<INVESTMENTS-MARKET> 94,940
<LOANS> 627,474
<ALLOWANCE> 11,460
<TOTAL-ASSETS> 1,058,028
<DEPOSITS> 870,694
<SHORT-TERM> 52,794
<LIABILITIES-OTHER> 10,192
<LONG-TERM> 23,478
0
0
<COMMON> 7,194
<OTHER-SE> 93,676
<TOTAL-LIABILITIES-AND-EQUITY> 1,058,028
<INTEREST-LOAN> 47,649
<INTEREST-INVEST> 7,944
<INTEREST-OTHER> 3,311
<INTEREST-TOTAL> 61,606
<INTEREST-DEPOSIT> 25,977
<INTEREST-EXPENSE> 28,861
<INTEREST-INCOME-NET> 32,745
<LOAN-LOSSES> 5,825
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 21,984
<INCOME-PRETAX> 13,746
<INCOME-PRE-EXTRAORDINARY> 13,746
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,485
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 4.88
<LOANS-NON> 7,752
<LOANS-PAST> 343
<LOANS-TROUBLED> 511
<LOANS-PROBLEM> 8,095
<ALLOWANCE-OPEN> 11,406
<CHARGE-OFFS> 6,195
<RECOVERIES> 424
<ALLOWANCE-CLOSE> 11,460
<ALLOWANCE-DOMESTIC> 996
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10,464
</TABLE>
