First Community Bancshares, Inc.
P.O. Box 5909
Princeton, West Virginia 24740
March 31, 1998
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act
of 1934, we are
transmitting herewith the attached Form 10-K.
Additionally, there have been no changes in the accounting
principles or
practices used or in the method of applying any such
principles or practices
to the financial information included in the Form 10-K or
its supporting
schedules.
Sincerely,
First Community Bancshares, Inc.
Kenneth P. Mulkey
Controller
<PAGE>
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 (Fee
Required)
For the Fiscal Year Ended
December 31, 1997
or
[ ] Transition Report Pursuant to Section
13 or 15(d)
of the Securities Exchange Act of 1934
(Fee Required)
For the transition period from ---------------- 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)
1001 Mercer Street, Princeton, West Virginia
24740-5909
(Address of principal executive offices)
( Zip Code)
Registrant's telephone number, including area code: (304)
487-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name 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. X
State the aggregate market value of the voting stock held by
non-affiliates
of the Registrant as of March 27,1998.
$207,192,369 based on the 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 27, 1998.
Common Stock, $1 par
value- 5,650,932
DOCUMENTS INCORPORATED BY
REFERENCE
Portions of the First Community Bancshares, Inc. 1997 Annual
Report to
Security Holders are incorporated by reference in Part I and
II hereof.
Portions of the First Community Bancshares, Inc. 1997 Annual
Proxy Statement
are incorporated by reference in Part III.
1
<PAGE>
Form 10-K Information
Table of Contents
1997 Form 10-K Annual Report
<TABLE>
<S> <C>
Part I Page
Item 1.
Business....................................................
............................................................
......... 3
Item 2.
Properties..................................................
............................................................
......... 14
Item 3. Legal
Proceedings.................................................
.........................................................
15
Item 4. Submission of Matters to a Vote of Security
Holders.....................................................
. 16
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters..................... 17
Item 6. Selected Financial
Data........................................................
.......................................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results
of
Operations..................................................
............................................................
.... 17
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk........................................ 18
Item 8. Financial Statements and Supplementary
Data........................................................
........ 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and
Financial
Disclosure..................................................
..................................................... 19
Part III
Item 10. Directors and Executive Officers of the
Registrant..................................................
....... 20
Item 11. Executive
Compensation................................................
................................................ 20
Item 12. Security Ownership of Certain Beneficial Owners
and Management............................... 20
Item 13. Certain Relationships and Related
Transactions................................................
............. 20
Part IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K................................ 20
Signatures..................................................
............................................................
....................... 22
2
<PAGE>
Part I
Item 1. Business
First Community Bancshares, Inc., formerly FCFT, Inc.,
(Registrant) was
incorporated in November 1989, under the laws of the State
of Delaware to
serve as the holding company for and to facilitate the
merger of First
Community Bancshares, Inc. (FCBI) and Flat Top Bankshares,
Inc. (Flat Top).
FCFT, Inc. was a Delaware bank holding company with one
wholly-owned
subsidiary, First Community Bank, Inc. (FCB), a state-
chartered West Virginia
bank headquartered in Princeton, West Virginia. Flat Top
was a West Virginia
bank holding company headquartered in Bluefield, West
Virginia, with two
wholly-owned subsidiaries, The Flat Top National Bank of
Bluefield (FTNB),
a National Association, and Peoples Bank of Bluewell (PBB),
a state-chartered
West Virginia bank. After the mergers, FCFT, Inc. operated
as the surviving
holding company for the three constituent banks described
above as well as
First Federal Savings Bank (FFSB) which was acquired in
November 1990. On
December 30, 1994, FFSB was merged into FCB. Subsequently
on January 4,
1995, FTNB and PBB were also merged into FCB. On September
30, 1997 the
Company, formerly known as FCFT, Inc., merged with and into
First Community
Bancshares, Inc. (FCBI), a Nevada corporation, formed to
facilitate the change
of the Company's state of domicile from Delaware to Nevada
and to effect the
change in name.
On December 29, 1995, FCFT, Inc. reorganized its existing
bank subsidiary,
First Community Bank, Inc., Princeton, West Virginia, by
splitting it into two
separate banks. This was accomplished by chartering a
second, affiliated,
Federal Deposit Insurance Corporation (FDIC) insured state
commercial bank
formed through the acquisition of assets and assumption of
the liabilities
of six of First Community Bank, Inc.'s operating divisions
and branches
located within Mercer County, West Virginia. This new bank,
First Community
Bank of Mercer County, Inc., headquartered in Princeton,
West Virginia,
consists of six divisions with offices in Princeton,
Bluefield, and Bluewell,
as well as the Credit Card Division, Trust Division, and
Corporate/Administrative Division. The main office of the
reorganized First
Community Bank, Inc., was relocated to Buckhannon, West
Virginia.
At the close of business on July 3, 1996, FCFT, Inc.
acquired Citizens Bank
of Tazewell (Citizens), headquartered in Tazewell, Virginia.
Pursuant to the
Agreement and Plan of merger, FCFT exchanged 3.51 shares of
its common stock
for each share of Citizen's common stock. Accordingly,
263,159 shares of
FCFT, Inc. common stock were issued to holders of Citizens
common stock.
The merger was accounted for under the pooling of interests
method.
Accordingly, all financial reporting periods presented have
been restated to
properly reflect this business combination. Subsequent to
the merger,
Citizens operates as a wholly-owned subsidiary of FCFT, Inc.
On June 2,
1997, the corporate name of Citizens was changed to First
Community Bank of
Southwest Virginia, Inc.
At the close of business on September 26, 1996, First
Community Bank, Inc.
acquired the Grafton and Rowlesburg, West Virginia branches
of Huntington
National Bank West Virginia. The acquisition of these
branches added
approximately $21 million in deposits. The intangible value
of this
transaction totaled approximately $1 million which is being
amortized over a
15 year period. This acquisition was accounted for under
the purchase method
of accounting. Accordingly, the consolidated results in
periods after
September 26, 1996 include the operations of the Grafton and
Rowlesburg
branches only from the date of acquisition.
On April 9, 1997, FCFT, Inc. 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
cancelled outstanding stock options through the payment of
$727,948
representing the difference between $19.50 and the
respective option prices.
Total consideration including the payment for cancellation
of the options
was $24.7 million and resulted in an intangible asset of
approximately $13.2
million which is being amortized over a 15 year period. The
acquisition
was partially funded with loan proceeds of $11.5 million
which the Company
borrowed from an outside source. The loan agreement has
certain covenants
that may restrict the payment of dividends to stockholders
in the event of
default along with other customary borrowing provisions.
The acquisition
was accounted for under the purchase method of accounting.
Accordingly,
results of operations of Blue Ridge are included in
consolidated results
of FCBI from the date of acquisition. Subsequent to the
merger, Blue Ridge
operates as a wholly-owned subsidiary of FCBI.
First Community Bank of Southwest Virginia, the Virginia
subsidiary of
First Community Bancshares, Inc., opened a branch in
Wytheville, Virginia,
located at 910 E. Main Street on August 1, 1997.
3
<PAGE>
Currently, the Registrant is a multi-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
subsidiaries 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 subsidiaries' banking operations.
The Registrant currently derives substantially all of its
revenues from
dividends paid by the subsidiary banks. Dividend payments
by the banks 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 Supervision and Regulation of this item.
First Community Bank of Mercer County, Inc.
First Community Bank of Mercer County, Inc. (FCB, Mercer) is
a state
chartered bank organized under the banking laws of the State
of West Virginia.
FCB, Mercer engages in general commercial and retail banking
business in
Mercer County, West Virginia. It provides safe deposit
services and makes
all types of loans, including commercial, mortgage and
personal loans. FCB,
Mercer also provides trust services and its deposits are
insured by the FDIC.
FCB, Mercer is a member of the Federal Reserve System.
First Community Bank, Inc.
First Community Bank, Inc. (FCB, Inc.) is a state chartered
bank organized
under the banking laws of the State of West Virginia. FCB,
Inc. engages in
general commercial and retail banking business in Upshur,
Wyoming, Taylor,
Nicholas, Preston, and Webster Counties, West Virginia. It
provides safe
deposit services and makes all types of loans, including
commercial, mortgage
and personal loans. FCB, Inc. deposits are insured by the
FDIC. FCB, Inc.
is a member of the Federal Reserve System.
First Community Bank of Southwest Virginia, Inc.
First Community Bank of Southwest Virginia, Inc., (FCB-SWV,
Inc.), formerly
Citizens Bank of Tazewell, Inc. is a state chartered bank
organized under the
banking laws of the State of Virginia. FCB-SWV, Inc.
engages in general
commercial and retail banking business in Southwestern
Virginia. It provides
safe deposit services and makes all types of loans including
commercial,
mortgage and personal loans. FCB-SWV, Inc. deposits are
insured by the
FDIC. FCB-SWV, Inc. is a member of the Federal Reserve
System.
Blue Ridge Bank
Blue Ridge Bank (Blue Ridge) is a state chartered bank
organized under
the laws of the state of North Carolina. Blue Ridge engages
in general
commercial and retail banking business in North Central
North Carolina. It
provides safe deposit services and makes all types of loans
including
commercial, mortgage and personal loans. Blue Ridge
deposits are insured
by the FDIC. Blue Ridge is a member of the Federal Reserve
System.
Lending Activities
The Company's banking subsidiaries generate revenues
primarily through
the investment of borrowed and deposited funds in earning
assets. These
assets are comprised of securities available for sale,
investment securities,
short-term investment vehicles and loans to businesses and
individuals.
Average loans represent approximately 71% of average earning
assets and
present a greater level of credit risk to the Company when
contrasted with
investment securities.
The principal lending activities of the banks are
concentrated primarily
within the market areas immediately surrounding its banking
operations.
These are areas with which bank personnel are most
acquainted and are
within reasonable distances of the banks which allows for
timely communications
with customers as well as periodic inspections of
collateral.
4
<PAGE>
Loan portfolios total $671.8 million at December 31, 1997
and are comprised of
commercial, real estate and consumer loans including credit
cards and home
equity loans. Commercial and commercial real estate loans
comprise 42.5% of
the total loan portfolio. Commercial loans include loans to
small to mid-size
industrial and commercial and service companies which
include but are not
limited to, coal mining companies, manufacturers, automobile
dealers, and
retail and wholesale merchants. Collateral securing these
loans include
equipment, machinery, inventory, receivables, vehicles and
commercial real
estate. Commercial loans are considered to contain a higher
level of risk
than other loan types although care is taken to minimize
these risks.
Underwriting standards require a comprehensive review and
independent
evaluation of virtually all commercial loans by Credit
Administration and
Discount Committees prior to approval with updates to these
credit reviews
performed periodically on a quarterly or annual basis
depending on the
size of the loan relationship.
Real estate mortgage loans comprise 35% of the total loan
portfolio.
Mortgage loans to consumers are secured primarily by first
lien deeds of
trust. These loans generally do not exceed an 80% loan to
value ratio at
the loan origination date and are considered to contain
normal risk. Loans
in the real estate mortgage category have historically
yielded the lowest
loss ratio of all loan types.
Consumer loans comprise 22% of the total loan portfolio.
Collateral for
these loans include automobiles, boats, recreational
vehicles, and other
personal property. Personal loans, home equity loans and
unsecured credit
card receivables are also included as consumer loans.
Historically, losses
on these types of loans have been minimal; however, indirect
lending through
various automobile dealerships in 1996 and 1997 led to a
significant increase
in consumer loan chargeoffs in 1997.
The average yield on a tax equivalent basis on all loans in
1997 was 9.77%
and average loans expressed as a percentage of average
deposits were 81%
in 1997. This percentage represents an average level of
outstanding loans
when compared with historical loan to deposit ratios of 84%
in 1996 and
79% in 1995.
Employees
The Registrant and its subsidiaries had 514 employees at
December 31, 1997.
Management considers employee relations to be excellent.
Competition
The Company's subsidiaries have been able to compete
effectively with other
financial institutions in their respective market areas.
The subsidiaries
emphasize customer service in an effort to establish long-
term customer
relationships and build customer loyalty. The subsidiaries
of the Company
have consolidated services such as data processing,
accounting, loan review
and compliance, and internal audit services to enhance the
ability to compete
effectively in its respective markets.
Principal competition for the banking subsidiaries is
provided by other
local and regional commercial banking companies as well as
Thrift institutions
and Credit unions. Other non-bank organizations including
regional and
national mortgage origination firms and manufacturer captive
credit
corporations also provide competition for residential real
estate loans and
consumer loans.
Supervision and Regulation
The Registrant is a bank holding company within the meaning
of the Bank
Holding Act of 1956 (Act), as amended, 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
Registrant and
the subsidiary and such other information as the Board of
Governors may
require. The Federal Reserve makes periodic examinations of
the Registrant
typically on an annual basis. The Act requires every bank
holding company to
obtain prior approval of the Board of Governors before
acquiring
substantially all the assets or direct or indirect ownership
or control of
more than 5% of the voting shares of any bank which is not
already
majority-owned. The Act also prohibits a bank holding
company, with
certain exceptions, from engaging in, or acquiring direct or
indirect control
of more than 5% of the voting shares of any company engaged
in non-banking
activities.
5
<PAGE>
Bank holding companies and their subsidiary banks are also
subject to the
provisions of the Community Reinvestment Act of 1977
("CRA"). Under the
CRA, the Federal Reserve Board is required, in connection
with its examination
of a bank, to assess such bank's record in meeting the
credit needs of the
communities served by that bank, including low and moderate
income
neighborhoods. Further, such assessment is also required of
any bank holding
company which has applied to (i) charter a National bank,
(ii) obtain deposit
insurance coverage for a newly chartered institution, (iii)
establish a
new branch office that will accept deposits, (iv) relocate
an office, or (v)
merge or consolidate with, or acquire the assets or assume
the liabilities of
a federally-regulated financial institution. In the case of
a banking holding
company applying for approval to acquire a bank or other
bank holding
company, the Federal Reserve Board will assess the record of
each subsidiary
of the applicant bank holding company, and such records may
be the basis for
denying the application or imposing conditions in connection
with approval
of the application. On July 1, 1995, the federal bank
regulators amended the
CRA regulations to simplify enforcement of the CRA by
substituting the prior
twelve assessment categories with three performance
categories for use in
calculating CRA ratings. The federal bank regulators will
evaluate banks
under the lending, investment, and service tests. The
effective date for
compliance with the amended CRA depends on the size of the
institution, but
no later than July 1, 1997. Additional data collection and
reporting
requirements have been imposed on larger institutions.
The Financial Institutions Reform, Recovery, and Enforcement
Act of 1989
("FIRREA") was enacted by Congress on August 9, 1989. Among
the more
significant consequences of FIRREA with respect to bank
holding companies
is the impact of the "cross-guarantee" provision and the
significantly
expanded enforcement powers of bank regulatory agencies.
Under the
cross-guarantee provision, if one depository institution
subsidiary of a
multi-unit holding company fails or requires FDIC
assistance, the FDIC may
assess a commonly controlled depository institution for the
estimated losses
suffered by the FDIC. While the FDIC's claim is junior to
the claims of
non-affiliated depositors, holders of secured liabilities,
general creditors,
and subordinated creditors, it is superior to the claims of
shareholders.
Among the significantly expanded enforcement powers of the
bank regulatory
agencies are the powers to (i) obtain cease and desist
orders, (ii) remove
officers and directors, (iii) approve new directors and
senior executive
officers of certain depository institutions, and (iv) assess
criminal and
civil money penalties for violations of law, regulations. or
conditions
imposed by, or agreements with, regulatory agencies.
In September 1994, the Riegle-Neal Interstate Banking and
Branching Efficiency
Act of 1994 was passed. This legislation significantly
changes the laws
governing interstate banking. Beginning on September 29,
1995, bank holding
companies may acquire banks located in any state, despite
former
prohibitive state statutes, subject to certain conditions.
Beginning on June
1, 1997, banks may merge or consolidate on an interstate
basis. States may
elect to "opt-out" of this provision by expressly
prohibiting interstate
bank mergers. This Act also permits banks to branch into
other states on a
de novo basis provided that the state has enacted a law that
permits de novo
interstate branch banking.
The banking subsidiaries of the Registrant are subject to
certain restrictions
by regulatory bodies which limit the amounts and the manner
in which it may
loan funds to the Registrant. The banks are further subject
to restrictions
on the amount of dividends that can be paid to the
Registrant in any one
calendar year without prior approval by primary regulators.
Payment of
dividends by the subsidiary banks to the Registrant cannot
exceed net
profits, as defined, for the current year combined with net
profits for the
two preceding years. In addition, any distribution which
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 concerning these restrictions,
see Note 14 of the
Notes to Consolidated Financial Statements incorporated by
reference in
Part II of this report.)
Governmental Monetary Policies and Economic Controls
The earnings of the Registrant and its subsidiaries are
affected by the
monetary policies of the Federal Reserve System. An
important function of
the Federal Reserve System is to regulate the National
supply of credit in
order to deal with economic conditions. The instruments
employed by the
Federal Reserve are open market operations of U.S.
Government securities,
changes in the discount rate on member bank borrowings,
changes in Federal
Funds rates and changes in reserve requirements. These
policies influence, in
various ways, the level of the company's investments, loans
and deposits and
rates earned on its earning assets and interest rates paid
on liabilities.
6
<PAGE>
I. Distribution of Assets, Liabilities and Stockholders'
Equity, Interest Rates and Interest Differential
A. & B. Average Balance Sheets--Net Interest Income
Analysis
</TABLE>
<TABLE>
<CAPTION>
(Amounts in Thousands, except %)
1997
1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Interest Yield/Rate Average
Interest Yield/Rate Average Interest Yield/Rate
Balance (1) (1)
Balance (1) (1) Balance (1) (1)
Earning Assets:
Loans (2)
Taxable $601,492 $ 58,676 9.76% $507,554 $49,443 9.74%
$428,242 $41,451 9.68%
Tax-Exempt 15,993 1,657 10.36% 15,401
1,708 11.09% 16,755 1,866 11.14%
Total 617,485 60,333 9.77% 522,955 51,151
9.78% 444,997 43,317 9.73%
Reserve for Possible
Loan Losses (9770) (8,797) ______ ______
(8,238) _______ ______
Net Total 607,715 60,333 9.93% 514,158
51,151 9.95% 436,759 43,317 9.92%
Securities Available For
Sale:
Taxable 122,326 8,226 6.72% 104,112 6,690 6.43%
92,550 5,925 6.40%
Tax-Exempt 17,162 1,388 8.09% 15,472
1,333 8.61% 156 12 7.69%
Total 139,488 9,614 6.89% 119,584 8,023 6.71%
92,706 5,937 6.40%
Investment Securities:
Taxable 45,581 2,820 6.19% 65,857 4,233 6.43%
112,021 7,043 6.29%
Tax-Exempt 59,547 4,830 8.11% 47,026
3,776 8.03% 55,216 4,659 8.44%
Total 105,128 7,650 7.28% 112,883 8,009
7.09% 167,237 11,702 7.00%
Interest-Bearing
Deposits 418 44 10.53% 750 28 3.73%
388 22 5.67%
Federal Funds Sold 17,127 949 5.54% 2,188
117 5.35% 4,473 263 5.88%
Total Earning Assets 869,876 78,590 9.03% 749,563
67,328 8.98% 701,563 61,241 8.73%
Other Assets 79,604 _______ ______ 54,758 ______
______ 52,114 ______ ______
Total $949,480 $804,321
$753,677
======= ====== ======
Interest-Bearing
Liabilities:
Demand Deposits $111,177 3,064 2.76% $ 92,857 2,519
2.71% $ 98,405 2,656 2.70%
Savings Deposits 141,827 4,350 3.07% 134,178 4,150
3.09% 140,810 4,352 3.09%
Time Deposits 406,208 21,359 5.26% 313,899
16,501 5.26% 290,725 13,913 4.79%
Short-Term Borrowings 59,462 2,623 4.41% 64,933
2,886 4.44% 45,868 1,945 4.24%
Long-Term Borrowings 22,654 1,494 6.59%
15,130 877 5.80% 10,401 616
5.92%
Total Interest-Bearing
Liabilities 741,328 32,890 4.43% 620,997
26,933 4.34% 586,209 23,482 4.01%
Demand Deposits 100,158 84,265 80,447
Other Liabilities 13,955 13,465 10,761
Stockholders' Equity 94,039 85,594 76,260
________ _______ _______
Total $949,480 $804,321 $753,677
======= ====== ======
Net Interest Income $45,700 ______ $
40,395 _______ $37,759 ______
Net Interest Rate Spread (3) 4.60% 4.64%
4.72%
Net Interest Margin (4) 5.25% 5.39%
5.38%
===== =====
=====
</TABLE>
(1) Fully Taxable Equivalent-Using the Federal statutory
rate of 35% as
applied to non-taxable loans and securities in periods in
which related tax benefits arise.
(2) Non-accrual loans are included in average balances
outstanding but with
no related interest income.
(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.
7
<PAGE>
<TABLE>
<CAPTION>
C. Rate and Volume Analysis of Interest (1)
(Amounts in Thousands)
1997 Compared to 1996 1996
Compared to 1995
Increase/(Decrease) due to
Increase/(Decrease) due to
<S> <C> <C> <C> <C> <C> <C>
Volume Rate Total Volume Rate Total
Interest Earned On:
Loans $9,228 $(46)$9,182 $7,574 $260 $7,834
Investment securities available
for sale1,353 238 1,591 2,062 24 2,086
Investment securities
held to maturity(245) (114) (359)(3,630) (63)
(3,693)
Interest bearing deposits
with other banks (17) 33 16 15 (9)
6
Federal funds sold 828 4 832 (124) (22)
(146)
_____ _____ ______ ______ ______ ______
Total interest earning
assets 11,147 115 11,262 5,897 190 6,087
_____ _____ ______ ______ ______ ______
Interest Paid On:
Demand deposits504 41 545 (150) 13 (
137)
Savings deposits 235 (35) 200 (205)
3 (202)
Time deposits4,854 4 4,858 1,158 1,430 2,588
Short-term borrowings(241)(22) (263) 843 98
941
Long-term debt483 134 617 274 (13)
261
____________________ ______ ______ ______
Total interest bearing
liabilities5,835 122 5,957 1,920 1,531 3,451
____________________ ______ ______ ______
Change in net interest
income $5,312 $(7)$5,305 $3,977$(1,341) $2,636
====== ===== ====== ===== ===== =====
</TABLE>
(1) Fully Taxable Equivalent-using the federal statutory
rate of 35% as
applied to non-taxable loans and securities in periods in
which related tax
benefits arise.
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.
<TABLE>
<CAPTION>
II. Investment Portfolio
A. Amortized Cost of Investment Securities Held to
Maturity:
<S> <C> <C> <C>
December 31
(Amounts in Thousands) 1997 1996 1995
U.S. Treasury securities $ 4,098 $ 8,247 $ 16,563
U.S. Government agencies and corporations 26,377
43,494 59,792
States and political subdivisions 77,641 47,532
47,975
Other securities 1,058 1,055 1,055
_______ _______ _______
$109,174 $100,328 $
125,385
======= ====== ======
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Market Value of Investment Securities Available
for Sale:
<S> <C> <C> <C>
December 31
(Amounts in Thousands) 1997 1996 1995
U.S. Treasury securities $ - $ 1,005 $
1,217
U.S. Government agencies and corporations 132,746
110,967 100,184
States and political subdivisions 22,576 16,037
16,345
Other securities 6,473 8,104 3,447
_______ _______
_______
$161,795 $ 136,113
$121,193
======= ====== ======
</TABLE>
B. Maturity and Yields
The required information is incorporated by reference to
pages 34 through 36
of the 1997 Annual Report.
C. There are no issues included in obligations of states
and political
subdivisions or other securities which
exceed ten percent of stockholders' equity.
9
<PAGE>
III. Loan Portfolio
<TABLE>
<CAPTION>
A. Loan Summary
<S> <C> <C> <C> <C> <C>
December 31
(Amounts in Thousands) 1997 1996 1995 1994
1993
Commercial, Financial and
Agricultural $ 82,445$ 79,278$ 71,441$ 61,691
$ 58,060
Real Estate- Commercial 202,625 166,787 152,579
129,672 121,599
Real Estate- Construction 9,612 10,589
5,608 2,406 2,783
Real Estate- Residential227,465 171,455 155,282
143,350 133,477
Consumer 151,429 120,720 100,843 84,453
81,035
Other 1,185 552 519
501 738
________________________ ________
________
Total 674,761 549,381 486,272 422,073
397,692
Less : Unearned Income 2,944 1,678 1,121
883 888
671,817547,703 485,151 421,190
396,804
Less: Reserve for Possible
Loan Losses 11,406 8,987 8,321
8,479 9,568
Net Loans $660,411$ 538,716$ 476,830$ 412,711 $
387,236
====== ======= ======= ======= =======
</TABLE>
B. Maturities and Rate Sensitivity of Loan Portfolio at
December 31, 1997:
<TABLE>
<CAPTION>
Remaining
Maturities
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Over One Over
One Year Year to Five
and Less Five Years Years
Total Percent
Commercial, Financial and
Agricultural $ 41,436 $ 32,301 $ 8,708 $ 82,445
12.27%
Real Estate- Commercial 51,261 85,976
65,388 202,625 30.16%
Real Estate- Construction 5,912
3,038 662 9,612 1.43%
Real Estate- Mortgage 31,553 114,948
80,964 227,465 33.86%
Consumer 38,277 103,101 7,107
148,485 22.10%
Other 896 268
21 1,185 .18%
$169,335 $339,632 $162,850
$671,817 100.00%
======= ======== ========
======== =======
Rate Sensitivity:
Pre-determined Rate $ 82,711 $288,076 $ 102,703
$473,490 70.48%
Floating or Adjustable Rate 86,624
51,556 60,147 198,327 29.52%
$169,335 $339,632 $162,850
$671,817 100.00%
=======
======== ======= ======= =======
25.21% 50.55% 24.24%
100.00%
======= ======== ======= =======
</TABLE>
10
<PAGE>
C. Risk Elements. The required information for risk
elements in included
below and incorporated by reference to
pages 20 through 22 of the 1997 Annual Report.
<TABLE>
<CAPTION>
Nonperforming Assets:
<S> <C> <C> <C> <C> <C>
December 31
(Amounts in Thousands) 1997 1996 1995 1994
1993
Non-accruing Loans $9,988 $5,476 $4,371
$6,909 $11,269
Loans Past Due Over 90
Days 4,391 780 673
968 1,393
Restructured Loans Per-
forming in Accordance
With Modified Terms 534 401 440
640 1,400
Gross Interest Income Which
Would Have Been Recorded
Under Original Terms of
Non-Accruing and Re-
Structured Loans 667
Actual Interest Income During
the Period 191
Commitments to Lend
Additional Funds on Non-
Performing Assets - - - - -
</TABLE>
Management believes that the extent of problem loans at
December 31, 1997
is disclosed as non-performing assets or delinquent loans in
the preceding
charts. However, there can be no assurance that future
circumstances, such
as further erosion of economic conditions and the related
potential effect
that such erosion may have on certain borrowers' ability to
continue to
meet payment obligations, will not lead to an increase in
problem loan
totals. Management believes that the non-performing asset
carrying values
will be substantially recoverable, taking into consideration
the adequacy of
the applicable collateral and, in certain cases, partial
write-downs which
have been taken and allowances that have been established.
It is the Registrant's policy to discontinue the accrual of
interest on loans
based on their payment status and evaluation of the related
collateral and
the financial strength of the borrower. The accrual of
interest is normally
discontinued when a loan becomes 90 days past due as to
principal or interest.
At December 31, 1997, and at the present time, the Company
does not have any
concentrations of loans to borrowers engaged in similar
activities exceeding
10% of total loans, net of unearned income.
Presently, the Company has no significant concentrations of
credit risk
other than geographic concentrations. Most loans in the
current portfolio are
made and collateralized in West Virginia. Although portions
of the West
Virginia economy are closely related to coal and timber,
they are supplemented
by service industries. The current economy of the Company's
market is
relatively stable and is not seen as highly subject to
volatile economic
change.
The following table presents the Company's investment in
loans considered to
be impaired (in thousands):
<TABLE>
<CAPTION>
December 31
<S> <C> <C>
1997 1996
Commercial, financial and agricultural $6,800
$3,377
Real estate-mortgage 708 149
______ ______
Total investment in loans considered to be impaired
$7,508 $3,526
===== =====
11
<PAGE>
The Company has not presented impaired loan information for
periods prior to
the effective date of FAS 114, "Accounting by Creditors for
the Impairment of
a Loan", as amended, which was effective in 1995. Under
SFAS No. 114,
the allowance for possible loan losses related to loans that
are identified for
evaluation in accordance with SFAS No. 114 is based on
discounted cash
flows using the loan's initial effective interest rate or
the fair value of
the collateral for certain collateral dependent loans.
IV. Summary of Loan Loss Experience
</TABLE>
<TABLE>
<CAPTION>
A. 1. Summary of Loan Loss Experience:
Years Ended December 31
<S> <C> <C> <C> <C> <C>
(Amounts in Thousands, Except Percent Data) 1997 1996
1995 1994 1993
Balance of reserve at beginning of period $8,987 $8,321
$8,479 $9,568$7,803
Reserve of subsidiaries at date of acquisition 1,981
- - - - - 1,387
Charge-offs:
Commercial, financial and agricultural 2,052 369
1,875 2,237 815
Real estate- residential 385 275 109 163
289
Installment 2,761 1,537 899 963 1,137
Total Charge-offs 5,198 2,181 2,883 3,363 2,241
Recoveries:
Commercial, financial and agricultural 130 249
126 83 311
Real estate-residential 31 26 35
7 83
Installment 512 299 329 420
338
Total Recoveries 673 574 490 510
732
Net charge-offs 4,525 1,607 2,393 2,853 1,509
Provision charged to operations 4,963 2,273 2,235 1,764
1,887
Balance of reserve at end of period$11,406$8,987 $8,321
$8,479 $9,568
===== ========== ===== =====
Ratio of net charge-offs to average loans
outstanding .73% .31% .54% .70% .38%
====== ========== ===== =====
Ratio of reserve to total loans outstanding 1.70% 1.64%
1.72% 2.01% 2.41%
====== ========== ===== =====
</TABLE>
A. 2. The required information is incorporated by
reference to page 21
of the 1997 Annual Report.
<TABLE>
<CAPTION>
B. Allocation of Reserve for Possible Loan Losses:
(Amounts in Thousands, Except Percent Data)
December 31
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
1997
1996 1995 1994
1993
Commercial, Financial
and Agricultural $4,795 42% $3,167 45% $3,465
46% $3,327 45% $4,671 45%
Real Estate- Mortgage 2,819 35% 1,956 33%
1,751 33% 747 35% 828 34%
Consumer 1,979 23% 1,567 22% 1,280 21%
1,099 20% 1,587 21%
Unallocated 1,813 N/A 2,297 N/A 1,825 N/A
3,306 N/A 2,482 N/A
Total $11,406 100% $8,987 100% $8,321 100%
$8,479 100% $9,568 100%
===== ==== ===== ==== ===== ====
===== ==== ===== ====
</TABLE>
The percentages in the table above represent the percent of
loans in each
category of total loans.
12
<PAGE>
V. Deposits
A. The required information for average deposits and
rates paid by type
is on page 9 of this report.
B. Not applicable.
C. Not applicable.
D. The required information is incorporated by
reference to page 39 of
the 1997 Annual Report and as follows:
<TABLE>
<CAPTION>
Maturities of Time Deposits of $100,000 or more
(Amounts in Thousands)
<S> <C>
1997
Three months or less $ 49,168
Over Three to Six Months 20,082
Over Six to Twelve Months 23,423
Over Twelve Months 24,678
___________
Total $117,351
==========
</TABLE>
E. Not applicable.
VI. Return on Equity and Assets
A. The required information is incorporated by
reference to page 15 of
the 1997 Annual Report.
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, customer repurchase agreements and Federal funds
purchased. The
Company's short-term borrowings and rates paid are
summarized as follows
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Percent Data):
1997
1996 1995
<S> <C> <C> <C> <C> <C> <C>
Amount
Rate Amount Rate
Amount Rate
At year-end $55,056 4.28% $53,031 4.02% $50,205
4.16%
Average during year 59,462 4.41% 64,933 4.44% 45,868
4.24%
Maximum month-end
balance 63,782 54,833 61,068
</TABLE>
B. Long-Term Advances From the Federal Home Loan Bank
(FHLB) and
Long-Term Debt
Two subsidiaries of the Company are members of the FHLB and
as such have the
ability to obtain advances from the FHLB. At December 31,
1997 and 1996,
the Company had long-term advances from the FHLB ( original
maturities in
excess of one year) of $15 million with a weighted average
rate of 5.83%.
The advances from the FHLB are secured by certain qualifying
first mortgage
loans, stock in the FHLB, mortgage-backed securities and
certain investment
securities.
13
<PAGE>
Item 2. Properties
FIRST COMMUNITY BANK OF MERCER COUNTY, INC.
The offices of the Registrant are located within First
Community Bank of
Mercer County, Inc. at 1001 Mercer Street, Princeton, West
Virginia. Principal
properties owned by the subsidiary banks consist of modern
single purpose
facilities described as follows:
Princeton- Two-story, 30,000 square foot banking offices
with detached
drive-up/walk-in facility in Princeton, West Virginia,
completed in 1976;
Pine Plaza branch office with drive-up located in Princeton,
West Virginia,
constructed in 1986 on leased land with initial lease term
plus renewal
options totaling twenty years; moveable, modular branch
office with
drive-up/walk-in located in Matoaka, West Virginia,
constructed in 1983 on
leased land; two-story, 6,000 square foot banking office
with drive-up
located in Green Valley, West Virginia, constructed in 1978,
10 automated
teller machines located throughout Mercer County.
Bluefield- Three-story, 37,000 square foot banking offices
located on Federal
Street with detached drive-up facility, completed in 1972
and walk-up
automated teller machine located on premises; one off-site
automated teller
machine on leased land in Bluefield Plaza.
Bluewell- Two-story, 8,200 square foot banking offices with
drive-up facility
located in Bluewell, West Virginia completed in 1965; one
drive-up automated
teller machine located on premises.
Green Valley- Branch office leased in Mercer Mall; one walk-
up automated
teller machine located on premises.
FIRST COMMUNITY BANK, INC.
Wyoming County- Two-story banking offices located in
Pineville, West Virginia,
acquired in 1961; two-story banking offices with drive-up
located in Oceana,
West Virginia, constructed in 1984; branch office with drive-
up located
in Mullens, West Virginia, constructed in 1984; moveable,
modular branch
office with drive-up/walk-in located in Pineville, West
Virginia, constructed
in 1984; three automated teller machines.
Upshur County- Three-story banking offices with an off-
premise drive-up/walk-in
facility located in Buckhannon, West Virginia, acquired in
1937; branch
office with drive-up located in Tennerton, West Virginia,
constructed in 1980;
two automated teller machines.
Taylor County- Two-story banking offices with an attached
drive-up/walk-in
facility located in Grafton, West Virginia, constructed in
1966; one automated
teller machine; one-story, 1,200 square foot banking offices
with an attached
drive-up facility, located in the Blueville area of Grafton,
West Virginia,
constructed in 1968.
Nicholas County- Two story banking offices and office
addition with drive-up
located in Richwood, West Virginia; off-premises facility
with drive-up
located in Richwood, West Virginia, constructed in 1977 on
leased land; one and
one-half story branch office with drive-up located in
Summersville, West
Virginia, constructed in 1984; one and one-half story branch
office with
drive-up located in Craigsville, West Virginia, constructed
in 1984;
three automated teller machines.
Webster County- Branch office with drive-up located in
Cowen, West
Virginia, constructed in 1988.
Preston County- One-story, 4,000 square foot banking offices
with an attached
drive-up facility located in Rowlesburg, West Virginia,
constructed in the
early 1920's and remodeled in 1981.
Logan County- Two and one-half story banking facility with
attached two-lane
drive-up located in Man, West Virginia, constructed in 1976
with additional
levels added in 1981; separate mini-bank facility with four
drive-thru
lanes; banking sales center located inside Wal-Mart
Supercenter in Logan,
West Virginia; one automated teller machine.
14
<PAGE>
FIRST COMMUNITY BANK OF SOUTHWEST VIRGINIA, INC.
Tazewell County- Bi-level , 6,500 square foot banking
offices with attached
drive-up facility located in Tazewell, Virginia, constructed
in 1978, remodeled
in 1981 and 1995; one-story, 2,500 square foot banking
offices with an
attached drive-up facility, located in Richlands, Virginia,
constructed in
1989 and remodeled in 1995.
Dickenson County- Two story bank building with attached
drive-up
constructed in 1973 located in Clintwood, Virginia.
Wythe County- One story bank building with attached two-lane
drive-up located
in Fort Chiswell, Virginia, constructed in 1962, additions
in 1984 and
completely remodeled in 1994; a leased one story banking
facility with walk-up
automated teller machine, two-lane drive-up remodeled in
1997, located in
Wytheville, Virginia.
Wise County- One story bank building with attached two-lane
drive-up
located in Pound, Virginia.
BLUE RIDGE BANK
Alleghany County- One story 17,980 square foot bank building
constructed
in 1987 located in Sparta, North Carolina.
Alexander County- 4,000 square foot one story banking
facility situated
on approximately three acres in Taylorsville, North
Carolina; with a walk-up
automated teller machine.
Wilkes County- One story, 1,500 square foot banking facility
purchased by the
bank in 1995, located in Hays, North Carolina.
Surry County- One story, 4,000 square foot banking facility
purchased by
the bank in 1995, located in Elkin, North Carolina; with a
walk-up automated
teller machine.
Item 3. Legal Proceedings
The Registrant and its subsidiaries (the Company) are
plaintiffs and
defendants in lawsuits arising out of the normal course of
business, in which
claims for monetary damages are asserted. Management, after
consulting with
legal counsel handling the respective matters, is of the
opinion that the
ultimate outcome of such pending actions will not have a
material effect upon
the consolidated results of operations or financial
condition of the
Registrant. Following is a summary of significant
proceedings along with
recent developments, where applicable.
The Company's most significant matter of litigation styled
Civil Action No.
92-CV-1696-K Four Winds Development, Inc., W. Stephen
Melcher, and E. T.
Boggess, Plaintiffs vs. First Community Bank - Princeton and
Dave Shields
Company, Inc., Defendants was settled in the first quarter
of 1997 through
a compromise which resulted in payments by the Company to
various plaintiffs
aggregating $733,000 and with a net cost to the Company of
$468,000 after
contribution by insurance providers and co-defendants. This
settlement
concluded three separate but related Civil Actions involving
the above
referenced commercial loan customers, a related bankruptcy
and a mechanics'
lien action. The first quarter settlement in 1997 resulted
in a recovery of
litigation reserves of approximately $700,000. Reserves had
been established
in previous years in anticipation of execution of a verdict
judgment under
the above referenced Civil Action. Settlement of the
verdict was accomplished
in 1997 at a lesser sum and with co-defendants and insurance
carriers assuming
a portion of the settlement amount as described above.
Included in the settlement described in the preceding
paragraph was the
settlement of a second Civil Action No. 89-C-1156-F styled
Commercial Bank
of Bluefield (Commercial), Plaintiff vs. Allied
Refrigeration, Inc., Defendant
and Third Party Plaintiff vs. Dan Shortridge, Four Winds
Development, Inc.,
W. Stephen Melcher, E. T. Boggess, Robert W. Culler and
First Community
Bank, Third Party Defendants. This action was settled in
connection with
the above referenced joint settlement agreement in
consideration of the
forgiveness of a $200,000 loan by First Party Plaintiff,
Commercial Bank of
Bluefield, and the payment of $228,000 to Defendant Allied
Refrigeration, Inc.
The cash payment to Allied is included in the settlement
total referenced
in the preceding paragraph.
The third related action styled Allied Refrigeration vs.
Westwood Associates,
et al, Adversary Proceeding No. 7-93-00037, which was
settled as part of
the above referenced joint settlement agreement, was the
assertion of a
mechanics' lien in relation to the development of a long-
term care facility
in Bluefield, Virginia. The mechanics' lien action, brought
by Allied
Refrigeration, Inc., was also dismissed as part of the joint
settlement
agreement.
15
<PAGE>
In August 1997, the Company was named as a defendant in a
suit styled Ann
Tierney Smith, as Executrix of the Estate of Katharine B.
Tierney, Ann
Barclay Smith and Laurence E. Tierney Smith, Plaintiffs vs.
FCFT, Inc.,
First Community Bank, Inc., Gentry, Locke, Rakes & Moore,
and W. William
Gust, Defendants, Civil Action No. 97-CV-408-K, seeking to
overturn the
establishment of a private foundation for which the
Company's Trust and
Financial Services Division serves as Trustee. The suit
filed by heirs of the
Foundation donor, seeks a total of $6 million in
compensatory and punitive
damages as well as the termination of the Foundation. The
Company and
Trustee believe the creation and the operation of the
Foundation represent the
intent and will of the donor and intend to defend the suit
and the continuation
of the Foundation's purpose. Both management and the
Company's legal
counsel are of the opinion that this suit is without merit
and will be
successfully defended with no material adverse impact on the
Company's
financial condition or results of operations.
Civil Action No. 82-C-610, styled Rhondal L. Toler, et al,
vs. Castle Rock Bank
of Pineville, filed on December 2, 1982 in the Circuit Court
of Wyoming
County, West Virginia, was reported in the 1996 Annual
Report on Form 10-K.
In this action, which Rhondal L. and Annette Toler and Vern
and Henrietta
Ellison, Plaintiffs, claimed that former representatives of
a subsidiary
of the Registrant misrepresented the condition of a company
at the time the
Plaintiffs borrowed money to purchase the company. The
Company filed an
answer denying all pertinent allegations made by the
Plaintiffs and
additionally filed a counterclaim seeking $322,000 plus
costs. This case was
dismissed in 1996 due to its prolonged existence on the
Court docket and
the Plaintiff's failure to prosecute. The Plaintiff has
filed a motion to
reinstate this matter and the Company has filed a counter
motion objecting to
the reinstatement. Ruling on these issues has not been made
as of the
date of this report.
Additionally, the Company is also subject to certain
asserted and unasserted
potential claims encountered in the normal course of
business. In the
opinion of management, the resolution to these claims and
unasserted potential
claims will not have a material adverse affect on the
Company's financial
position or results of operations and, due to the relative
amount of claims
where damage is sought and based upon the Company's
evaluation, these
matters have not been included in this report.
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 1997
16
<PAGE>
Part II.
Item 5. Market for Registrant's Common Equity and Related
Matters
Market Price of Common Stock
The common stock of First Community Bancshares, Inc. is
traded over-the-counter
and is quoted on the NASDAQ (Level III) Electronic
Billboard. The following
table shows the approximate high and low bids as known to
the Company or
reported by local brokers for each quarter in 1996 and 1997.
Management
has been advised that such quotations primarily represent
actual transactions.
Also, presented below is the book value and cash dividends
paid per share as
of and for each quarter of 1996 and 1997. The number of
common stockholders
of record on December 31, 1997 was 2,142 and outstanding
shares totaled
5,650,932.
<TABLE>
<CAPTION>
Bid Book Value Cash Dividends
1996 High Low Per Share Per Share
<S> <C> <C> <C>
First Quarter $27.20 $23.60 $14.70 $.22
Second Quarter 26.40 25.60 15.02 .24
Third Quarter 25.80 24.80 15.50 .28
Fourth Quarter 28.80 25.80 15.81 .40
$1.14
====
</TABLE>
<TABLE>
<CAPTION>
1997
<S> <C> <C> <C> <C>
First Quarter $29.60 $27.20 $16.04 $.28
Second Quarter 33.00 28.25 16.62 .31
Third Quarter 36.13 31.75 16.98 .31
Fourth Quarter 40.00 32.75 17.32 .40
$1.30
====
</TABLE>
The holders of shares of common stock of the Company are
entitled to such
dividends as the Board of Directors, in its discretion, may
declare out
of funds legally available thereof.
The Company has historically paid dividends on a quarterly
basis and
currently intends to continue to pay such dividends in the
foreseeable future.
However, there can be no assurance that dividends will be
paid in the future.
The declaration and payment of future dividends will depend
upon, among
other things, the Company's earnings and financial
condition, the general
economic and regulatory climate.
The Company's ability to pay dividends to its shareholders
depends to a
large extent upon the dividends the Company receives from
its subsidiaries.
Dividends paid by its banking subsidiaries are subject to
restrictions under
various Federal banking laws. In addition, the banking
subsidiaries must
maintain certain capital levels which may restrict their
ability to pay
dividends to the Company. As of December 31, 1997, the net
profits available
for distribution to the shareholders as dividends without
regulatory approval
were approximately $1.8 million; however the regulators of
the banking
subsidiaries could administratively impose stricter limits
on the ability of
the banking subsidiaries to distribute net profits to the
Company.
Item 6. Selected Financial Data
The required information is incorporated by reference to
page 15 of the 1997
Annual Report.
Item 7. Management's Discussion and Analysis of Financial
Condition and
Results of Operations
The required information is incorporated by reference to
pages 13 through
24 of the 1997 Annual Report.
17
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
Interest Rate Risk (IRR) and Asset/Liability Management
The Bank's profitability is dependent to a large extent upon
its net interest
income (NII), which is the difference between its interest
income on
interest-earning assets, such as loans and securities, and
its interest
expense on interest-bearing liabilities, such as deposits
and borrowings.
The Bank, like other financial institutions, is subject to
interest rate risk
to the degree that its interest-earning assets reprice
differently than its
interest-bearing liabilities. The Bank manages its mix of
assets and
liabilities with the goals of limiting its exposure to
interest rate risk,
ensuring adequate liquidity, and coordinating its sources
and uses of funds.
Specific strategies for management of IRR have included
shortening the
amortized maturity of fixed-rate loans and increasing the
volume of
adjustable rate loans to reduce the average maturity of the
Bank's
interest-earning assets.
The bank seeks to control its IRR exposure to insulate net
interest income and
net earnings from fluctuations in the general level of
interest rates. To
measure its exposure to IRR, the bank performs quarterly
simulations of
NII using financial models which project NII through a range
of possible
interest rate environments including rising, declining, most
likely and
flat rate scenarios. The results of these simulations
indicate the existence
and severity of IRR in each of those rate environments based
upon the
current balance sheet position and assumptions as to changes
in the volume
and mix of interest-earning assets and interest-paying
liabilities and
management's estimate of yields attained in those future
rate environments
and rates which will be paid on various deposit instruments
and borrowings.
The following table summarizes the impact on tax equivalent
NII and the
Market Value of Equity (MVE) of immediate and sustained rate
shocks in
the interest rate environment of plus and minus 100, 200,
300 and 400 basis
points from the flat rate simulation.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Change in Tax Equivalent Market
Interest Rates Net Interest Value of
(Basis Points) Income %
Equity %
400 32,290.6 -25.5 90,873.7 -7.6
300 35,086.1 -19.1 92,359.7 -6.1
200 37,862.7 -12.7 94,062.0 -4.4
100 40,620.2 -6.3 96,045.5 -2.4
- - -0- 43,358.8 0 98,390.1 0
- - -100 46,079.4 6.3 101,192.9 2.8
- - -200 48,781.8 12.5 104,572.5 6.3
- - -300 51,466.0 18.7 108,701.2 10.5
- - -400 54,132.2 24.8 113,982.1 15.8
</TABLE>
The preceding table which illustrates the prospective
effects of hypothetical
interest rate changes is based upon numerous assumptions,
including relative
and estimated levels of key interest rate factors.
Management feels that
this type of modeling technique, although useful, does not
take into
account strategies which management would undertake in
response to a sudden
and sustained rate shock as depicted. Additionally,
management does not
believe that a rate shock of the magnitude described is
likely in the
forecast period presented.
Item 8. Financial Statements and Supplementary Data
The required information is incorporated by reference to
pages 26 through 51
of the 1997 Annual Report and as follows:
First Community Bancshares, Inc.
Quarterly Earnings Summary (Unaudited)
Quarterly earnings for the years ended December 31, 1997 and
1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1997
March 31 June 30 Sept30 Dec 31
Interest Income $16,546 $18,934 $19,512 $20,842
Interest Expense 6,942 7,946 8,609 9,393
Net interest income 9,604 10,988 10,903 11,449
Provision for possible loan losses 630
1,087 736 2,510
Net interest income after provision
for possible loan losses 8,974 9,901 10,167
8,939
Other income 1,824 2,163 2,123 2,551
Other expenses 5,441 5,975 7,305 5,951
Income before income taxes 5,357 6,089 4,985
5,539
Income taxes 1,660 1,950 1,598 1,668
Net income $3,697 $4,139 $3,387 $3,871
Per share:
Basic earnings $ 0.65 $ 0.73 $ 0.60 $ 0.69
Dividends $ 0.28 $ 0.31 $ 0.31 $ 0.40
Weighted average shares outstanding 5,650 5,650
5,650 5,651
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1996
March 31 June 30 Sept 30 Dec 31
Interest Income $15,475 $16,115 $16,593 $16,758
Interest Expense 6,403 6,660 6,918 6,952
Net interest income 9,072 9,455 9,675 9,806
Provision for possible loan losses 455
581 621 616
Net interest income after provision
for possible loan losses 8,617 8,874 9,054
9,190
Other income 1,576 2,110 1,835 3,549
Other expenses 5,385 5,375 5,518 8,080
Income before income taxes 4,808 5,609 5,371
4,659
Income taxes 1,398 1,718 1,720 1,694
Net income $ 3,410 $ 3,891 $ 3,651 $ 2,965
Per share:
Basic earnings $ 0.61 $ 0.69 $ 0.65 $ 0.53
Dividends $ 0.23 $ 0.23 $ 0.28 $ 0.40
Weighted average shares outstanding 5,590 5,639
5,617 5,594
</TABLE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and
Financial Disclosure
None.
18
<PAGE>
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 1998 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 6, 7, and 8 of the Proxy
Statement
relating to the 1998 Annual Meeting of Stockholders and is
incorporated
herein by reference.
Item 11. Executive Compensation
The required information concerning management remuneration
has been
omitted in accordance with General Instruction G. Such
information appearing
on pages 7, 8, 9, and 10 of the Proxy Statement relating to
the 1998 Annual
Meeting of Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
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 page 6 of the Proxy
Statement relating to
the 1998 Annual Meeting of Stockholders is incorporated
herein by reference.
Item 13. Certain Relationships and Related Transactions
The required information concerning certain relationships
and related
transactions have been omitted in accordance with General
Instruction G.
Such information appearing on pages 5 and 6 of the Proxy
Statement relating
to the 1998 Annual Meeting of Stockholders is incorporated
herein by reference.
Part IV
Item 14. 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
30, 1998 are
incorporated by reference to pages 26 through 50
of the 1997 Annual Report which is 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
Consolidated Financial Statements.
(b) A report on Form 8-K regarding the Company's
merger with the
new Nevada corporation to change its state
of domicile and its corporate name was filed
on November 3,
1997 and incorporated by reference to Form
10-Q for the period ending September 30,
1997.
19
<PAGE>
(c) Exhibits:
(3) Articles of Incorporation and Bylaws
The Registrant's Articles of Incorporation and
By-laws are included
as exhibits (3)(i) and (3)(ii), respectively.
(11) Statement Regarding Computation of Per Share
Earnings
The statement regarding computation of per share
earnings is
included as Note 10 of the Notes to Consolidated
Financial Statements in the 1997 Annual Report
to Stockholders
and is incorporated herein by reference.
(13) Annual Report to Security Holders
(21) Subsidiaries of Registrant:
First Community Bank, Inc. ( a West Virginia
Corporation)
First Community Bank of Mercer County, Inc. ( a West
Virginia Corporation)
First Community Bank of Southwest Virginia, Inc. ( a
Virginia Corporation)
Blue Ridge Bank, Inc. (a North Carolina
Corporation)
(23) Independent Auditors' Consent
20
<PAGE>
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/
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/
Principal Accounting Officer
<TABLE>
<CAPTION>
<S> <C> <C>
Signature
Title
Date
/s/________________________________ Director
3/31/98
(Sam Clark)
/s/________________________________ Director
3/31/98
(Allen T. Hamner)
/s/ _______________________________
President, Chief Executive Officer
3/31/98
(James L. Harrison, Sr.) and Director (Principal Executive
Officer)
/s/________________________________ Director
3/31/98
(B.W. Harvey)
/s/________________________________ Director
3/31/98
(I. Norris Kantor)
/s/________________________________ Vice
President, Chief Financial
3/31/98
(John M. Mendez) Officer and Director
(Principal
Financial Officer)
/s/________________________________ Director
3/31/98
(A. A. Modena)
/s/________________________________ Director
3/31/98
(Robert E. Perkinson, Jr.)
/s/________________________________ Chairman
of the Board and Director
3/31/98
(William P. Stafford)
/s/________________________________ Director
3/31/98
(William P. Stafford, II)
/s/________________________________ Director
3/31/98
(W. W. Tinder, Jr.)
/s/________________________________ Director
3/31/98
(Harold M. Wood)
21
<PAGE>
Exhibit 3i.
ARTICLES
OF
INCORPORATION
OF
FIRST COMMUNITY BANCSHARES, INC.
FIRST: The name of this corporation is First Community
Bancshares, Inc.
SECOND: The registered agent for the corporation is CSC
Services of Nevada,
Inc. , whose street address and mailing address are 502 East
John Street,
Carson City, NV 89706.
THIRD: The purpose or purposes for which this corporation
is organized are
as follows:
To own, buy, acquire, sell, exchange, assign, lease and deal
in and with real
and personal property and any interest or right therein;
To own, buy, acquire, sell, exchange, assign,
pledge and deal with voting
stock, non-voting stock, notes, bonds, evidences
of indebtedness and rights
and options in and to other corporate and non-
corporate entities, and to pay
therefor in whole or in part in cash or by
exchanging therefor stocks, bonds,
or other evidences of indebtedness or securities
of this or any other
corporation, and while the owner or holder of any
such stocks, bonds,
debentures, notes, evidences of indebtedness or
other securities, contracts,
or obligations, to receive, collect, and dispose
of the interest, dividends
and income arising from such property, and to
possess and exercise in respect
thereof, all the rights, powers and privileges of
ownership, including all
voting powers on any stocks so owned.
To borrower money without limit as to amount; and
To engage in any lawful act or activity for which
corporations may be
organized under the laws of the State of Nevada.
FOURTH: The total number of shares of stock which the
corporation shall have
authority to issue is Ten Million (10,000,000) shares of
Common Stock, all of
a par value of One Dollar ($1.00) each, and One Million
(1,000,000) shares of
<PAGE>
preferred stock, whose par or face value, voting powers, designations,
preferences, interest rate, limitations, restrictions and relative
rights shall
be determined from time to time by resolution of the Board of
Directors of
the corporation.
FIFTH: The name and post office address of the incorporator is as
follows:
NAME POST OFFICE ADDRESS
Eugene E. Derryberry P.O. Box 40013
Roanoke, VA 24038
SIXTH: The members of the corporation's governing board shall be
styled as directors. The initial directors of the
corporation shall consist
of 12 persons, divided into the aforesaid classes as follows:
Class A
Allen T. Hamner 3 Lincoln Way
Buckhannon, WV 26201
B.W. Harvey c/o Acme Markets
P.O. Box 1457
Bluefield, WV 24701
John M. Mendez #6 Sandrine Pointe
Princeton, WV 24740
Harold Wood Box 97
Flat Top, WV 25841
Class B
Sam Clark State Farm Insurance
Box 700
Oceana, WV 24870
Robert E. Perkinson, Jr. MAPCO Coal, Inc.
P.O. Box 1349
Bluefield, VA 24605
William P. Stafford Princeton Machinery Service
HC 71, Box 6
Princeton, WV 24740
W.W. Tinder, Jr. Tinder Enterprises
P.O. Box 980
Bluefield, WV 24701
<PAGE>
Class C
James L. Harrison, Sr. P.O. Box 5462
Princeton, WV 24740
I. Norris Kantor Katz, Kantor &
Perkins
P.O. Box 727
Bluefield, WV 24701
A.A. Modena 4 Windsor Circle
Drive
Bluefield, VA 24605
William P. Stafford, II Brewster, Morhous &
Cameron
P.O. Box 529
Bluefield, WV 24701
The number of directors of the corporation, not
less than 12, shall be fixed
in accordance with the Bylaws. Directors shall be
divided into three classes
(A, B and C). The initial term of office for
directors in Classes A, B and
C shall expire at the Annual Meeting of
Stockholders in 1998, 1999 and 2000,
respectively. At each Annual Meeting of
Stockholders, directors for the class
whose term then expires shall be elected for a
term of office to expire at
the third succeeding Annual Meeting of
Stockholders after election, and
shall
continue to hold office until their respective
successors are elected and
qualify. In the event of any increase or decrease
in the number of directors
fixed by the Bylaws, all classes of directors
shall be increased or decreased
as equally as possible. No person who has
attained the age of 70 years shall
be elected or appointed as a director of this
corporation; provided, however,
that every person, otherwise eligible, who was
serving as a director of the
corporation on December 31, 1990, shall continue
to be eligible for
re-election as a director of the corporation
regardless of age.
All vacancies on the Board of Directors, including
those resulting from an
increase in the authorized number of directors,
shall be filled by the
affirmative vote of a majority of the directors
then in office, whether or not
a quorum. Each director so chosen shall hold
office until the expiration
of the term of the class to which his position has
been assigned. No decrease
in the number of directors constituting the Board
of Directors shall shorten
the term of any incumbent director. No director
may be removed from office
except for cause relating to the proper
performance of this duties as a
director and then only by the affirmative vote of
the holders of more than
two-thirds of the stock of the
<PAGE>
corporation then outstanding and entitled to vote thereon
(without voting by
class) at a meeting duly called for that purpose.
The affirmative vote of the holders of more than
twothirds of the stock of
the corporation then outstanding and entitled to
vote thereon (without
voting
by class) shall be required to amend or repeal
this Article or adopt any
provision inconsistent herewith.
SEVENTH:
Section 1. The corporation shall not be governed
by the provisions of
Nevada
Revised Statutes 78.411 to 78.444, inclusive. The
provisions of this
Article
shall govern in lieu thereof. For the purposes of
this Article:
(A) The Term "Business Combination" means any of
the following
transactions:
(I) Any merger or consolidation of the
corporation or any
Subsidiary with
or into any Interested Stockholder, or
(ii) Any sale, lease, exchange, transfer, or
other disposition (in one
transaction or a series of related
transactions) to or with any
Interested Stockholder of any assets of
the corporation or
any
Subsidiary when such assets have an
aggregate fair market
value
of $5,000,000 or more; or
(iii) The issuance or transfer to any
Interested Stockholder by the
corporation or any Subsidiary (in one
transaction or a series of
transactions) of any equity securities of the
corporation or any
Subsidiary
where any such equity securities have -an
aggregate fair market
value of
$5,000,000 or more; or
(iv) The adoption of any plan or proposal
for the liquidation or
dissolution
of the corporation; or
(v) Any agreement, contract, or other
arrangement providing for
any of
the transactions described in this
definition of a Business
Combination".
(B) A "Person" means any individual, firm,
corporation, or other entity.
<PAGE>
(C) "Interested Stockholder" means (i) any person (other
than the
corporation, a Subsidiary of the corporation, or any profit-
sharing, employee
stock ownership or employee benefit plan of the corporation
or a Subsidiary of
the corporation, or any trustee of a fiduciary with respect
to any such plan
acting in such capacity) that is the direct or indirect
beneficial owner (as
defined in Rule 13d-3 and Rule 13d-5 under the Securities
Exchange Act of
1934 (111934 Act") as in effect on January 1, 1990) of 15
percent (15%)
or more of the outstanding capital stock of the corporation
entitled to vote
for the Election of Directors, and (ii) any Affiliate or
Associate of any
such person, includingany corporation which after the
transaction in question would be an Interested Stockholder.
(D) "Affiliate,, and "Associate" shall have the respective
meanings given
those terms in Rule 12b-2 of the General Rules and
Regulations under the
1934 Act, as in effect on January 1, 1990.
(E) "Subsidiary" means any business entity, fifty percent
(50%) or more of
which is directly or indirectly owned by the corporation.
(F)"Continuing Director" means any member of the Board of
Directors of the
corporation who is neither an Interested Stockholder nor
affiliated with,
proposed or nominated by, or controlled by an Interested
Stockholder.
Section 2. If the provisions of Section 3 of this Article
have not been
satisfied, any Business Combination shall require the
affirmative vote, in
person or by proxy, of the holders of more than eight-five
percent (85%) of
the stock, or the maximum allowed by law, if less, of the
corporation then
outstanding and entitled to vote (without voting by class).
Such affirmative
vote shall be required notwithstanding the fact that no
vote may be required,
or that some lesser percentage may be specified, by law or
in any agreement
of the corporation with any national securities exchange or
otherwise.
Section 3. Any Business Combination shall require only such
affirmative vote
by the holders of all classes of the capital stock of the
corporation
("Holders") as is required by applicable law and any other
provision of the
Certificate of Incorporation of the corporation,
<PAGE>
exclusive of Section 2 of this Article, if the conditions
of either
Subparagraph (A) or (B) are met;
(A) The Business Combination has been approved by a vote
of a majority of all
the directors, and by a vote of a majority of all the
Continuing Directors; or
(B) All of the following conditions have been satisfied:
(1) The Holders shall receive an aggregate amount of (i)
cash and (ii) fair
market value (as of the date of the consummation of the
Business Combination)
of consideration other than cash, at least equal to the
greater of (i) the
highest per share price (including any brokerage
commissions, transfer taxes,
and fees) paid by the Interested Stockholder for any shares
of such class or
series of stock acquired by the Interested Stockholder, or
(ii) in the case
of preferred stock, the highest preferential amount per
share applicable to
such stock; and
(2) The consideration to be received by Holders of any
class or series of
outstanding common or preferred stock shall be in cash or
in the same form
as the Interested Stockholder has previously paid for
shares of such class
or series of stock. If the Interested Stockholder has paid
for shares of any
class or series of stock with varying forms of
consideration, the form of
consideration given for such class or series of stock in
the Business
Combination shall be either cash or the form used to
acquire the largest
number of shares of such class or series of stock
previously acquired by the
Interested Stockholder; and
(3) A proxy statement complying with the requirements of
the 1934 Act and
the rules and regulations thereunder (or any subsequent
provisions replacing
the 1934 Act and such rules and regulations) shall be
mailed to the
stockholders of the corporation at least 30 days prior to
the holding of any
meeting of stockholders of the corporation to vote upon the
Business
Combination (whether or not such proxy or information
statement is required
<PAGE>
pursuant to the 1934 Act or any subsequent provisions)
which shall contain
in the forepart thereof in a prominent place any
recommendations as to the
advisability (or inadvisability) of the Business
Combination which the
Continuing Directors may choose to state and, if deemed
advisable by a majority
of the Continuing Directors, an opinion of a reputable
investment banking firm
as to the fairness (or lack of fairness) of the terms of
such Business
Combination from the point of view of the Holders of any
class of voting
stock of the corporation other than the Interested
Stockholder (such
investment banking firm to be selected by a majority of the
Continuing
Directors, to be furnished with all information it
reasonably requests, and to
be paid by the corporation a reasonable fee for its
services upon receipt by
the corporation of such opinion).
Section 4. A majority of the Continuing Directors shall
have the power to
make all determinations with respect to this Article
including without
limitation determining the transactions that are Business
Combinations, the
persons who are Interested Stockholders, the time at which
an Interested
Stockholder became an Interested Stockholder, the fair
market value of any
assets, securities, or other property, and whether a person
is an Affiliate or
Associate of another; and any such determinations of such
Continuing Directors
shall be conclusive and binding.
Section 5. Nothing contained in this Article shall be
construed to relieve
any Interested Stockholder from any fiduciary obligation
imposed by law.
Section 6. Notwithstanding any other provisions of the
Certificate of
Incorporation or of the Bylaws of the corporation (and in
addition to any
other vote that may be required by law or of the Bylaws of
the corporation),
the affirmative vote of the Holders or more than 85% of the
stock of the
corporation then outstanding and entitled to vote (without
voting by class)
shall be required in order to amend or repeal this Article
or adopt any
provision inconsistent herewith.
EIGHTH: (a) The corporation shall indemnify any person who
was or is a
party or is threatened to be made a party to any
threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative
or investigative (other than an action by or in the right
of
<PAGE>
the corporation) by reason of the fact that he is or was a
director, officer,
employee or agent of the corporation, or is or was serving
at the request
of the corporation as a director, officer, employee or
agent of another
corporation, partnership, joint venture, trust or other
enterprise, against
expenses (including attorneys, fees), judgments, fines and
amounts paid in
settlement actually and reasonably incurred by him in
connection with such
action, suit or proceeding if he acted in good faith and in
a manner he
reasonably believed to be in or not opposed to be the best
interests of the
corporation, and, with respect to any criminal action or
proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) The corporation shall indemnify any person who was or
is a party or is
threatened to be made a party to any threatened, pending or
completed action
or suit by or in the right of the corporation to procure a
judgment in its
favor by reason of the fact that he is or was a director,
officer, employee
or agent of the corporation, or is or was serving at the
request of the
corporation as a director, officer, employee or agent of
another corporation,
partnership, joint venture, trust or other enterprise
against expenses
(including amounts paid in settlement and attorneys' fees)
actually and
reasonably incurred by him in connection with the defense
or settlement of
such action or suit if he acted in good faith and in a
manner he reasonably
believed to be in or not opposed to the best interests of
the corporation,
except that no indemnification shall be made in respect of
any claim, issue
or matter as to which such person shall have been finally
adjudged to be
liable to the corporation unless and only to the extent
that an appropriate
court shall determine upon application that, despite the
adjudication of
liability but in view of all the circumstances of the case,
such person is
fairly and reasonably entitled to indemnify for such
expenses as the court
shall deem proper.
(c) Any indemnification under subsections (a) and (b) of
this Article (unless
ordered by the court) shall be made by the corporation only
as authorized in
the specific case upon a determination that indemnification
of the director,
officer, employee or agent is proper in the circumstances
because he has
met the applicable standard of conduct set forth in
subsections (a) and
(b) of this Article. Such determination shall be made (1)
by the Board of
Directors by a majority vote of a quorum constituting of
directors who were
not parties to such action, suit or proceeding, or (2) if
such a quorum is
<PAGE>
not obtainable, or, even if obtainable a quorum of
disinterested Directors
so directs, by independent legal counsel in a written
opinion, or (3) by the
stockholders.
(d) Expenses incurred by an officer or director in
defending a civil or
criminal action, suit or proceeding shall be paid by the
corporation as
incurred and in advance of the final disposition of such
action, suit or
proceeding upon receipt of an undertaking by or on behalf
of such director
or officer to repay such amount if it shall ultimately be
determined by a
court of competent jurisdiction that he is not entitled to
be indemnified by
the corporation as authorized in this section. Such
expense incurred by
other employees and agents may be so paid upon such terms
and conditions,
if any, as the Board of Directors deems appropriate.
(e) The corporation may (but need not) purchase and
maintain insurance on
behalf of any personal who is or was a director, officer,
employee or agent of
the corporation, or is or was serving at the request of the
corporation as a
director, officer, employee or agent of another
corporation, partnership,
joint venture, trust or other enterprise against any
liability asserted against
him or expenses incurred by him in any such capacity, or
arising out of
this status as such, whether or not the corporation would
have the power
to indemnify him against such liability under this section.
(f) No director of the corporation shall be liable to the
corporation or
its stockholders for monetary damages for breach of
fiduciary duty as a
director, provided that such provision shall not eliminate
or limit the
liability of a director; (i) for any breach of the
director's duty of loyalty
to the corporation or its stockholders; (ii) for acts or
omissions which
involve intentional misconduct, fraud or a knowing
violation of law; (iii) for
the payment of any distribution in violation of Nevada
Revised Statute 78.300;
or (iv) for any transaction from which the director derived
an improper
personal benefit.
Date: July 24, 1997
Eugene E. Derryberry
Incorporator
<PAGE>
Commonwealth of Virginia )
City of Roanoke)
Subscribed and sworn to before me in my jurisdiction
aforesaid this 25th day
of July, 1997.
/s/ Leigh S. Holland
Notary Public
my commission expires: 9-30-98
<PAGE>
Exhibit 3ii.
BYLAWS OF
FIRST COMMUNITY BANCSHARES, INC.
1. Annual Meeting of Stockholders.
The regular Annual Meeting of the Stockholders of the
Corporation for the
election of directors and the conducting of such other
business as may be
appropriate shall be held during April of each year, on such
date and at such
time and place as may be fixed by the Board of Directors.
Notice of such
meeting, stating the purpose thereof, shall be mailed to all
stockholders not
less than ten (10) days nor more than sixty (60) days prior
to the date
thereof.
The stockholders shall meet annually on the day
appointed and shall elect a
Chairman and Secretary of the meeting. The Chairman,
Chief Executive Officer
or other Executive Officers of the Holding Corporation
shall then submit to the
stockholders a clear and concise statement of the
financial condition of the
Corporation for the preceding year and a review of the
business of the
Corporation.
A record of the Stockholders, Meeting, giving the number of
shares represented
by proxy and in person, shall be made and entered in the
records of the
meeting in the minute book of the Corporation. The
stockholders shall proceed
to the election of directors and to the transaction of any
other business that
may properly come before the meeting as prescribed by Nevada
law. The
record of the meeting shall show the number of shares voting
for, voting
against or abstaining on each resolution, or voting for,
voting against, or
withholding authority on each candidate for director.
Proxies shall be dated,
and shall be filed with the records of the meeting.
Any nominations to the Board of Directors other than
those made by or on
behalf of the existing management of the Corporation
shall be made in
writing and shall be delivered or mailed to the
Secretary of the Corporation
not less than thirty (30) days prior to any meeting of
the stockholders
calling for the election of directors, provided,
however, that if less than
thirty (30) days notice of the meeting is given to
stockholders, such notice
of nomination shall be mailed or delivered to the
Secretary of the
Corporation no later than the close of business on the
seventh day following
the day on which the notice of the meeting was mailed.
The Chairman of
the meeting may disregard nominations not made in
accordance herewith, and
direct the vote tellers to disregard all votes cast for
such nominee.
<PAGE>
The Chairman of the meeting shall notify the directors of
their election, and
the directors shall immediately following the regular Annual
Meeting of the
Stockholders organize and elect the officers for the current
year.
A majority of the shares entitled to vote, represented
in person or by proxy,
shall constitute a quorum at meetings of the
stockholders.
At each election for directors every stockholder
entitled to vote at such
election shall have one vote for each share of stock
held.
The directors so elected shall serve pursuant to the
provisions of Article
Sixth of the Articles of Incorporation or until their
successors are elected
and qualify, subject to the further provisions of these
Bylaws.
Special meetings of the stockholders may be held at any
time on call of the
Board of Directors. Notice of such meeting, stating the
purpose or purposes,
shall be given to all stockholder by mail to their last
known address, mailed
not less than ten (10) days nor more than sixty (60)
days prior to such
meeting unless otherwise required by law.
If for any cause the annual election of directors is not
held pursuant to
these Bylaws, the directors in office shall order an
election to be held on
some other day, of which special notice shall be given
in accordance with
the requirements of law, and the meeting conducted
according to the provisions
of Section 1 of these Bylaws.
The proceedings of all regular and special meetings of
the Board of Directors
and of the stockholders and reports of the committees or
directors, shall be
recorded in the minute book; and the minutes of each
meeting shall be signed
by the Chairman or the President and attested by the
Secretary of the
Corporation.
2. Directors.
The members of the Board of Directors shall be stockholders,
and every such
director shall own in his own right shares of stock of the
Corporation of the
aggregate par value of not less than One Hundred Dollars
($100.00). The
initial Board of Directors shall consist of twelve (12)
directors, classified
in accordance with the Articles of Incorporation; and
thereafter the number
of directors of the Corporation shall be not less than 12
and not more than
20, as shall be fixed from time-to-time by resolution of the
Board of
Directors. Directors shall serve until their successors
shall have been
elected and qualified in conformity with the provisions of
<PAGE>
Article Sixth of the Articles of Incorporation and the
provisions of these
Bylaws.
All vacancies on the Board of Directors, including those
resulting from an
increase in the authorized number of directors, shall be
filled by the
affirmative vote of a majority of the directors then in
office, whether or not
a quorum. Each director so chosen shall hold office until
the expiration of
the term of the director, if any, whom he or she has been
chosen to succeed,
or if none, until the expiration of the term assigned. No
decrease in the
number of directors constituting the Board of Directors
shall shorten the term
of any incumbent director.
Directors shall hold regular meetings and shall meet at
least once each
quarter. The Board of Directors shall have the power to
do, or cause to be
done, all things that are proper to be done by the
Corporation. The directors
shall be authorized to appoint a director in lieu of the
President to serve
as Chairman of the Board, shall define the duties of the
Chief Executive
Officer of the Corporation, fix the compensation of such
officer and may
employ and dismiss any officer of the Corporation.
A majority of the Board of Directors shall be necessary
to constitute a quorum
for the transaction of business, except that those
present may adjourn until
a quorum is obtained and except as otherwise provided by
these Bylaws and by
law.
Special meetings of the directors may be called by the
Chairman of the Board,
by the President or by any four directors.
3. Officers.
The officers of the Corporation shall be a Chairman of the
Board, President
and Chief Executive Officer, one or more Executive Vice
Presidents, Senior
Vice Presidents, Vice Presidents, Secretary, and such other
officers,
including Assistant Vice Presidents, as may be from time to
time required for
the prompt and orderly transaction of its business, to be
elected or appointed
by the Board of Directors, by whom their several duties
shall be prescribed.
At the option of the Board of Directors, any combination of
the foregoing
offices may be held by the same person.
The Chairman of the Board and the President shall be
directors. They shall
hold office for the current year for which the Board of
Directors was elected,
unless either shall resign, become disqualified, or be
removed. Any vacancy
occurring in the office of the Chairman or the President
shall be filled by
the Board of Directors. All other officers shall be
appointed by the Board
of Directors to hold their respective offices at the
will and pleasure of the
Board of Directors.
<PAGE>
The appropriate executive and subordinate officers of the
Corporation shall be
responsible for any such sums of money, property and
valuables of every
description which may be entrusted to their care or which
may from time to
time come into their care by virtue of their respective
offices and shall give
such bond as shall be required by law and by the Board of
Directors, in
principal amount and with security to be approved by the
Board of Directors,
conditioned on the faithful discharge of their respective
duties and their
faithful and honest application and accounting for all sums
of money and
other property that may come into their care.
In the absence of the President and Chief Executive
Officer, the Executive
Vice President, or in his or her absence, a Senior Vice
President shall
perform all acts and duties pertinent to the offices of
the President and
Chief Executive Officer, except such acts and duties as
the President and
Chief Executive Officer only are authorized by law to
perform.
There shall be appointed a Secretary of the Corporation,
who shall be
responsible for the minute book of the Corporation, in
which shall be
maintained and preserved the Articles of Incorporation,
the Bylaws, the
returns of elections, the proceedings of regular and
special meetings of the
Board of Directors, of the stockholders and of all
committees established by
the Board of Directors.
4. Seal.
The following is an impression of the seal adopted by the
Board of Directors
of the Corporation:
5. Conveyance of Real Estate.
All transfers and conveyances of real estate shall be made
by the Corporation
pursuant to resolution of the Board of Directors and shall
be signed by the
President, Chief Executive Officer, Vice President or such
other officer as
may be hereafter authorized.
6. Executive Committee.
The Board may appoint an Executive Committee consisting of
the Chairman of
the Board, the President, the Chief Executive Officer and
such other members
of the Board of Directors as shall be appointed, which
committee shall have
full power and authority to
<PAGE>
do or cause to be done all things which may be done by the
Board of Directors,
except as otherwise prohibited by law. The proceedings of
such committee
shall be signed by the Chairman or the President, and
recorded in the minute
book of the Corporation.
7. Other Committees.
The Board of Directors may establish from time to time such
other committees
from its members, or otherwise, as are deemed appropriate
for the operation
and performance of its duties and responsibilities.
Committees shall be
formed by proper resolutions of the Board of Directors
setting forth the
duties, responsibilities and operations of such committees.
The resolutions
of the Board of Directors shall set forth the manner in
which the committees
are to be formed, the number of persons constituting the
committee and such
other matters as are deemed proper by the Board of
Directors.
The Audit Committee shall consist of three members of
the Board of Directors
who are not employees of the Corporation, who shall be
appointed by and serve
at the pleasure of the Board of Directors. The Audit
Committee shall meet
with the Corporation's independent auditors at least
annually and shall be
responsible for reviewing the financial records and
reports of the Corporation
and its subsidiaries, and reporting to the Board of
Directors thereon.
All committees established by the Board of Directors may
by proper authority
of the Board of Directors be permitted to employ
personnel to assist in the
performance of its duties, and the members of the
committee may have
compensation fixed for them by the Board of Directors.
8. Transfer of Stock.
The stock of this Corporation shall be assignable and
transferable only on the
books of the Corporation, subject to the provisions of the
laws of the State
of Nevada. A transfer book shall be maintained in which all
assignments and
transfers of stock shall be recorded.
Transfers of stock need not be suspended for the
declaration of dividends
in cash or stock, nor in case of a new stock issue. In
all cases stock of the
stockholder of record as of the date fixed by the Board
of Directors shall be
entitled to such dividends, and the right, if any, to
subscribe to a new issue.
Certificates of stock shall be signed by such officers
as designated by the
Board of Directors by resolution. The certificates
shall state upon the face
thereof, that the stock is transferable only upon the
books of the Corporation
and when stock is transferred, the certificates thereof
shall be returned to
the
<PAGE>
Corporation, cancelled, preserved and new certificates
issued. No
certificates for fractional shares shall be issued.
9. Checks and Drafts.
All checks and drafts of the Corporation shall be signed by
an officer or
officers of the Corporation designated by the Board of
Directors.
10. Amendment of Bylaws.
These Bylaws may be amended at any time by vote of a
majority of the Board
of Directors at a meeting called for that purpose upon
notice thereof given
in the call for the meeting.
The attached Bylaws were approved at a regular
meeting of the Board of
Directors of First Community Bancshares, Inc. held
on the day
of , 1997.
ATTEST:
Secretary
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-72616 on Form S-8 and 333-2996 on Form S-4 of First Community Bancshares,
Inc. of our report dated January 30, 1998, incorporated by reference in this
Annual Report on Form 10-K of First Community Bancshares, Inc. for the year
ended December 31, 1997.
Deloitte & Touche
Pittsburgh, PA
March 31, 1998
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 34,617
<INT-BEARING-DEPOSITS> 145
<FED-FUNDS-SOLD> 12,406
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 161,795
<INVESTMENTS-CARRYING> 109,174
<INVESTMENTS-MARKET> 112,263
<LOANS> 671,817
<ALLOWANCE> 11,406
<TOTAL-ASSETS> 1,042,349
<DEPOSITS> 853,507
<SHORT-TERM> 55,056
<LIABILITIES-OTHER> 11,455
<LONG-TERM> 24,444
0
0
<COMMON> 5,756
<OTHER-SE> 92,131
<TOTAL-LIABILITIES-AND-EQUITY> 1,042,349
<INTEREST-LOAN> 59,753
<INTEREST-INVEST> 15,088
<INTEREST-OTHER> 993
<INTEREST-TOTAL> 75,834
<INTEREST-DEPOSIT> 28,773
<INTEREST-EXPENSE> 32,890
<INTEREST-INCOME-NET> 42,944
<LOAN-LOSSES> 4,963
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 24,672
<INCOME-PRETAX> 21,970
<INCOME-PRE-EXTRAORDINARY> 21,970
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,094
<EPS-PRIMARY> 2.67
<EPS-DILUTED> 2.67
<YIELD-ACTUAL> 5.25
<LOANS-NON> 9,988
<LOANS-PAST> 4,391
<LOANS-TROUBLED> 534
<LOANS-PROBLEM> 14,379
<ALLOWANCE-OPEN> 8,987
<CHARGE-OFFS> 5,198
<RECOVERIES> 673
<ALLOWANCE-CLOSE> 11,406
<ALLOWANCE-DOMESTIC> 9,593
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,813
</TABLE>
Financial highlights
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Percent and Per Share Data)
Earnings and Dividends
<S> <C> <C>
1997 1996 1995
Net income $15,094 $13,917 $12,789
Basic earnings per share 2.67 2.48 2.28
Cash dividends per share 1.30 1.14 .99
Return on average equity 16.05% 16.26% 16.77%
Return on average assets 1.59% 1.73% 1.70%
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data At Year-End
<S> <C> <C> <C>
1997 1996 1995
Total assets $1,042,349 $837,642 $780,280
Earning assets 955,337 775,244 723,616
Deposits 853,507 643,497 622,723
Securities sold under agreements to repurchase52,351 53,031 50,205
Stockholders' equity 97,887 89,303 80,438
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Message to Stockholders 3
Management's Discussion and Analysis 12
Consolidated Financial Statements 25
Board of Directors 52
</TABLE>
<PAGE>
Message to Stockholders
TO OUR STOCKHOLDERS:
Record setting earnings, exciting increases in
stockholder value, significant
growth in total resources and equity, and a change of
identity highlight 1997.
Your Board of Directors, management and members of
the staff proudly present
to you this report on the performance of First
Community Bancshares, Inc. for
1997, and a review of other activities of your
Company during the year.
Effective September 30, 1997, the name of your
Company was changed to First
Community Bancshares, Inc. to mirror the identity of
our banks in West
Virginia and Virginia.
Concurrent with the September 30th name change, we
completed the change of
corporate domicile from Delaware to Nevada. While
FCFT has served us well and
represented the coming together of two of southern
West Virginia's premier
banks, use of a unified identity for your Company and
its member banks in the
future is not only much more effective but it is also
more cost efficient.
The strong performance of your Company in 1997 is
reflected best by the
significant increase in the market value of your
stock which ended the year at
an average of bid and ask prices of $38.06 per share.
On March 31, 1997, we
enjoyed a five-for-four stock split in the form of a
25% stock dividend;
therefore, all per share data of previous periods
referred to herein has been
adjust-
<PAGE>
ed accordingly. First Community's year-end stock
price represents a multiple
on earnings of 14.3X and 220% of year-end book value
compared with 11.1X
earnings and 175% of book value reported at the end
of 1996. Dividends of
$1.30 per share for 1997 represent a cash yield on
beginning market value
of 4.7%, substantially in line with many other
financial instruments which,
unlike our stock, do not possess potential for
future appreciation. This
potential was strongly recognized in 1997 as the
market value of your stock
increased 37.9% over year-end 1996. which. when
combined with 1997's
dividends, provided a total return to shareholders
of 42.6%.
Record earnings for 1997 of $15.094 million represent
an 8.46% increase over
the $13.917 million reported for 1996. It is our
belief that net income
performance is not only an evaluation of how well
your Company performed
during the past year, but also a strong indication of
its future potential.
Net income performance may be expressed better as
earnings per share which
were $2.67 in
<PAGE>
1997 as compared with $2.48 in 1996, a 7.66% increase.
Dividends per share
also grew in 1997, increasing 14.04% to $1.30 compared
with $1.14 paid in
1996. Since our Company's inception in 1990, net
income has more than
tripled representing an average increase of 28.68% per
year. Strong net
income performance enhances shareholder value through
increases in
book value and dividends, providing the Company with
the resiliency need-
ed to respond to economic downturns and the resources
needed to sup-
port new activities and projects which are required
for maintaining excel-
lence in the banking industry today.
The ability to use capital and assets to produce net
income is indicated
by Return on Average Equity and Return on Average
Assets. Return on
Average Equity, which is generally thought of as a
measure of the stewardship
of your investment in the Company, decreased slightly
to 16.05% from
16.26% in 1996, marking the fourth consecutive year in
which Return on
Equity exceeded 16% and continuing our leadership role
amongst similarly-sized
bank holding companies in West Virginia. Our capacity
to produce earnings
per share and dividends has exceeded our plan but not
as greatly as has our
accumulation of equity, which results in lower returns
on equity but greater
capital strength. Return on Average Assets, which
measures the effective
use of assets to produce net income, decreased to
1.59% from 1.73% reported
in 1996. Decreases in Return on
<PAGE>
Average Assets were planned as a result of significant
growth through
acquisitions completed in 1997 and should continue to
decline somewhat in 1998
as we fully integrate these new locations into the
Company.
Total resources of First Community increased 24.4%,
surpassing the $1 billion
threshold and setting a new record of $1.04 billion
at the end of 1997. As
significant as the growth in total resources was the
22.7% increase in total
outstanding loans to $672 million compared with $548
million reported at the
end of 1996. With the growth in loans however, came
a disappointing increase
in non-performing loans which ended 1997 at $14.4
million or 2.17% of total
loans and other real estate owned. One relationship
of approximately $4.8
million, or 33.3% of this total, was converted to non-
accrual status in the
fourth quarter of 1997 as the contract for the
customer's main line of
production was not renewed, causing cash flow to be
inadequate to service
the debt. This problem asset is expected to be
resolved in the second quarter
of 1998 and a special provision for loan losses of
$1.5 million recorded in
December should provide adequate reserves to absorb
losses incurred in
liquidation of the related collateral.
Our Trust and Financial Services Division, with total
resources of $466
<PAGE>
million at cost and market value of $655 million,
provides quality trust
services to customers throughout our service regions,
adding value to many
existing banking relationships and creating avenues
for obtaining new
relationships. Included in these services are agency
accounts, trusts, estate
management and settlement, as well as custodial
services. The Trust and
Financial Services Division allows us to provide a
more complete range of
financial services for customers whose needs exceed
what is offered by
many of our peer institutions.
During 1997, our focus on improving the quality of
customer service
increased in both dimension and intensity, from the
manner in
which a telephone is answered to the speed with which
we are
able to respond to a loan request. Programs of
customer surveys, focus
groups, professional shops and service sensitivity
training are all receiving
increased emphasis.
Other initiatives are in place for 1998 and beyond to
ensure that our
customers receive the best financial services offered
today. Quality service
is critical to our success in the future.
On April 9,1997, your Company's affiliation with Blue
Ridge Bank of Sparta,
North Carolina, was completed extending First
<PAGE>
Community into its third state and enhancing the
geographic diversity of
your
Company. Blue Ridge is a $125 million bank with
offices in Sparta, Elkin,
Hays, and Taylorsville, North Carolina. On July
24,1997, First Community
finalized its acquisition of three branches in
Southwest Virginia with
total
deposits of approximately $45 million. Two branches,
located in Pound and
Fort Chiswell, Virginia, were purchased from Premier
Bank-Central. N.A. and
Premier Bank-South. N.A.. respectively. with the
third branch, located in
Clintwood, Virginia, being purchased from First
Virginia Banks-Mountain
Empire. In addition to the three branches purchased
in southwest Virginia,
your Company opened a branch in Wytheville, Virginia,
on August 1, 1997. This
branch serves as a neighbor to our Fort Chiswell
location, as well as a
natural link to our southern West Virginia locations.
On September 25,1997, First Community completed
its acquisition of the
Man, West Virginia branch of the Huntington National
Bank with total assets of
approximately $54 million. In addition to the Man
branch which is located
in Logan County, on October 29,1997, First Community
opened its first in-store
location in the Wal-Mart Supercenter in Logan, West
Virginia. This location
is referred to as a banking sales center because of
the aggressive sales
approach required to make an in-store location
profitable. The addition
of
10 new banking locations and one new state to our
Company in 1997 will
greatly
improve convenience for our cus-
<PAGE>
tomers and add to stockholder value in the future.
24-hour access to customer information through
telephone banking, XPress PC
Banking for both retail and commercial customers, and
check imaging highlight
the technological advancements of your Company in
1997. In April, customers
were able to obtain current balances of all deposit
and loan accounts, review
cleared checks, receive loan payment information and
transfer funds with our
24-hour access telephone banking service. In October,
we instituted the
most advanced check processing technology available
today. Check imaging
increases operational efficiency and expedites
research efforts while adding
to overall customer satisfaction by giving customers a
condensed, more
useful statement making reconcilement and storage much
easier. Some
customers began receiving these statements in February
1998 with everyone
receiving them by the second quarter of 1998.
In January 1998, customers began transacting banking
business at home via
their own personal computers. Customers can use
XPress PC Banking for
convenient on-line reconcilement or simply keep tabs
on loan and deposit
balances and transfer funds as needed. Commercial
customers can use Xpress
PC Banking to access Corporate Cash Management giving
them the ability to
accept and receive electronic
<PAGE>
payments, direct deposit their payroll and enjoy the built-in
financial tools
which help plan for and track expenses while monitoring income.
The success that your Company has enjoyed in 1997 and since its
inception is
the result of the efforts of many individuals who, working
together as a team,
share a common vision for your Company and continue moving
toward that
vision with unwavering commitment. With the pace at which
change is affecting
the banking industry, we are excited to report how positively
our employees
both accept change and then make the customer's transition as
smooth as
possible. To these individuals we owe our thanks. We also say
thank you to
the many members of the Board of Directors who continue to offer
support,
guidance and encouragement whether they serve as a member of the
Board of
Directors of the Company, one of its subsidiaries or as members
of Advisory
Boards. The names of these individuals are listed in the back
of this Annual
Report and we hope you, as stockholders of the Company, will
share with them
your appreciation for a job well done. To you, the members of
our family of
stockholders and customers, we continue to offer our
appreciation for your
support and loyalty and hope that you share in our feelings of
Corporate
pride.
<PAGE>
With the year's performance establishing new record
levels yet again, 1998
comes filled with many new challenges to be faced and
expectations to be
realized. Our role as employees is to add value to
the Company; our role as
a company is to add value to the lives of our
customers; and our role as an
investment is to add value in terms of growth and
returns for you, our owners.
We hope you share in our excitement about First
Community, its performance
and its future. Our report to you on the activities
of your Company for
1997 is most respectfully presented in the pages which
follow.
Sincerely,
James L. Harrison, Sr.
President and Chief Executive Officer
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS
<TABLE>
<S> <C>
Introduction 13
Summary Financial Results 13
Five-Year Selected Financial Data 15
Common Stock and Dividends 16
Net Interest Margin 17
Net Interest Income 17
Provision for Possible Loan Losses 17
Non-interest Income 15
Non-interest Expense 18
Income Tax Expense 19
Investment Securities 19
Securities Available for Sale 20
Loan Portfolio 20
Reserve for Possible Loan Losses 21
Non-Performing Assets 22
Deposits 23
Other Indebtedness 23
Stockholders' Equity 23
Liquidity 24
Interest Rate Sensitivity 24
Year 2000 Preparedness 24
</TABLE>
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of
Operations
Introduction
First Community Bancshares, Inc. ("the Company" or
"First Community") is a
multi-state, multi-bank holding company headquartered
in Princeton, West
Virginia. With total resources of $1.0 billion at
year-end 1997, First
Community provides financial and trust services to
individuals and commercial
customers through 33 full-service banking locations in
West Virginia,
Virginia and North Carolina.
During 1997, the Company acquired the Blue Ridge Bank,
headquartered in
Sparta, North Carolina. This transaction, which was
accounted for as a
purchase transaction, was completed on April 9, 1997,
through the exchange of
cash totaling $23.6 million for 100% of the
outstanding common stock of Blue
Ridge.
In July and September 1997, the Company acquired
additional branches in
Virginia and West Virginia which added approximately
$95 million in additional
resources. The completion of the acquisition of
Blue Ridge and the branch
acquisitions, all in 1997, resulted in significant
growth in total resources
of the Company between 1996 and 1997 and have a
material impact on the
following discussion of financial condition and
results of operations for
First Community in 1997 and in comparison with the
preceding fiscal
years.
The Company's common stock was split five shares for
four on March 31, 1997.
All share and per share data in this report have been
retroactively adjusted
to reflect this stock split.
Summary Financial Results
In fiscal 1997, the Company again achieved record
levels of financial
performance along with significant balance sheet
growth of 24% which pushed
total resources over the $1 billion level at the close
of the third quarter
1997.
Net income for 1997 of $15.1 million represents an
8.5% increase over the
corresponding period in 1996 and continues a thirteen
year trend of increases
in net income. Record earnings in 1997 produced basic
earnings per share
of $2.67, representing a 7.7% increase over the
preceding year. This
continues the positive trend in basic earnings per
share which have increased
from $2.28 in 1995 to $2.48 in 1996 and, ultimately,
to $2.67 for the current
fiscal year.
<PAGE>
The Company's key profitability ratios of Return on
Average Assets (ROA) and
Return on Average Equity (ROE) reflect the strong
earnings performance of the
Company and compare quite favorably with regional and
national peer groups.
ROA, which measures the Company's stewardship of
assets, was a strong 1.59%
and reflects a slight decrease from 1.73% in 1996 and
1.70% in 1995. The
reduction in 1997 reflects the Company's growth
through acquisitions in 1997
and the marginal earnings impact of acquisitions net
intangible amortization.
ROE was 16.05% which also compares quite favorably
with industry averages
but reflects a slight decrease from 16.26% in 1996 and
16.77% in 1995. This
decrease in ROE is principally due to the impact of
compounded earnings which
have increased stockholders' equity from $80.4 million
in 1995 to $89.3
million in 1996 and $97.9 million at the close of
1997.
1 4
<PAGE>
Five-Year Selected Financial Data
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Percent and Per Share Data)
<S> <C> <C> <C> <C> <C>
1997 1996 1995 19941993
Balance Sheet Summary
(at end of period)
Loans, net of unearned income..$ 671,817$547,703$485,151$421,189
$396,804
Reserve for possible
loan losses 11,406 8,987 8,321 8,479
9,568
Securities 270,969236,441246,578268,906
269,386
Total assets 1,042,349 837,642780,280744,713 726,438
Deposits 853,507 643,497 622,723 616,226
607,685
Long-term debt 24,330 15,000 15,000 10,000 12,000
Stockholders' Equity 97,88789,303 80,438 70,176 67,716
Summary of Earnings
Total interest income75,834 64,941 58,954 $53,723 $52,883
Total interest expense32,89026,933 23,482 19,846 20,292
Provision for possible
loan losses 4,963 2,273 2,235 1,764 1,888
Non-interest income 8,661 9,070 7,214 7,035 6,004
Non-interest expense24,672 24,358 22,694 23,238 22,681
Income tax expense 6,876 6,530 4,968 4,456 4,431
Net Income 15,094 13,917 12,789 11,454 9,595
Per Share Data
Basic Earnings $2.67 $2.48 $2.28 $2.03 $1.70
Cash dividends 1.30 1.14 .99 .84 .63
Book value at year-end17.32 15.81 14.38 12.47 11.98
Selected Ratios
Return on average e assets 1.59% 1.73% 1.70% 1.55% 1.34%
Return on average equity16.05%16.26%16.77% 16.33% 14.72%
Dividend payout 48.69% 45.97% 43.42% 41.38% 37.06%
Equity to year-end assets9.39%10.67%10.31% 9.43% 9.32%
Risk-based capital to
risk-adjusted assets11.96%17.02%17.29% 17.22% 15.59%
Leverage ratio 6.96% 10.33% 9.86% 9.49% 8.98%
</TABLE>
<PAGE>
Common Stock and Dividends
On December 31, 1997, First Community's common stock closing
price was $38.06,
an increase of 37.9% from the December 31, 1996 closing price
of $27.60.
This strong market performance follows a moderate 4.5% increase
in 1996.
The increase in the market price for the Company's common stock
in 1997
parallels overall stock rice increases for other financial
institution stocks
in the mid-atlantic and eastern regions.
Book value per common share was $17.32 at December 31, 1997,
compared with
$15.81 at December 31, 1996, and $14.38 at the close of 1995.
The year-end
market price for First Community common stock of $38.06
represents 220% of
the Company's book value as of the close of the year and
reflects total market
capitalization of $215 million. Utilizing the year-end market
price and 1997
earnings per share, First Community common stock closed the
year trading at
a price/earnings multiple of 14.3 times.
Dividends for 1997 totaled $1.30 per share and compare
favorably with
dividends in 1996 and 1995 of $1.14 and $0.99, respectively.
The 1997
dividend represents an increase of 14% in per share dividends
for the year
and resulted in a cash yield on the beginning of the year
market price of
4.7%.
<TABLE>
<CAPTION>
Market Price and Dividends
Bid Book
Value Cash Dividends
<S> <C> <C> <C> <C>
1997 High LOW Per Share Per Share
First Quarter $29.60 $27.20 $16.04 $ .28
Second Quarter 33.00 28.2516.62 .31
Third Quarter 36.13 31.75 16.98 .31
Fourth Quarter 40.00 32.75 17.32 .40
$1.30
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1996
First Quarter $27.20 $23.60 $14.70 $ .22
Second Quarter 26.40 25.60 15.02 .24
Third Quarter 25.80 24.80 15.50 .28
Fourth Quarter 28.80 25.80 15.81 .40
$1.14
</TABLE>
<PAGE>
Net Interest Margin
Net interest margin measures net interest income as a percentage
of average
earning assets. In 1997, net interest margin dropped to 5.25%
for the year
from 5.39% in 1996 and 5.38% in 1995. This decrease was due in
large part to
a 10 basis point increase in the Company's cost of funds. The
cost of funds
was adversely impacted by the addition of $11.5 million in long-
term debt
associated with the purchase of Blue Ridge Bank in April 1997.
The increase
in the cost of funds associated with acquisition indebtedness
reduced net
interest margin by approximately 8 basis points and represents a
cost of
growth through acquisition. Despite the 1997 decrease, margins
for both
1996 and 1997 represent a superior return when measured against
peer
financial institutions.
Net Interest Income
The fundamental source of the Company's earnings, net interest
income, is
defined as the difference between income on earning assets and
the cost of
funds supporting those assets. Significant categories of
earning assets are
loans and securities while deposits and short-term borrowings
represent the
major portion of interest-bearing liabilities. The level of net
interest
income is impacted primarily by variations in the volume and mix
of these
assets and liabilities, as well as changes in the level of
interest rates.
On a tax equivalent basis, net interest income increased $5.3
million or
13.1% in 1997 following a $2.6 million or 7.0% increase in 1996.
Average
earning assets increased 16.1% in 1997 and 6.8.5 in 1996. This
increase
was the primary contributor to the improving trend in net
interest income
and includes the impact of the Blue Ridge and branch
acquisitions in 1997.
Provision for Possible Loan Losses
The provision for possible loan losses represents charges
against operations
to establish reserves for possible loan losses inherent in the
Company's
loan portfolio. The level of expense, as well as the required
level of
reserves, is dependent upon a number of factors including
historical loss
ratios by loan type, assessment of specific credit weaknesses
within the
portfolio, concentrations of credit, assessment of the
prevailing economic
climate, and other factors which may affect the overall
condition of the loan
portfolio.
The provision for possible loan losses was $5.0 million in 1997,
$2.3 million
in 1996 and $2.2 million in 1995. The sharp increase in the
provision for
possible loan losses in 1997 of $2.7 million was in response to
a notable
increase in net chargeoffs in the Company's loan portfolio and
the need for
reserves to provide for possible losses associated with impaired
loans (see
reserve for possible loan losses on page 21 and non-performing
assets on
page 22).
<PAGE>
Non-interest Income
Non-interest income consists primarily of fiduciary
income on trust services
and service charges on deposit accounts. Non-interest
income totaled $8.7
million in 1997, a $400,000 decrease or 4.5% from the
$9.1 million in 1996
and a $1.4 million or 20% improvement over the 1995
totals of $7.2 million.
Total non-interest revenues from continuing sources
actually increased $1.04
million between 1996 and 1997 with this increase due
largely to the
acquisitions of Blue Ridge Bank in 1997, which
contributed another $457,000
in other revenues and new branches which added an
additional $179,000.
The overall level of noninterest income did decrease,
however, due to
significant nonrecurring revenues discussed in the
following paragraph.
Non-interest income for 1996 included a $1,450,000
curtailment gain as a
result of the Company's termination of its Defined
Benefit Pension Plan.
Also in 1996, other income totaling $295,000 was
received by the Company on
life insurance proceeds of a deceased former officer.
Net securities losses
on the sale of securities available for sale of
$128,000 were recorded during
1996 as the Company repositioned a portion of its
investment portfolio for
improved performance.
Included in non-interest income for 1995 was a
$537,000 gain on securities
sold which represented the profit on the sale of stock
of another West
Virginia bank holding company in which the company had
taken a small equity
position. Net gains (losses) from the sale of
securities were $6,000,
$(128,000) and $457,000 in i 997, 1996 and 1995,
respectively.
Service charges on deposit accounts continued to be
the largest source of
non-interest income. Service charge income totaled
3.3 million in 1997, an
increase of $313,000 or 10.5% over 1996. This
compares with a 11.8% increase
of $314,000 between 1996 and 1995. Other service
charges, commissions and
fees experienced a substantial increase in 1997 of
$696,000 or 30.5% over
1996. This compares with a 9.1 % increase in 1996 of
$190,000 over 1995
levels.
Fiduciary income in both 1997 and 1996 totaled $1.7
million, reflecting modest
increases over 1995. Slower growth in trust revenues
reflects lower levels of
fees for estate settlement. Trust assets, however,
continue to grow through
new business efforts and compound earnings of existing
accounts. Increases
in fee revenue, however, have not kept pace, due to
strong competition from
brokerage firms and other financial service providers.
Non-interest Expense
Non-interest expenses consist of salaries and
benefits, occupancy, equipment
and other overhead incurred by the Company. Non-
interest expense totaled
$24.7 million in 1997, as compared with $24.4 million
and $22.7 million in
1996 and 1995, respectively. The substantial increase
in 1996 operating
costs was entirely attributable to check collection
losses sustained by the
Company in the fourth quarter.
On November 18,1996, the Company detected a "payments
system fraud"
perpetrated by a business customer and certain of its
principals, all of whom
are long-term customers of a subsidiary of the
Company. The transaction
commonly referred to as a "kite" involved the transfer
of non-existent funds
between a subsidiary bank of the Company and a third
party bank to cover
existing overdrafts. The Company recorded the check
collection losses in
December of 1996 which totaled $3.4 million and are
reflected in non-interest
expenses as a separate item. The Company expects
partial repayment from
either the principals or their business interests.
Partial repayment in 1997
totaled $177,000 and is reflected in other operating
income.
The nominal increase in total non-interest expense
between 1996 and 1997
reflects the net effect of the check collection losses
in 1996 and the added
operating cost of Blue Ridge Bank ($3.3 million) and
new branches ($700,000)
in 1997. Partially offsetting the cost of operation
of new branches in 1997,
was the recognition of a $439,000 credit in lieu of
pension expense due to
the benefit freeze and pending termination and the
reversal of $700,000 in
litigation reserves
established in 1995 and 1996. The Company was able to
reverse the largest
portion of $1.1 million in reserves which were
established to provide for
possible losses on litigation which was ultimately
settled in the second
quarter of 1997 at a total cost of approximately
$460,000.
Salaries and employee benefits increased $1.8 million
or 18.3% when comparing
1997 with 1996 and relate almost exclusively to the
addition of Blue Ridge
and five new branches in 1997. Added personnel costs
for Blue Ridge and
new branches totaled $1.35 million and $298,000,
respectively. This increase
followed a 4.6% or $464,000 reduction between 1996 and
1995. The primary
contributors to the 1996 reduction were decreases in
pension expense as a
result of the Company's termination of its Defined
Benefit Pension Plan, a
$148,000 adjustment in deferred compensation
associated with the death of a
officer, and a $134,000 decrease in employee overtime
expense.
Occupancy expense increased a modest $83,000 or 5.2%
between 1997 and 1996
despite the acquisition of Blue Ridge and new branches
in 1997.
The $430,000 increase (35.5%) in furniture and
equipment expense in 1997
reflects not only the impact of acquisitions but also
includes depreciation
and maintenance associated with the implementation of
new check processing
technology and electronic banking services.
The Company's net overhead ratio (non-interest
expense less non-interest
income excluding security gains and non-recurring
gains divided by average
earning assets) is a measure of its ability to manage
and control costs.
As this ratio decreases, more of the net interest
income earned flows through
to net income. The net overhead ratios for 1997, 1996
and 1995 were 1.84%,
2.22% and 2.27%, respectively.
Income Tax Expense
Income tax expense totaled $6.9 million in 1997,
compared with $6.5 million
in 1996 and $5.0 million in 1995. The major
difference between the statutory
tax rate and the effective tax rate results from
income which is not taxable
for Federal income tax purposes. The primary
nontaxable income is that of
state and municipal securities and industrial revenue
bonds or loans. The
effective tax rate for 1997 was 31.3% as compared with
31.9% for 1996 and
27.8% in 1995. The 1996 increase in income tax
expense and the effective tax
rate reflects the significant increase in pre-tax
income and a decline in the
ratio of tax exempt income as a percentage of pre-tax
income.
Investment Securities
The investment portfolio totaling $109.2 million
increased $8.9 million
between 1997 and 1996. This increase is partially
attributable to the
acquisition of the Blue Ridge Bank subsidiary and the
influx of cash from
branch acquisitions.
Investment securities are comprised largely of U.S.
Agency obligations and
state and municipal securities. U.S. Agency
obligations include securities
issued by various government corporations and
agencies, including FHLB, FNMA,
SLMA, FFCB and FHLMC.
Obligations of States and Political Subdivisions
totaling $77.6 million are
comprised of high grade municipal securities generally
carrying AAA ratings,
many of which also carry credit enhancement insurance
by major insurers of
investment obligations.
The average maturity of the investment portfolio
increased from 6.47 years in
1996 to 9.08 years in 1997 with the tax equivalent
yield increasing from
7.39% at year-end 1996 to 7.87% at the close of 1997.
The increase in yield
reflects the extension of the portfolio term to
achieve higher yields. The
extended average maturity reflects the substantial
increase in longer term
municipal securities purchased in 1997.
<PAGE>
Securities Available for Sale
Securities available for sale are used as part of management's
asset/liability
strategy. These securities may be sold in response to changes in
interest
rates, changes in prepayment risk, liquidity needs and other
factors. These
securities are recorded at market value. At December 31, 1997,
the Company
had $161.8 million in securities available for sale, compared
with $136.1
million at year-end 1996. The increase in this portfolio
reflects the
investment of liquid funds received in branch acquisition
transactions during
1997.
The market value of securities available for sale exceeded book
value at
year-end 1997 by $2.1 million. The average yield earned on
securities
available for sale in 1997 was 6.99%, very near the level in
1996. The
average maturity of the portfolio was 11.8 years and 11.7 years
at December
31, 1997 and 1996, respectively.
Loan Portfolio
Loans, net of unearned income, totaled $671.8 million at
December 31, 1997,
reflecting a $124.1 million, or 22.7% increase over the 1996
year-end total
of $547.7 million. Loan portfolio growth in 1997 was lead by
acquisitions
of $101.1 million as a result of the Blue Ridge affiliation and
the purchase
of four branch banks. Growth in existing portfolios was
somewhat slower than
previous years with a 1997 increase of $23 million versus $62.5
million in
1996.
The loans-to-deposit ratio decreased to 79% at December 31, 1997
from 85%
at December 31, 1996. This decrease in the loan-to-deposit
ratio results
from the relatively lower loan-to-deposit ratios of the acquired
operations
in 1997.
The loan portfolio continues to be diversified among loan types
and industry
segments. Commercial and commercial real estate loans represent
42.5% of the
total portfolio with residential real estate comprising 33.9% of
total loans.
During 1997, residential real estate loans experienced the
largest increase
as a percentage of total loans and now comprise 33.9% of the
portfolio.
<PAGE
Reserve for Possible Loan Losses
The reserve for possible loan losses represents
reserves available to absorb
loan losses and other credit-related charges. Loan
losses arise primarily
from the loan portfolio, but may also be derived from
other sources, including
commitments to extend credit, guarantees, and standby
letters of credit.
The reserve for possible loan losses is increased by
both charges to earnings
in the form of provisions for loan losses and
recoveries of prior loan
charge-offs, and decreased by charged-off loans. The
provision for loan
losses is added to bring the reserve to a level which,
in management's
judgment, is considered adequate to absorb potential
losses inherent in the
loan portfolio. Management performs monthly
assessments to determine the
appropriate level of the reserve. The factors
considered in this evaluation
include, but are not necessarily limited to, estimated
losses from loan and
other credit arrangements, general economic
conditions, changes in credit
concentrations or pledged collateral, historical loan
loss experience, and
trends in portfolio volume, maturity, composition,
delinquencies, and
nonaccruals. While management has allocated reserves
to various portfolio
segments, the allowance is general in nature and is
available for the entire
portfolio.
The reserve for possible loan losses represented 79%
of nonperforming loans
at year-end 1997 versus 144% and 165% at December 1996
and 1995, respectively.
When other real estate is combined with non-performing
loans, reserves equal
72% of nonperforming assets at the end of 1997 versus
106% and 139% at
December 31, 1996 and 1995, respectively.
The increase in the reserve for possible loan losses
in 1997 was the result of
acquired reserves of approximately $2.0 million with
the acquisitions of the
Blue Ridge Bank and new branches in Virginia and West
Virginia, and a $1.5
million provision in 1997 to establish necessary
valuation reserves for a
group of impaired loans of a southern West Virginia
furniture manufacturer
which ceased operations in the fourth quarter of 1997
(see non-performing
assets on page 22). Net charge-offs were $4.5 million
in 1997, as compared
with $1.6 million in 1996 and $2.4 million in 1995,
respectively.
Net charge-offs rose in 1997 with an increase in
retail loan losses associated
with personal bankruptcies in the Company's Credit
Card Division and losses
incurred in indirect auto financing. Total charge-
offs for the Credit Card
Division and indirect auto financing program were
approximately $955,000 and
$468,000 respectively for 1997. Indirect auto lending
has been curtailed and
should result in an eventual reduction of losses in
this category. Losses in
the commercial loan categories include large single
loan charge-offs of
$800,000 and $250,000 on two separate commercial
ventures. The $800,000
charge-off represents losses associated with new
automobile floor plan
arrangements. The Company has attempted to position
itself for recovery by
taking junior liens on commercial real estate.
<PAGE>
Non-Performing Assets
Non-performing assets include loans on which interest accruals
have been
ceased, loans contractually past due 90 days or more and still
accruing
interest, and other real estate owned (OREO) pursuant to
foreclosure
proceedings. Total non-performing assets were $15.8 million at
December 31,
1997. The levels of non-performing assets for the last five
years are
presented in the table below.
(Amounts in Thousands) December 31
<TABLE>
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
Non-accruing Loans $ 9,988 $5,476 $4,371 $6,909 $11,269
Loans 90 Days Past Due 4,391 780 673 968 1,393
Other Real Estate Owned 1,472 2,225 929 919 1,997
$15,851 $8,481 $5,973 $8,796 $14,659
Non-performing loans as a
percentage of total loans 2.1% 1.1% 1.0% 1.9% 3.2%
Non-performing assets as a
percentage of total loans and
other real estate owned 2.4% 1.6% 1.2% 2.1% 3.7%
Reserve for loan losses as a
percentage of non-performing
loans 79.3% 143.7% 165.0% 107.6% 75.6%
Reserve for loan losses as a
percentage of non-performing
assets 72.0% 106.0% 139.3% 96.4% 65.3%
</TABLE>
Non-performing assets increased $7.4 million between 1996 and
1997 with
increases in both ninety days past due and non-accrual loans.
The increase in
non-accrual loans was driven by a fourth quarter transfer to
nonaccrual of a
$4.7 million loan relationship with a furniture manufacturing
company in
southern West Virginia which ceased doing business in the fourth
quarter.
The Company has assumed control of the real estate and personal
property
collateralizing the loans and plans liquidation in the first or
second quarter
of 1998. The largest contributor to the increase in the loans
90 days past
due category is a group of commercial loans totaling $1.0
million secured by
commercial real estate and guarantees by the SBA and the Rural
Development
Authority. These loans are considered both well secured and in
the process
of collection.
<PAGE>
Deposits
Market interest rates on interest bearing deposits continued a
gradual
increasing trend from 1996. In 1997, the average rate paid on
interest
bearing liabilities was 4.44%, up from 4.34% in 1996. This
increase in the
Company's cost of funds is the result of strong competition
among financial
institutions, the bond and stock market, and other providers of
non-bank
financial services, coupled with a higher funds cost in acquired
deposit
portfolios.
Average deposits totaled $741.3 million for 1997 as compared
with $625.0
million for 1996. This increase in deposits during 1997 was
primarily
attributable to the acquisition of Blue Ridge and new branches
in both
Virginia and West Virginia. The acquisition of Blue Ridge and
these branches
added approximately $97 million in average deposits.
The largest increase in average deposits was experienced in time
deposit
accounts which increased 29.4% versus an overall increase of
19%.
Non-interest bearing demand deposits increased 18.9% with a 5.7%
increase
experienced on average savings deposits. Interest-bearing demand
deposits
increased 19.7%.
Short-Term Borrowings
The Company's short-term borrowings consist primarily of Federal
Funds
purchased and securities sold under repurchase agreements.
Short-term
borrowings decreased, on average, by $5.4 million or 9.1% from
1996, following
a 41.6% increase between 1996 and 1995. This category of
borrowings is a
source of moderately priced, short term funds. Decreases in
average balances
in 1997 were made possible by the influx of liquidity from the
Virginia and
West Virginia branch acquisitions.
Other Indebtedness
Other indebtedness, which represents long-term advances from the
Federal
Home Loan Bank and acquisition debt increased $9.3 million due
primarily to
the use of an $11.5 million term note from another institution
to assist in
funding the Blue Ridge acquisition.
Stockholders' Equity
Risk-based capital ratios are a measure of the company's capital
adequacy.
At December 31, 1997, the Company's Tier 1 capital ratio was
10.70% compared
with 15.77% in 1996. The reduction in the Tier 1 and total risk-
based
capital from 1996 and 1997 as a percentage of risk-weighted
assets reflects
the effect of both tangible and intangible asset increases
recorded through
purchase accounting in acquisitions completed in 1997. Risk-
based capital
ratios and the leverage ratio are used by banking regulators to
measure
the capital adequacy of banking institutions. Risk-based
capital guidelines
weight balance sheet assets and off-balance sheet commitments in
determining
capital adequacy. The Company's total risk-based capital-to-
assets ratio was
11.96% at the close of 1997 compared with 17.02% in 1996. Both
of these
ratios are well above the current minimum level of 8% prescribed
for bank
holding companies.
The leverage ratio is the measure of total tangible equity to
total assets.
The Company's leverage ratio at December 31, 1997 was 6.96%,
compared to
10.33% at December 31, 1996, both of which are well above the
minimum
3% and the recommended 4% to 5% range prescribed by the Federal
Reserve.
The reduction in the leverage ratio is a result of acquisitions
recorded in
1997 increased both tangible and intangible average assets.
<PAGE>
Liquidity
Liquidity represents the Company's ability to respond
to demands for funds
and is usually derived from maturing investment
securities, overnight
investments, periodic repayment of loan principal, and
from the Company's
ability to generate new deposits. The Company also
has the ability to attract
short-term sources of funds and draw on credit lines
which have been
established at financial institutions to meet cash
needs.
Total liquidity of $377.9 million at December 31, 1997
is comprised of the
following: cash on hand and deposits with other
financial institutions of
$34.8 million; securities available for sale of $161.8
million; investment
securities held to maturity due within a year of $14.7
million; federal
funds sold of $12.4 million; and Federal Home Loan
Bank credit availability of
$154.2 million.
Interest Rate Sensitivity
Net interest income is subject to variation as a
result of changes in
interest rate environments in conjunction with
unbalanced repricing
opportunities in earning assets and interest-bearing
liabilities. In order
to mitigate the effect of changes in the general level
of interest rates, the
Company manages repricing opportunities and thus, its
interest rate
sensitivity. The Company uses an earnings simulation
model to measure
interest rate sensitivity. The model captures all
earning assets, interest
bearing liabilities and all off-balance sheet
financial instruments and
combines the various factors affecting rate
sensitivity into an earnings
outlook. Based on the latest simulation, the Company
believes that it
possesses only a moderate level of interest rate risk,
given its current
balance sheet profile.
Year 2000 Preparedness
The year 2000 will provide challenges to the world
business community and
these challenges will be particularly significant to
those industries which
are dependent upon time-sensitive data processing such
as the financial
services industry. Systems and equipment which cannot
distinguish between
1900 and 2000 may be non-functional after the century
change.
The Board of Directors and senior management are aware
of the problem and
have committed the necessary resources and assigned a
Committee to assess
and evaluate the potential impact of the Year 2000.
The year 2000 Committee
has, I) compiled a data base of all systems which
could be affected, ii)
created an action plan for remediation and testing
iii) has assigned
committee responsibility for each system. At the date
of this report,
renovations for most of the Company's critical systems
have been completed
and are ready to be tested. The Committee expects
that it will have completed
all Year 2000 initiatives on mission critical systems
by the end of 1998.
While the final cost of the Year 2000 planning,
renovation and testing is not
known with any certainty, the committee has
established a budget of $150,000
which it believes will satisfy the remediation and
testing procedures.
<PAGE>
Consolidated Financial Statements
<TABLE>
<CAPTION>
<S> <C>
Consolidated Balance Sheets 26
Consolidated Statements of Income 27
Consolidated Statements of Cash Flow 28
Consolidated Statements of Stockholders' Equity 29
Notes to Consolidated Financial Statements .... 30
Independent Auditors' Report 50
Report on Management's Responsibilities 51
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Share Data)
December
31
<S> <C> <C>
1997 1996
Assets Cash and due from banks $34,762$2
7,347
Federal funds sold 12,406 -
Securities available for sale (amortized cost
of $159,711,
1997; $135,404,1996) 161,795136
,113
Investment securities held to maturity:
U.S. Treasury securities 4,0988,247
U.S. Government agencies and corporations2
6,377 43,494
States and political subdivisions 77,641
47,532
Other securities 1,058 1,055
Total investment securities held to maturity
(market value, $112,263, 1997; $101,200,
1996) 109,174 100,328
Total loans, net of unearned income 671,817547
,703
Less reserve for possible loan losses 11,4068,987
Net loans 660,411538
,716
Premises and equipment 19,133 12,334
Other real estate owned 1,472 2,225
Interest receivable 7,688 6,341
Other assets 9,734 10,122
Intangible assets 25,774 4,116
Total Assets $1,042,349$837,642
Liabilities Deposits:
Demand $103,846 $
89,902
Interest-bearing demand 127,541
93,303
Savings 149,407
132,590
Time
472,713 327,702
Total deposits 853,507 643,497
Interest, taxes and other liabilities 11,455 11,217
Federal funds purchased2,705 25,468
Securities sold under agreements to
repurchase 52,351 53,031
Other indebtedness 24,444 15,126
Total Liabilities 944,462 748,339
Stockholders' Common stock, $1 par value in 1997 and $5
par value
Equity in 1996, 10,000,000 shares
authorized; 5,755,741
shares issued in 1997 and 1996,
respectively;
5,650,932 and 5,650,205 shares
outstanding in
1997 and 1996, respectively
5,756 28,779
Additional paid in capital
37,587 14,564
Retained earnings54,564
46,815
Treasury stock, at cost
(1,271) (1,288)
Unrealized gain on securities
available for sale,
net of taxes 1,251 433
Total Stockholders' Equity
97,887 89,303
Total Liabilities and
Stockholders' Equity
$1,042,349 $837,642
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Share and Per Share Data)
<S> <C> <C> <C>
Years Ended December
31
1997 1996 1995
Interest Interest and fees on loans $ 59,753 $50,553 42,664
Income Interest on securities available for sale 9,128 7,556 5,930
Interest on investment securities:
U.S. Treasury securities 337 778 1,061
U.S. Government agencies and
corporations 2,333 3,307 5,810
States and political subdivisions, tax exempt 3,205 2,520 3,094
Other securities 85 82 111
Interest on federal funds sold 949 117 263
Interest on deposits in banks 44 28 21
Total interest income 75,834 64,941 58,954
Interest Interest on deposits 28,773 23,158 20,921
Expense Interest on short-term borrowings 2,623 2,898 1,945
Interest on debt 1,494 877 616
Total interest expense 32,890 26,933 23,482
Net interest income 42,944 38,008 35,472
Provision for possible loan losses 4,963 2,273 2,235
Net interest income after provision
for possible loan losses 37,981 35,735 33,237
Non-Interest Fiduciary income 1,678 1,731 1,621
Income Service charges on deposit accounts 3,289 2,976 2,662
Other service charges, commissions
and fees 2,979 2,283 2,093
Net securities gains (losses) 6 (128) 457
Other operating income709 758 381
Pension curtailment gain - 1,450 -
Total non-interest income 8,661 9,070 7,214
Non-Interest Salaries and employee benefits11,336 9,580 10,044
Expense Occupancy expense of bank premises 1,679 1,596 1,680
Furniture and equipment expense 1,642 1,212 1,144
Check collection losses - 3,365 -
Other operating expense 10,015 8,605 9,826
Total non-interest expense 24,672 24,358 22,694
Income before income taxes 21,970 20,447 17,757
Income tax expense6,876 6,530 4,968
Net Income $15,094 $13,917 12,789
Weighted average shares outstanding
5,650,426 5,622,679 5,610,286
Basic earnings per common share 2.67 2.48 2.28
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
<S> <C> <C> <C>
Years Ended December 31
1997 1996 1995
Operating Cash flows from operating activities:
Activities Net income $ 15,094$ 13,917 $ 12,789
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 4,963
2,273 2,235
Depreciation of premises and equipment ..
1,192 856 974
Amortization of intangibles 647 625 789
Net investment amortization and accretion
(332) 271 132
Net loss (gain) on the sale of assets
(103) 12 (503)
Decrease (increase) in interest receivable . .
(358) 285 (393)
(Increase) decrease in other assets1,046(3,
323)1,120
(Decrease) increase in other liabilities(2,857)
(887) 2,741
Other, net (51) (274) (240)
Net cash provided by operating
activities 19,241 13,755 19,644
Investing Cash flows from investing activities:
Activities Proceeds from sales of securities available
for sale 18 15,868 9,134
Proceeds from maturities of securities
available
for sale 24,762 14,771 23,721
Proceeds from maturities of investment
securities 26,509 27,72352,578
Purchase of securities available for sale
(35,090) (45,641) (37,999)
Purchase of investment securities (26,447)
(2,915) (18,522)
Net increase in loans made to customers
(27,014) (64,044) (66,122)
Cash provided by branch acquisitions, net
39,658 18,735 -
Purchase of premises and equipment(2,018)
(439) (613)
Proceeds from sale of equipment 16 159 25
Net cash provided by (used in) investing
activities 394 (35,783)(37,798)
Financing Cash flows from financing activities:
Activities Net decrease in demand and savings
deposits (8,507)(10,328) (24,730)
Net increase in time deposits30,398
10,263 31,227
Net (decrease) increase in short-term debt
(23,443) 28,294 11,123
Repayment of long-term debt(2,412) (10)
(60)
Proceeds from long-term borrowings 11,500
- - -5,000
Acquisition of treasury stock - (170)
(839)
Reissuance of treasury stock 17 1,499
- - -
Cash paid in lieu of fractional shares(22)
- - - -
Dividends paid (7,345) (6,422)(5,525)
Net cash provided by
financing activities 186 23,126 16,196
Cash and Net increase (decrease) in cash and
Cash cash equivalents 19,821 1,098 (1,958)
Equivalents Cash and cash equivalents at
beginning of year27,347 26,249 28,207
Cash and cash equivalents at end of
year $47,168$27,347 $26,249
See Notes to Consolidated Financial Statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Amounts in Thousands, Except Share and Per Share Data)
<S> <C> <C> <C> <C> <C>
Unrealized
gain
(loss)) on
Additional securities
CommonPaid-InRetainedTreasuryavai
lable
Stock CapitalEarningsStockfor sale
Balance, December 31, 1994 $28,779$14,593$32,056$(I,807)$(3,
445)
Net income - - 12,789 - -
Common dividends declared
($.99 per share) - - (5,525) - -
Purchase of 34,515 treasury
shares at $24.30 per share - - -(839) -
Unrealized gain on securities
available for sale, net of taxes - - - - 3,837
Balance, December 31, 1995 28,779 14,59339,320(2,646) 392
Net income - - 13,917 - -
Common dividends declared
($1.14 per share) - - (6,422) - -
Purchase of 6,375 treasury
shares at $26.80 per share - - -(170) -
Reissuance of 62,286 treasury
shares at $24.06 per share -(29) -1,528 -
Unrealized gain on securities
available for sale, net of taxes - - - - 41
Balance, December 31, 1996 28,779 14,56446,815(1,288) 433
Net income - - 15,094 - -
Common dividends declared
($1.30 per share) - - (7,345) - -
Change from $5 par value
to $1 par value (23,023)23,023- - -
Reissuance of 727 treasury
shares at $23.70 per share - - -17 -
Unrealized gain on securities
available for sale, net of taxes - - - - 818
Balance, December 31, 1997 5,756 $37,587$54,564$(I,271)1@251
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
NOTE 1. Summary of Significant Accounting Policies
Basis of Presentation
The accounting and reporting policies of First
Community Bancshares, Inc.
and subsidiaries (First Community or the Company)
conform to generally
accepted accounting principles and to predominant
practices within the
banking industry In preparing such financial
statements, management is
required to make estimates and assumptions that affect
the reported amounts
of assets and liabilities as of the date of the
balance sheet and revenues and
expenses for the period. Actual results could differ
from those estimates.
Assets held in an agency or fiduciary capacity are
not assets of the Company
and are not included in the accompanying consolidated
balance sheets.
Principles of Consolidation
The consolidated financial statements of First
Community include the accounts
of all wholly-owned subsidiaries. All significant
intercompany balances and
transactions have been eliminated in consolidation.
In the Parent Company
financial statements, the investment in subsidiaries
is stated at equity in
the net assets of such subsidiaries increased by the
unamortized portion of the
excess of fair value over the cost of net assets
acquired. where applicable.
Securities available for Sale
Securities to be held for indefinite periods of time
including securities that
management intends to use as part of its
asset/liability management strategy,
and that may be sold in response to changes in
interest rates, changes in
prepayment risk, or other similar factors are
classified as available for sale
and are recorded at market value. Unrealized
appreciation or depreciation in
market value above or below amortized cost is included
in stockholders' equity
net of income taxes. Premiums and discounts are
amortized to expense or
accreted to income over the lives of the securities.
Gain or loss on sale is
based on the specific identification method.
Investment Securities
Investments in debt securities, which management has
the ability and intent
to hold to maturity or on a long-term basis, are
carried at cost. Premiums and
discounts are amortized to expense and accreted to
income over the lives of
the securities. Gain or loss on the sale of
investment securities, if any, is
on the specific identification method. At December
31, 1997 and 1996, no
securities were held for trading purposes and no
trading account was
maintained.
Allowance for Possible Loan Losses
The allowance for possible loan losses is available
to absorb future loan
charge-offs. The allowance is increased by provisions
charged to operations
and reduced by losses, net of recoveries. The amount
charged to operations
is based on several factors including (1) analytical
reviews of significant
commercial and commercial mortgage loans and loan loss
experience in
relationship to outstanding loans to determine an
adequate allowance for
possible loan losses required for outstanding loans
(2) a continuing review of
loans evaluated by the loan review process as less
than satisfactory, all
nonperforming loans and overall portfolio quality (3)
regular examinations
and appraisals of the loan portfolio conducted by
federal and state supervisory
authorities and (4) management's judgment with respect
to current and
expected economic conditions, the level of
delinquencies and nonaccrual
loans, trends in the volume and term of loans,
anticipated impact from changes
in lending policies and procedures, changes in lending
management, and any
concentration of credit in certain industries or
geographic areas.
Statement of Financial Accounting Standards (SFAS)
No. 114, "Accounting by
Creditors for Impairment of a Loan", as amended,
requires an allowance to
be established as a component of the allowance for
possible loan losses for
certain loans when it is probable that all amounts due
pursuant to contractual
terms of the loan will not be collected and the
recorded investment in the
loan exceeds the fair value. Management reviews the
impairment status of all
loans designated as nonaccrual and loans which have
been classified as
"substandard" or "doubtful" by First Community's loan
review process.
Management does not individually evaluate certain
smaller balance, homogeneous
loans, such as consumer installment loans and
residential mort-
<PAGE>
gage loans, for impairment. These loans are evaluated
on an aggregate basis
using a formula-based approach in accordance with the
Company's policy.
All of the loans deemed to be impaired were evaluated
using the fair value of
the collateral as the measurement standard.
Under SFAS No. 114, the allowance for possible loan
losses related to loans
that are identified for evaluation in accordance with
SFAS No. 114 is based
on discounted cash flows using the loan's initial
effective interest rate or
the fair value of the collateral for certain
collateral dependent loans.
Premises and Equipment
Premises and equipment are stated at cost less
accumulated depreciation.
Depreciation of both buildings and improvements as
well as for equipment is
computed on the straight-line method over estimated
useful lives. Maintenance
and repairs are charged to current operations while
betterments are
capitalized. Disposition gains and losses are
reflected in current
operations.
Long-lived assets to be held and those to be
disposed of and certain
intangibles are evaluated for impairment in accordance
with SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets
and for Long-lived Assets
to be Disposed of', which was adopted on January 1,
1996. The provisions
of this standard establish when an impairment should
be recognized and how
it should be measured. The impact of opting this
standard was not material
to the Company's financial condition or results of
operations.
Income on Loans
Accrual of interest on loans is based generally on
the daily amount of
principal outstanding. It is the Company's policy to
discontinue the accrual
of interest on loans based on their payment status and
the evaluation of
related collateral and the financial strength of the
borrower. The accrual of
interest income is normally discontinued when a loan
becomes 90 days past
due as to principal or interest. Management may elect
to continue the accrual
of interest when the loan is well secured and in
process of collection. When
interest accruals are discontinued, interest accrued
and not collected in the
current year is reversed and interest accrued and not
collected from prior
years is charged to the reserve for possible loan
losses. Credit card loans
which become 180 days past due are automatically
charged to the reserve for
possible loan losses.
Loan Fee Income
Loan origination fees are recorded as a reduction of
direct costs associated
with loan processing, including salaries, review of
legal documents,
obtainment of appraisals, and other direct costs.
Fees in excess of those
related costs are deferred and amortized over the life
of the related loan.
Loan commitment fees are deferred and amortized over
the related commitment
period.
Other Real Estate Owned
Other real estate owned and acquired through
foreclosure is stated at the
lower of cost or fair market value less estimated
costs to sell. Loan
losses arising from the acquisition of such properties
are charged against
the reserve for possible loan losses. Expenses
incurred in connection with
operating the properties, subsequent write-downs and
gains or losses upon
sale are included in other non-interest income and
expense. General
reserves for possible loss on the disposition of other
real estate are
established through charges against current
operations.
Intangible Assets
The investment in subsidiaries and branches in
excess of amounts attributable
to tangible and identified intangible assets at dates
of acquisition is
recorded as goodwill and is being amortized to
operations over a period of
fifteen years using the straightline method. The
unamortized balance of
goodwill was $24,986,000 and $3,202,000 at December
31, 1997 and 1996,
respectively. A portion of the cost of purchased
subsidiaries has been
allocated to values associated with the future
earnings potential of acquired
deposits and is being amortized over the estimated
lives of the deposits
which range from seven to ten years. The unamortized
balance of identified
intangibles was $788,000 and $914,000 at December 31,
1997 and 1996,
respectively.
<PAGE>
Income Taxes
The Company accounts for taxes using the provisions of SFAS
No. 109.
"Accounting for Income Taxes," which, under the asset and
liability method,
provides for recognition of deferred income taxes for the tax
consequences
of "temporary differences" by applying enacted statutory tax
rates to the
differences between the financial statement carrying amounts and
the tax
bases of existing assets and liabilities. Under SFAS No. 109,
the effect on
deferred taxes of a change in tax rates is recognized in income
in the period
that includes the enactment date.
Reclassifications
Certain amounts included in the 1996 and 1995 financial
statements have
been reclassified to conform with the presentation used in
preparation of
the 1997 financial statements.
Recent Accounting Pronouncements
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 the fiscal years beginning after December 15, 1997, with
reclassification
of comparative financial statements and is applicable to interim
periods.
Management is currently in the process of evaluating the impact
of this
statement.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of
an Enterprise and Related Information," which is effective for
financial
statements beginning after December 15,1997. SFAS No. 131
redefines how
operating segments are determined and requires disclosure of
certain financial
and descriptive information about a company's operating
segments. Management
is currently in the process of evaluating the impact of this
statement.
Cash Flows
In 1997, 1996 and 1995 for purposes of reporting cash flows,
cash and cash
equivalents include cash and due from banks, federal funds sold,
and interest
bearing balances available for immediate withdrawal. The
acquisitions of
Blue Ridge Bank and the branches in West Virginia and Virginia
provided
additional cash of approximately $63.3 million less cash paid of
$23.6
million. Additionally, the net decrease in savings and demand
deposits are
exclusive of current year acquisitions. Interest and income
taxes paid in
1997, 1996 and 1995 were as follows:
<TABLE>
<S> <C> <C> <C>
(Amounts in Thousands) 1997 1996 1995
Interest $ 32,726$26,615$22,864
Income taxes 6,433 7,911 4,390
Supplemental Schedule of
Non-Cash Transactions
Transfers from investment securities
to securities available for sale $ -$ - $26,578
Transfers of loans to other real estate owned 862 2,190
545
Unrealized gain on securities
available for sale (1,375) (69)(6,287)
</TABLE>
<PAGE>
Note 2. Merger and Acquisition
On July 3, 1996, First Community acquired Citizens Bank of
Tazewell
(Citizens), headquartered in Tazewell, Virginia. As of the
merger date,
Citizens had approximately $52.2 million in total assets and
$46.2 million
in total deposits. Pursuant to the Agreement and Plan of
Merger, First
Community exchanged 3.51 shares of its common stock for each
share of
Citizens' common stock, which totaled 263,159 shares upon
consummation.
This transaction was accounted for as a pooling of interests.
The pooling
of interests method requires the combining of the financial
information of the
merging companies as though they had always been combined.
Consequently, the
financial position and results of operations of First Community
and Citizens
for 1996 and 1995 have been restated to properly reflect this
combination.
On April 9,1997, the Company acquired 100% of the common stock
of Blue Ridge
Bank (Blue Ridge), headquartered in Sparta, North Carolina.
Blue Ridge was
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, the Company 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 from the date of
acquisition.
Subsequent to the merger, Blue Ridge operates as a wholly-owned
subsidiary of
First Community.
On July 24, 1997, the Company expanded its Virginia operations
through the
acquisition of three bank branches located in Fort Chiswell,
Pound, and
Clintwood. The acquisition of these branches added $44 million
in new
deposits and assets to the existing Virginia subsidiary. The
branch
acquisitions were accounted for under the purchase method of
accounting.
Accordingly, the results of operations of the branches are
included in
consolidated results only from the date of acquisition. The
excess purchase
price of the branches, over the fair value of tangible assets
acquired,
totaled $4.6 million and is being amortized over a 15-year
period.
At the close of business on September 26,1997, First Community
Bank, Inc., a
subsidiary of the Company, acquired the Man, West Virginia
branch of
Huntington National Bank, West Virginia. The acquisition of
this branch
added approximately $51 million in deposits. The intangible
value of this
transaction totaled approximately $4.9 million which is being
amortized over
a 15-year period. This acquisition was accounted for under the
purchase
method of accounting; therefore, the operations of the Man
branch are included
in consolidated results of operations only from the date of
acquisition.
The following unaudited proforma financial information shows
the effect of the
Blue Ridge acquisition as if the transaction were consummated on
the first
day of each period presented.
<TABLE>
<CAPTION>
First Community Bancshares, Inc.
Unaudited Supplemental Proforma Financial Information
(Amounts in thousands except per share data)
<S> <C> <C>
1997 1996
Net Interest Income $43,665$41,709
Net Income 15,078 13,958
Basic Earnings Per Common Share 2.67 2.48
</TABLE>
<PAGE>
Note 3. Securities Available for Sale
As of December 31, the amortized cost and market value
of securities
classified as available for sale are as follows:
<TABLE>
<S> <C> <C> <C> <C>
(Amounts in Thousands)
1997
AmortizedUnrealized UnrealizedM
arket
cost Gains LossesValue
U.S. Government and agency
securities $131,892$1,127 $(273)$132,
746
States and political subdivisions 21,668926 (18) 22,576
Other securities 6,151 322 -6,473
Total $159,711$2,375 k291)$161,7
95
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1996
AmortizedUnrealizedUnrealizedMark
et
cost GainsLossesValue
U.S. Government and agency
securities $ 111,949$ 733 $ (710) $ 111,972
States and political subdivisions 15,351724 (38) 16,037
Other securities 8,104 - - 8,104
Total $135,404$1,457 $(748) $136,113
</TABLE>
Securities available for sale with market values of $64,454,000
and
$47,092,000 at December 31, 1997 and 1996, respectively, were
pledged to
secure public deposits, securities sold under agreements to
repurchase,
short-term borrowings and for other purposes.
The amortized cost and market value of securities available for
sale at
December 31,1997, by contractual maturity, are shown below.
Expected
maturities will differ from contractual maturities because
issuers may have
the right to call or prepay obligations with or without call or
prepayment
penalties. During 1997, a sale of securities available for sale
resulted in a
gain of $6,000. During 1996, sales of securities available for
sale resulted
in gains of $90,000 and losses of $225,000. During 1995, the
sale of
securities available for sale resulted in gains of $572,000 and
losses of
$115,000. The proceeds from sales of securities available for
sale are
$18,000, $15,868,000 and $9,134,000 for 1997, 1996 and 1995,
respectively.
The basis for evaluating the gain or loss realized is the
amortized cost. The
following table presents maturities of investments securities
available for
sale by type on both an amortized cost and market value basis at
December
31, 1997:
<TABLE>
<S> <C> <C> <C> <C> <C>
(Amounts in Thousands) U.S. Government States and
Tax Equivalent
Agencies & Political Other
Purchase
Amortized Cost Corporations Subdivisions
Securities Total Yield
Maturity:
Within one year $ 9,694$150$ -$9,844 4.70%
After one year through five years . .19,877 960 - 20,837 6.11%
After five years trough ten years . .53,624 12,718 - 66,342 7.51%
After ten years 48,6977,8406,15162,688 7.09%
Total amortized cost $131,892$21,668$6,151 $159,711
Tax equivalent purchase yield 6.75%8.76%5.80% 6.99%
Average maturity (in years) 12.1310.5310.01 11.83
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MARKET Value
<S> <C> <C> <C> <C>
Maturity:
Within one year $9,673$150 -$9,823
After one year through five years19,838 985 - 20,823
After five years through ten years54,20113,323 - 67,524
After ten years 49,0348,1186,47363,625
Total market value $132,746$22,576$6,473$161,795
</TABLE>
Note 4. Investment Securities Held to Maturity
The amortized cost and approximate market value of investment
securities as
of December 31 are as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C> <C> <C>
1997
AmortizedUnrealizedUnrealizedMa
rket
Cost GainsLosses Value
U.S. Treasury securities 4,098 1 (8) 4,091
U.S. Government agencies and
corporations 26,377115(114) 26,378
States and political subdivisions77,6413,081 (2) 80,720
Other securities 1,058 18 (2) 1,074
Total $109,174$3,215 $(126)$112,263
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
1996
AmortizedUnrealizedUnrealizedMa
rket
cost Gains Losses Value
U.S. Treasury securities $8,247$11$ (29) $ 8,229
U.S. Government agencies and
corporations 43,494160(274) 43,380
States and political subdivisions47,5321,188 (200) 48,520
Other securities 1,055 21 (5) 1,071
Total $ 100,328$1,380 $(508)$101,200
</TABLE>
Various investment securities with an amortized cost of
approximately
$34,871,000 and $36,829,000, respectively, were pledged at
December 31,
1997 and 1996 to secure public deposits and for other purposes
required
by law. There were no sales of investment securities held to
maturity during
1997 or 1996. The following table presents maturities of
investments by type
on both an amortized cost and market value basis at December 31,
1997:
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
U.S. Tax
(Amounts in Thousands) Government States and Equivalent
U.S. Agencies &
Political Other Purchase
TreasuryCorporations
Subdivisions SecuritiesTotal Yield
Amortized Cost
Maturity:
Within one year $ 3,998$ 10,157 $501 $ -$ 14,656 5.67%
After one through five years . . 10010,9983,782 983 15,863 6.79%
After five through ten years - 4,59326,79975 31,467 8.06%
After ten years - 62946,559- 47,188 8.81%
Total amortized cost $4,098$26,377$77,641$1,058$109,174
Tax equivalent purchase yield 5.27%6.03%8.64% 8.04% 7.87%
Average maturity (in years) .58 2.6611.784.67 9.08
Market Value
Maturity:
Within one year $ 3,990$ 10,152 $502 $ -$ 14,644
After one through five years 10110,9863,8671,00115,955
After five through ten years - 4,59327,87173 32,537
After ten years - 64648,481- 49,127
Total market value $4,091$26,377$80,721$1,074$112,263
</TABLE>
Note 5. Loans
Loans consist of the following at December 31:
<TABLE>
<S> <C> <C>
(Amounts in Thousands) 1997 1996
Real estate - commercial $ 202,625$ 166,787
Real estate - construction 9,612 10,589
Real estate - residential 227,465171,458
Commercial, financial and agricultural82,445 79,278
Loans to individuals for household and other
consumer expenditures 148,485119,297
All other loans 1,185 294
Total $671,817$547,703
</TABLE>
Banking subsidiaries of the Company are parties to financial
instruments with
off-balance sheet risk in the normal course of business to meet
the financing
needs of their customers. These financial instruments include
commitments to
extend credit, standby letters of credit and financial
guarantees. These
instruments involve, to varying degrees, elements of credit and
interest
rate risk in excess of the amount recognized on the balance
sheet. The
contractual amounts of those instruments reflect the extent of
involvement
the Company has in particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-
performance by the
other party to the financial instrument for commitments to
extend credit and
standby letters of credit and financial guarantees written is
represented by
the contractual amount of those instruments. The Company uses
the same
credit policies in making commitments and conditional
obligations as it does
for on-balance sheet instruments.
<PAGE>
Commitments to extend credit are agreements to lend to a
customer as long
as there is not a violation of any condition established in the
contract.
Commitments generally have fixed expiration dates or other
termination
clauses and may require payment of a fee. Since many of the
commitments
are expected to expire without being drawn upon, the total
commitment amounts
do not necessarily represent future cash requirements. The
Company evaluates
each customer's creditworthiness on a case-by-case basis. The
amount of
collateral obtained, if deemed necessary by the Company, upon
extension of
credit is based on management's credit evaluation of the
counterparts.
Collateral held varies but may include accounts receivable,
inventory,
property, plant and equipment, and income-producing commercial
properties.
Standby letters of credit and financial guarantees written are
conditional
commitments issued by the Company to guarantee the performance
of a customer
to a third party. The credit risk involved in issuing letters
of credit is
essentially the same as that involved in extending loan
facilities to
customers. To the extent deemed necessary, collateral of
varying types and
amounts is held to secure customer performance under certain of
those letters
of credit outstanding at December 31, 1997.
Financial instruments whose contract amounts represent credit
risk at December
31, 1997 are commitments to extend credit (including
availability of lines of
credit and undrawn credit card availability) - $118.8 million,
and standby
letters of credit and financial guarantees written - $4.8
million. At
December 31, 1997, neither the Company nor its subsidiaries have
any amounts
outstanding representing futures, forward exchange contracts or
interest
swaps.
In the normal course of business, the Company originates loan
commitments.
Loan commitments generally have fixed expiration dates or other
termination
clauses and may require payment of a fee. The Company evaluates
each
customer's creditworthiness on a case-by-case basis. The amount
of collateral
deemed necessary by the Company is based on management's credit
evaluation
and underwriting guidelines for the particular loan. The total
commitments
outstanding at December 31,1997 are summarized as follows:
<TABLE>
<S> <C> <C>
(Amounts in Thousands)
1997
Notional
Amount Rate
Real estate - commercial (fixed) $2,236 7.75-14.00%
Real estate - commercial (variable) 17,749 8.50-12.00
Real estate - construction (fixed) 2,641 7.99-11.25
Real estate - construction (variable) 1,606 7.30-10.50
Real estate - residential (fixed) 1,674 7.75-15.00
Real estate - residential (variable) 8,299 9.00-12.50
Commercial, financial, agricultural (fixed) 2,5265.60-13.50
Commercial, financial, agricultural (variable) 32,28 8.50-13.50
Loans to individuals for household
and other consumer expenditures (fixed)38,484 5.00-18.00
Loans to individuals for household
and other consumer expenditures (variable) 15,627 9.25-14.50
Other(fixed) 50 7.25-10.25
Other (variable) 386 10.25
Total $123,567
</TABLE>
<PAGE>
Presently, the Company has no significant concentrations of
credit risk other
than geographic concentrations. Most loans in the current
portfolio are made
and collateralized in West Virginia. Although portions of the
West Virginia
economy are closely related to coal and timber, they are
supplemented by
service industries. The current economy of the Company's market
is relatively
stable and is not seen as highly subject to volatile economic
change. The
Company's wholly owned subsidiaries, Blue Ridge Bank in North
Carolina
and First Community Bank of Southwest Virginia provide
additional geographic
diversification against concentrations of credit risk.
In the normal course of business, the banking subsidiaries of
the Company have
made loans to directors and executive officers of the Company
and its
subsidiaries. All loans and commitments made to such officers
and directors
and to companies in which they are officers or have significant
ownership
interest have been made on substantially the same terms,
including interest
rates and collateral, as those prevailing at the time for
comparable
transactions with other persons. The aggregate dollar amount of
such loans
was $11.3 million and $9.8 million at December 31, 1997 and
1996,
respectively. New loans and payments attributable to the change
from 1996 to
1997 total $7.7 million and $6.2 million, respectively.
Note 6. Reserve for Possible Loan Losses
Activity in the reserve for possible loan losses was as
follows:
<TABLE>
<S> <C> <C> <C>
(Amounts in Thousands) 1997 1996 1995
Balance, January I $8,987$ 8,321$ 8,479
Reserves acquired in acquisitions 1,981 - -
Recoveries credited to reserve 673 574 490
Provision for the year charged to operations4,963 2,273
2,235
16,604 11,168 11,204
Loans charged-off 5,198 2,181 2,883
Total $11,406$8,987 $8,321
</TABLE>
The following table presents First Community's investment in
loans considered
to be impaired and related information on those impaired loans
(in thousands):
<TABLE>
<S> <C> <C>
1997 1996
Recorded investment in loans considered to be impaired $7,508 $3,500
Loans considered to be impaired that were on a nonaccrual basis7,321 3,350
Allowance for possible loan losses related to loans considered
to be impaired 1,575 529
Average recorded investment in impaired loans 5,226 3,300
Total interest income recognized on impaired loans 115 15
Interest income on impaired loans recognized on a cash basis - -
</TABLE>
Note 7. Premises and Equipment
Premises and equipment are comprised of the following as of
December 31:
<TABLE>
<S><C> <C>
(Amounts in Thousands) 1997 1996
Land $4,624$ 3,247
Bank premises 20,197 16,256
Equipment 14,705 10,551
39,526 30,054
Less: accumulated depreciation and amortization 20,393
17,720
Total $19,133$12,334
</TABLE>
<PAGE>
Note 8. Long-Term Debt and Advances from the Federal Home Loan
Bank
Long-term debt consists of a $9.6 million dollar note to a
commercial bank
with principal repayments of $300,000 per quarter, through April
1, 2007.
The note accrues interest at a floating and fluctuation rate of
interest
equal to one hundred thirty basis-points in excess of the Libor
Rate. The
loan agreement contains certain covenants that may restrict the
payment of
dividends to stockholders in the event of default along with
other customary
borrowing provisions.
Two of the Company's subsidiaries are members of the Federal
Home Loan Bank
('FHLB') of Pittsburgh, Pennsylvania. Long-term advances from
the FHLB as of
December 31, 1997 and 1996 and principal payments on long-term
debt as of
December 31, 1997 mature as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C> <C> <C>
1997 1996
Weighted Weighted
Amount Average Rate Amount Average Rate
1998 $6,2005.74% $ 5,0005.46%
1999 1,200 6.90%
2000 1,200 6.90%
2001 1,200 6.90%
2002 1,200 6.90%
2003 9,200 6.07% 8,000 5.95%
2004 1,200 6.90%
2005 700 6.90%
2008 2,000 6.27%2,000 6.27%
$24,1006.230/0$15,000 5.83%
</TABLE>
The acquisition loan is secured by 1.2 million outstanding
shares of common
stock of Blue Ridge Bank. Advances from the FHLB are secured by
stock in the
FHLB of Pittsburgh, qualifying first mortgage loans, mortgage-
backed securities
and certain investment securities. Certain of these advances
are subject to
restrictions or penalties in the event of prepayment. Other
various debt
obligations of the Company totaled $344,000 at December 31, 1997
and
$126.000 at December 31, 1996.
Note 9. Time Deposits
Time deposits include Certificates of Deposit issued in
denominations of
$100,000 or more which amounted to $117.4 million and $71.8
million at
December 31, 1997 and 1996, respectively. Interest expense on
these
certificates was $5.5 million, $3.1 million, and $2.7 million
for 1997,1996,
and 1995, respectively.
At December 31, 1997, the scheduled maturities of certificates
of deposits
are as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C>
1998
$ 347,136
1999 68,341
2000 29,992
2001 14,002
2002 and thereafter 13,242
$ 472,713
</TABLE>
<PAGE>
Note 10. Per Share Amounts
Basic earnings per share is based upon the weighted average
number of shares
of common stock outstanding during the year. In February 1997,
the FASB
issued Statement No. 128, "Earnings Per Share." Statement No.
128 requires
the presentation of basic and diluted earnings per share. The
Company
currently has no dilutive securities or stock arrangements.
First Community
has adopted Statement No. 128 effective December 31, 1997, and
all prior
period amounts presented have been restated to comply with
Statement No.
128. The Company's common stock was split five shares for four
on March
31, 1997. All share and per share data have been retroactively
adjusted to
reflect this stock split. The following table sets forth the
net income used
to determine net income per common share for the applicable
years:
<TABLE>
<CAPTION>
(Amounts in Thousands, Except Per Share Data) 1997 1996
<S> <C> <C> <C>
1995
Net income $15,094$13,917 $12,789
Basic earnings per common share 2.67 2.48 2.28
</TABLE>
Note 11. Employee Benefits
Through 1995, the Company and its subsidiaries maintained three
qualified
employee benefit plans. On January 1, 1996 two defined
contribution plans
were merged into a single plan with similar provisions. In
October 1996, the
third of these three plans, a non-contributory defined benefit
pension plan
was terminated and the Company recorded a curtailment gain for
the pending
termination of the defined benefit pension plan of $1,450,000.
Benefits under
the plan were based on length of service and qualifying
compensation. The
Company's funding policy is to contribute pension costs accrued.
Net
periodic pension expense in 1997,1996, and 1995 is as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C> <C>
1997 1996 1995
Service cost - benefits earned during the year $ - $ 326
$ 389
Interest expense on projected benefit obligation496 607
555
Actual return on plan assets (879) (1390)(2,044)
Net amortization and deferral (56) 622 1,486
Net periodic pension (income) expense$ (439) $ 165 $ 386
</TABLE>
The following table sets forth the plan's funded status and
amounts recognized
in the Company's consolidated balance sheets at December 31,
1997 and 1996,
based upon a measurement date of December 31 for each year:
<TABLE>
<CAPTION>
(Amounts in Thousands)
<S> <C> <C>
1997 1996
Accumulated benefit obligation $ 7,038 $ 7,364
Vested benefit obligation 7,038 7,364
Projected benefit obligation 7,038 7,364
Plan assets at fair value 12,854 11,175
Plan assets in excess of projected benefit obligation 5,816
3,811
Unrecognized net gain (2,638)(1,707)
Unrecognized prior service cost - -
Prepaid pension expense $3,178 $2,104
</TABLE>
The weighted average discount rate and the rate of increase in
future
compensation levels used in determining the actuarial present
value of the
projected benefit obligation were 7.25% and 6.0%, respectively,
in both 1997
and 1996. In preparation for the termination and liquidation of
the plan,
assets have been substantially liquidated and invested primarily
in money
market funds. The Company expects to complete payment of
substantially all
obligations of the plan in the first quarter of 1998.
<PAGE>
Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan.
Coverage under the
plan is provided to all employees meeting minimum eligibility
requirements.
Annual contributions to the plan are made at the discretion of
the Board of
Directors, and are allocated to plan participants on the basis
of relative
compensation. Substantially all plan assets are invested in
common stock of
the Company. Total expense recognized by the Company related to
the Employee
Stock Ownership Plan was $767,000, $454,000, and $335,000 in
1997,1996 and
1995, respectively.
Employee Savings Plan
The Company provided a 401 (k) Savings Plan that was available
to substantially
all employees meeting minimum eligibility requirements. This
plan was merged
with the Employee Stock Ownership Plan on January 1, 1996
creating a KSOP.
The cost of Company contributions under the Savings Plan was
$116,000, $59,000,
and $46,000 in 1997,1996 and 1995, respectively. The Company's
matching
contributions are at the discretion of the board up to 50% of
elective
deferrals of no more than 6% of compensation.
Employee Welfare Plan
The Company provides various medical, dental, life, accidental
death and
dismemberment and long term disability insurance benefits to all
full-time
employees who elect coverage under this program (basic life,
accidental death
and dismemberment, and long term disability coverage is
automatic). The
cost of coverage under the medical insurance program is shared
by the Company
and employees with the Company bearing the cost of the employee
portion
and with dependent coverages paid by the employee
The Company adopted SFAS No. 106 "Employers' Accounting for
Postretirement
Benefits Other Than Pensions" as of January 1, 1993. The
adoption of
Statement 106 resulted in the recognition of a postretirement
benefit
obligation at the date of adoption (transition obligation). The
Company
elected to recognize the obligation over the average remaining
life
expectancy of the participants. The transition obligation
totaled $634,000
and is being recognized over 17 years. This obligation only
applies to a
selected group of retirees as retiree benefits were phased out
through 1993.
The net periodic postretirement benefit cost is expected to be
approximately
$72,000 on an annual basis, consisting of the interest cost of
the accumulated
benefit obligation and amortization of the benefit obligation.
The assumed
health care cost trend rate used in measuring the accumulated
postretirement
benefit obligation as of January 1, 1993 was 10% for 1993,
decreasing each
successive year until it reaches 6% in the year 2000. The
weighted average
discount rates were 6.75% and 7.25% in 1997 and 1996,
respectively.
Deferred Compensation Plan
A subsidiary of the Company has deferred compensation agreements
with certain
current and former officers providing for benefit payments over
various periods
commencing upon retirement or death. The balance sheet
liability at December
31, 1997 was approximately $1,033,000. The expenses associated
with this
plan for 1997, 1996 and 1995 were $58,000, $32,000 and $42,000,
respectively.
Note 12. Compensating Balances
Pursuant to agreements with the Federal Reserve Bank, the
Company is required
to maintain cash balances of approximately $1.3 million in lieu
of charges for
check clearing and other services.
Note 13. Litigation
In the normal course of business, there are various outstanding
commitments
and contingent liabilities such as threatened legal action and
legal
proceedings in which the Company and its subsidiaries are
defendants.
The Company's most significant matter of litigation included in
the 1996
Annual Report to Shareholders was settled in the first quarter
of 1997 through
a compromise which resulted in payments by the Company to
various plaintiffs
aggregating $733,000 with a net cost to the Company of $468,000
after
contribution by insurance providers and co-defendants. This
settlement
concluded three separate but related civil actions involving a
commercial
loan customer and related bankruptcy and mechanics lien issues,
all of which
were detailed in the 1996 report. The first quarter settlement
in 1997
resulted in a recovery of litigation reserves approximating
$700,000
established in previous years.
Other actions have arisen primarily out of commercial lending
transactions
and collection activities. Each of these actions involving
significant damage
allegations or material disputes of issues are detailed in Item
3. Legal
Proceedings in the Company's 1997 Report on Form 10-K and
discussed below.
In August 1997, the Company
<PAGE>
was named as a defendant in a suit seeking to overturn
the establishment of a
private foundation for which the Company's Trust and
Financial Services
Division serves as trustee. The suit filed by heirs
of the foundation donor,
seeks a total of $6 million in compensatory and
punitive damages as well as
the termination of the foundation. The Company and
trustee believe the
creation and operation of the foundation represent the
intent and will of the
donor and intend to defend the suit and the
continuation of the foundation's
purpose. Both management and the Company's legal
counsel are of the opinion
that this suit is without merit and will be
successfully defended with no
material adverse impact on the Company's financial
condition or results of
operations.
Additionally, the Company is also subject to certain
asserted and unasserted
potential claims encountered in the normal course of
business. In the opinion
of management, neither the resolution of these claims
nor the funding of
credit commitments will have a material effect on the
Company's financial
position or results of operations.
Note 14. Dividends
The primary source of funds for dividends paid by
First Community is
dividends received from its subsidiary banks.
Dividends paid by the banks are
subject to restrictions by banking regulations and a
loan agreement with a
commercial bank. The loan agreement with the bank
restricts dividends in the
event of default on the note. The most restrictive
provision requires
approval by regulatory bodies if dividends declared in
any year exceed the
year's net income, as defined, plus retained net
profits of the two preceding
years. At December 31, 1997, subsidiary earnings
available for distribution
as dividends to the Company without prior approval
were $1.8 million.
Note 15. Regulatory Capital Requirements and
Restrictions
First Community Bancshares, Inc., First Community
Bank, Inc., First
Community Bank of Mercer County, Inc., First Community
Bank of Southwest
Virginia, Inc., and Blue Ridge Bank, (collectively
referred to as "the Banks")
are subject to various regulatory capital requirements
administered by the
federal banking agencies. Failure to meet minimum
capital requirements can
initiate certain mandatory- and possibly additional
discretionary- actions by
regulators that, if undertaken, could have a direct
material effect on the
Company's financial statements. Under the capital
adequacy guidelines, and
the regulatory framework for prompt corrective action,
which applies to only
the Banks, the entities must meet specific capital
guidelines that involve
quantitative measures of the entities' assets,
liabilities, and certain
off-balance sheet items as calculated under regulatory
accounting practices.
The entities' capital amounts and classification are
also subject to
qualitative judgments by the regulators about
components, risk weightings,
and other factors.
Quantitative measures established by regulation to
ensure capital adequacy
require First Community Bancshares, Inc. and the Banks
to maintain minimum
amounts and ratios (set forth in the table on p. 43)
of total and Tier 1
capital (as defined in the regulations) to risk-
weighted assets (as defined),
and of Tier 1 capital (as defined) to average assets
(as defined). Management
believes, as of December 31, 1997, that the Company
meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, and 1996, the most recent
notifications from the
Federal Reserve Board categorized the Banks as well
capitalized under the
regulatory framework for prompt corrective action. To
be categorized as well
capitalized the Banks must maintain minimum Total risk-
based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in
the table. There are
no conditions or events since those notifications that
management believes
have changed the institutions' category.
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
To Be Well
For Capital Capitalized
Under
AdequacyPrompt Corrective
Actual Purposes Action
Provisions
Total Capital to Risk-Weighted Assets.
First Community Bancshares, Inc. $79,17811.96% $52,975 8.00%$ N/AN/A
First Community Bank, Inc. 22,911 10.7817,009 8.00 21,26210.00%
First Community Bank of Mercer County, Inc. 43,54113.71 25,3998.00 31,748 10.00
First Community Bank of Southwest Virginia, Inc. 6,793 12.114,486 8.00 5,608
10.00
Blue Ridge Bank 11,167 12.227,308 8.00 9,13510.00
Tier I Capital to Risk-Weighted Assets:
First Community Bancshares, Inc. $70,86210.70%$26,488 4.00% N/A N/A
First Community Bank, Inc. 20,232 9.528,505 4.00 12,7576.00%
First Community Bank of Mercer County, Inc. 39,55712.46 12,6994.00 19,049 6.00
First Community Bank of Southwest Virginia, Inc. 6,093 10.862,243 4.00 3,365
6.00
Blue Ridge Bank 10,068 11.023,654 4.00 5,481 6.00
Tier I Capital to Average Assets (Leverage):
First Community Bancshares, Inc. $70,862
6.96% $30,549 3.00 % $ N/A N/A
First Community Bank, Inc. 20,232 5.2611,542 3.0019,237 5.00%
First Community Bank of Mercer County, Inc.39,557 8.8013,481 3.00 22,468 5.00
First Community Bank of Southwest Virginia, Inc. 6,093 5.97 4,084 4.00 5,105
5.00
Blue Ridge Bank 10,068 9.154,402 4.005,503 5.00
December 31, 1996
To Be Well
For Capital Capitalized
Under
Adequacy Prompt
Corrective
Actual Purposes Action
Provisions
Total Capital to Risk-Weighted Assets.
First Community Bancshares, Inc. $91,52417.02%$43,011 8.00% $ N/A N/A
First Community Bank, Inc. 30,075 16.3414,727 8.00
18,40910.00%
First Community Bank of Mercer County, Inc. 49,11215.08 26,062 8.00 32,578 10.00
First Community Bank of Southwest Virginia, Inc. 7,040 23.21 2,427 8.00 3,033
10.00
Tier I Capital to Risk-Weighted Assets:
First Community Bancshares, Inc. $84,77615.77%$21,505 4.00% $ N/A N/A
First Community Bank, Inc. 27,755 15.087,363 4.00 11,0456.00%
First Community Bank of Mercer County, Inc. 45,03213.82 13,031 4.00 19,547 6.00
First Community Bank of Southwest Virginia, Inc. 6,661 21.96 1,213 4.00 1,820
6.00
Tier I Capital to Average Assets (Leverage):
First Community Bancshares, Inc. $84,77610.33%$24,626 3.00%$ N/A N/A
First Community Bank, Inc. 27,755 7.9210,514 3.00 17,5245.00%
First Community Bank of Mercer County, Inc. 45,03210.10 13,371 3.00 22,285 5.00
First Community Bank of Southwest Virginia, Inc. 6,661 13.06 2,041 4.00 2,551
5.00
</TABLE>
<PAGE>
Note 16. Income Taxes
<TABLE>
<CAPTION>
(Amounts in Thousands)
Years Ended December 31
<S> <C> <C> <C>
1997 1996 1995
Income taxes are as follows-
Income exclusive of securities gains (losses)$6,874 $6,581 $4,785
Net securities gains (losses) 2 (51) 183
$6,876 $6,530 $4,968
Years Ended December 31
Income tax provisions consist of 1997 1996 1995
Current tax expense $6,520 $6,143$4,829
Deferred tax liability 356 387 139
$6,876 $6,530 $4,968
</TABLE>
Deferred income taxes reflect the net effect of temporary
differences between
the carrying amounts of assets and liabilities for financial
reporting
purposes and the amounts deducted for income tax purposes. The
tax effects of
significant items comprising the Company's net deferred tax
assets as of
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands) 1997 1996
<S> <C> <C>
Deferred tax assets.
Reserve for possible loan losses $ 4,448 $ 3,505
Unrealized asset losses 229 250
Deferred compensation 892 817
Litigation reserves - 429
Deferred insurance premiums 399 399
Total deferred tax assets 5,968 5,400
Deferred tax liabilities.
Purchase accounting adjustments 2,072 1,905
Depreciation 374 195
Gain on pension termination 565 565
Unrealized gain on securities available for sale 833
284
Other 347 346
Total deferred tax liabilities 4,191 3,295
Net deferred tax assets $1,777 $2,105
</TABLE>
<PAGE>
The reconciliation between the federal statutory tax rate and
the effective
income tax rate is as follows:
<TABLE>
<S> <C> <C> <C>
Years Ended December 31
1997 1996 1995
Tax at statutory rate 35.0% 35.0%35.0%
Increases (reductions) resulting from:
Tax-exempt interest on investment
securities and loans (6.7%) (6.7%)(7.3%)
State income taxes, net of federal benefit1.1%1.0% 1.0%
Amortization of purchase accounting adjustments . 1.6% .5% .6%
Other, net .3% 2.1% (1.5%).)
Effective tax rate 31.3% 31.9% 27.8%
</TABLE>
Note 17. Other Operating Expenses
Included in other operating expenses are certain functional
costs, the total
of which exceeds one percent of combined interest income and
non-interest
income. Following are such costs for the years indicated:
<TABLE>
<S> <C> <C> <C>
Years Ended December 31
(Amounts in Thousands) 1997 1996 1995
Credit card fees paid $1,671 $1,149$ 949
Amortization of goodwill 1,252 * *
Other losses and charge-offs * *1,303
Federal deposit insurance and other assessments* * 888
*Cost did not exceed one percent for the reported period.
<PAGE>
Note 18. Fair Value of Financial Instruments
The Financial Accounting Standards Board issued Statement of
Financial
Accounting Standards No. 107, "Disclosures About Fair Value of
Financial
Instruments" (SFAS 107). The pronouncement requires disclosure
of fair
value information about financial instruments, whether or not
recognized on
the balance sheet, for which it is practical to estimate the
value. SFAS 107
defines a financial instrument as cash, evidence of ownership in
an entity, or
a contract that conveys or imposes on an entity that contractual
right or
obligation to either receive or deliver cash for another
financial instrument.
Fair value is defined as the amount at which a financial
instrument could be
exchanged in a current transaction between willing parties,
other than in a
forced sale or liquidation, and is best evidenced by a quoted
market price if
one exists.
The following summary presents the methodologies and
assumptions used to
estimate the fair value of the Company's financial instruments
presented below.
The information used to determine fair value is highly
subjective and
judgmental in nature and, therefore, the results may not be
precise.
Subjective factors include, among other things, estimates of
cash flows, risk
characteristics, credit quality, and interest rates all of which
are subject
to change. Since the fair value is estimated as of the balance
sheet date,
the amounts which will actually be realized or paid upon
settlement or maturity
on these various instruments could be significantly different.
</TABLE>
<TABLE>
<CAPTION>
1997 1996
(Amounts in Thousands) Carrying Carrying
Amount Fair Value Amount
<S> <C> <C> <C> <C>
Fair Value
Assets:
Cash and due from banks $ 34,762$ 34,762$ 27,369 $ 27,369
Securities available for sale 161,795161,795136,113 136,113
Investment securities 109,174112,263100,328 101,200
Federal funds sold 12,40612,406- -
Loans (net of reserve for
possible loan losses) 660,411661,396538,716 537,566
Interest receivable 7,688 7,6886,3416,341
Liabilities:
Demand deposits 103,846103,846 89,902 89,902
Interest-bearing demand deposits 127,541127,54193,303 93,303
Savings deposits 149,407149,407132,590 132,590
Time deposits 472,713472,589327,702 329,311
Securities sold under agreements
to repurchase 52,35152,35153,03153,031
Interest, taxes and other
obligations 11,455 11,455 11,217 11,217
Other indebtedness 24,44424,51715,12614,831
</TABLE>
<PAGE>
Financial Instruments
with Book Value Equal
to Fair Value
The book values of cash and due from banks, federal
funds sold and purchased,
securities sold under agreements to repurchase,
interest receivable, and
interest, taxes and other liabilities are considered
to be equal to fair value
as a result of the short-term nature of these items.
Securities Available for Sale
For securities available for sale, fair value is
based on current market
quotations where available. If quoted market prices
are not available,
fair value has been based on the quoted price of
similar instruments.
Investment Securities
For investment securities, fair value has been based
on current market
quotations, where available. If quoted market prices
are not available,
fair value has been based on the quoted price of
similar instruments.
Loans
For all categories of loans, such as some residential
mortgages, fair value
is estimated by discounting the future cash flows
using the current rates for
similar loans.
Deposits
Deposits without a stated maturity, including demand,
interest-bearing
demand, and savings accounts, are reported at their
carrying value in
accordance with SFAS 107. No value has been assigned
to the franchise
value of these deposits. For time deposits with fixed
maturates, fair value
has been estimated by discounting future cash flows
based on interest rates
currently being offered on deposits with similar
characteristics and maturates.
Other Indebtedness
Fair value has been estimated based on interest rates
currently available to
the Company for borrowings with similar
characteristics and maturates.
Commitments to Extend Credit,
Stand-by Letters of Credit, and
Financial Guarantees
The amount of off-balance sheet commitments to extend
credit, stand-by
letters of credit, and financial guarantees, is
considered equal to fair
value. Because of the uncertainty involved in
attempting to assess the
likelihood and timing of commitments being drawn upon,
coupled with the lack
of an established market and the wide diversity of fee
structures, the Company
does not believe it is meaningful to provide an
estimate of fair value that
differs from the given value of the commitment.
<PAGE>
Note 19. Parent Company Financial Information
Condensed financial information related to First Community
Bancshares, Inc.
as of December 31, 1997 and 1996, and for the years ended
December 31, 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
(Amounts in Thousands)
December 31
<S> <C> <C>
1997 1996
Assets:
Cash $ 1,380$ 2,493
Investment in subsidiaries 102,78183,996
Other assets 3,260 2,920
Total Assets $107,421$89,409
Liabilities:
Other liabilities $ 9,534 $ 106
Stockholders' Equity:
Common stock 5,756 28,779
Additional paid-in capital 37,587 14,564
Retained earnings 54,564 46,815
Treasury stock (1,271)(1,288)
Unrealized gain on securities available for sale 1,251 433
Total Stockholders' Equity 97,887 89,303
Total Liabilities and Stockholders' Equity$107,421$
89,409
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
Years Ended December 31
<S> <C> <C> <C>
1997 1996 1995
Cash dividends received from subsidiary banks$25,050 $ 9,825$7,000
Revenue 148 123 615
Operating expense (779) (267) (152)
24,419 9,681 7,463
Income tax (expense) benefit 210 51 (152)
Equity in undistributed earnings of subsidiaries
(Dividends in excess of earnings of subsidiaries) (9,535) 4,185 5,478
Net Income $15,094$13,917$12,789
Basic Earnings Per Share $ 2.67 $ 2.48$ 2.28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31
<S> <C> <C> <C>
1997 1996 1995
Cash flows from operating activities:
Net income $15,094 $13,917 $12,789
Adjustments to reconcile net income
to net cash provided by operating activities:
Gain on sale of assets - - (547)
Equity in undistributed earnings of subsidiaries
(Dividends in excess of earnings of subsidiaries) 9,535(4,185) (5,478)
Increase in other assets (136) (890) (159)
(Decrease) increase in other liabilities 98 (54) 120
Other, net - 49 38
Net cash provided by investing activities24,591 8,837 6,763
Cash flows from investing activities:
Purchase of other investments - (1,745) (23)
Proceeds from sale of securities
available for sale 12 - 1,454
Payments for investments in and advances
to subsidiaries (27,695) - -
Net cash (used in) provided by investing activities (27,683)(1,745) 1,431
Cash flows from financing activities.
Proceeds from issuance of long-term debt11,730 - -
Repayment of long-term debt (2,400) - -
Acquisition of treasury stock - (170) (839)
Dividends paid (7,345)(6,422) (5,525)
Other, net (6) 1,499 -
Net cash provided by (used in) financing activities 1,979(5,093) (6,364)
Net (decrease) increase in cash and
cash equivalents (1,113) 1,999 1,830
Cash and cash equivalents at beginning of year 2,493 494 (1,336)
Cash and cash equivalents at end of year$ 1,380 2,493 $ 494
</TABLE>
<PAGE>
Deloitte & Touche LLP
2500 One PPG Place
Pittsburgh, Pennsylvania
15222-5401
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF FIRST
COMMUNITY BANCSHARES,
INC.,
We have audited the accompanying consolidated balance
sheets of First Community
Bancshares, Inc. and subsidiaries as of December 31,
1997 and 1996, and the
related consolidated statements of income,
stockholders' equity and cash flows
for each of the three years in the period ended
December 31, 1997. These
financial statements are the responsibility of First
Community Bancshares,
Inc.'s management. Our responsibility is to express
an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to
obtain reasonable assurance about whether the
consolidated financial
statements are free of material misstatement. An
audit includes examining, on
a test basis, evidence supporting the amounts and
disclosures in the financial
statements. An audit also includes assessing the
accounting principles used
and significant estimates made by management, as well
as evaluating the
overall financial statement presentation. We believe
that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial
statements present fairly, in all
material respects, the financial position of First
Community Bancshares, Inc.
and subsidiaries as of December 31, 1997 and 1996,
and the results of their
operations and their cash flows for each of the three
years in the period
ended December 31, 1997 in conformity with generally
accepted accounting
principles.
Deloitte & Touche
Pittsburgh, Pennsylvania
January 30, 1998
<PAGE>
First Community Bancshares, Inc.
Report on
Management's
Responsibilities
The management of First Community Bancshares, Inc. is
responsible for the
integrity of its financial statements and their
preparation in accordance
with generally accepted accounting principles. To
fulfill this responsibility
requires the maintenance of a sound accounting system
supported by strong
internal controls. The Company believes it has a
high level of internal
control which is maintained by the recruitment and
training of qualified
personnel, appropriate divisions of responsibility,
the development and
communication of accounting and other procedures, and
comprehensive internal
audits.
Our independent auditors (Deloitte & Touche LLP) are
engaged to examine,
and render an opinion on, the fairness of our
consolidated financial
statements in conformity with generally accepted
accounting principles. Our
independent auditors obtain an understanding of our
internal accounting
control systems, review selected transactions and
carry out other auditing
procedures before expressing their opinion on our
consolidated financial
statements.
The Board of Directors has appointed an Audit
Committee composed of outside
directors which periodically meets with the
independent auditors, bank
examiners, management and internal auditors to review
the work of each.
The independent auditors, bank examiners and the
Company's internal auditors
have free access to meet with the Audit Committee
without management's
presence.
James L. Harrison, Sr.
President & Chief Executive Officer
John M. Mendez
Vice President & Chief Financial Officer
<PAGE>
Board of Directors, First Community Bancshares, Inc.
Sam Clark
Agent, State Farm Insurance
Allen T. Hamner
Professor of Chemistry, West Virginia
Wesleyan College; Member Executive
Committee
James L. Harrison, Sr.
President and Chief Executive
Officer, First Community Bancshares,
Inc.; Member Executive Committee;
President, First Community Bank,
Inc.; First Community Bank of Mercer
County, Inc., and First Community
Bank of Southwest Virginia, Inc.;
Executive Vice President and
Director, Blue Ridge Bank
B. W. Harvey
President, Highlands Real Estate
Management, Inc.; Member
Executive Committee
I. Norris Kantor
Partner, Katz, Kantor & Perkins,
Attorneys-at-Law
John M. Mendez
Vice President, Chief Financial Officer
and Secretary, First Community
Bancshares, Inc.; Vice President -
Finance & Chief Administrative
Officer, First Community Bank, Inc.,
First Community Bank of Mercer
County, Inc., and First Community
Bank of Southwest Virginia, Inc.;
Assistant Corporate Secretary and
Director, Blue Ridge Bank
A.A. Modena
Past Executive Vice President and
Secretary, First Community Bancshares, Inc.; Past President &
Chief Executive Officer, The Flat Top National
Bank of Bluefield; Member Executive Committee
Robert E. Perkinson, Jr.
Vice President-Operations, MAPCO
Coal, Inc. - Virginia Region
William P. Stafford
President, Princeton Machinery
Service, Inc.; Chairman, First
Community Bancshares, Inc.;
Member Executive Committee and
Audit Committee
William P. Stafford, II
Attorney-at-Law, Brewster, Morhous
& Cameron
W.W. Tinder, Jr.
Chairman of the Board and Chief
Executive Officer, Tinder Enterprises,
Inc.; President, Tinco Leasing
Corporation (Real Estate Holdings);
Member Executive Committee and
Audit Committee
Harold M. Wood
Owner and Operator, Wood's
General Store; Chairman, Audit Committee
Officers, First Community Bancshares, Inc.
James L. Harrison, Sr.
President and Chief
Executive Officer
John M. Mendez
Vice President, Chief Financial
Officer and Secretary
Robert L. Buzzo
Vice President
<PAGE>
Directors
Nick Ameli, Jr., CLU, ChFC Sales Manager,
New York Life Insurance
K.A. Ammar, Jr.*
President and Chief Executive Officer,
Ammar's Inc. and Magic Mart
H. C. Arnold, Jr.
Retired Public Accountant
Dr. James P. Bailey*
Veterinarian, Veterinary
Associates, Inc.
Paul Barkley
Self Employed Accountant
Jack Bebber
Retired Manager, Carolina Tire
Clint F. Bedsaul++
President, BBC, Inc.: President, Trulina Truss, Inc.
William B. Belchee
Retired Bluefield Division Manager, Appalachian Power
Company;
President, Welch Insurance Agency
Claude Billings
Retired Member of North Carolina
House of Representatives; Poultry
Farmer
Bill Blackburn
Owner, B&D Auto Supply
Claude E. Blankenship
Officer, C and R Furniture; Former Mercer County
Commissioner
W. C. Blankenship, Jr. +
Chairman of the Board, First
Community Bank of Southwest
Virginia, Inc.; Agent, State Farm
Insurance
F. K. Blizzard
Retired, Blizzard's Inc.
G. Ross Boyce
Retired Senior Vice President, The Flat Top National
Bank of Bluefield
D. L. Bowling, Jr.*
President, True Energy, Inc.
Robert L. Buzzo*
Vice President, First Community
Bancshares, Inc.; Chief Executive
Officer, First Community Bank -
Bluefield
Juanita G. Bryan++
Homemaker
Sam Clark*
Agent, State Farm Insurance
Henry Church
Owner, H&N Polled Hereford Farms
L. M. Compton
President, Compton Enterprises
Lillian S. Cooke
Private Investor
George R. Crouse, Jr.++
Farming
C. William Davis*
Attorney at Law, Richardson and
Davis
H. R. Davis
Auctioneer
Mark T. Davis
Attorney
Thomas E. Douglas++
Town Manager, Sparta, NC
Frank Ferrante*
Retired Owner of Frankie's LaSalute
Lloyd D. Feuchtenberger, Jr.
Retired Bakery Executive
Chester H. Friedl+
Pharmacist
H. A. Goodykoontz, Jr.
Retired Pharmacist
Owen R. Griffith, Jr.
Retired President and Chief Executive
Officer, First Community Bank, Inc.
Anthony A. Gum
Chairman, Business and Economics
Division, West Virginia Wesleyan
College
Allen T. Hamner, Ph.D.**
Professor of Chemistry, West Virginia Wesleyan College
W. T. Hancock
Of Counsel, Richardson and Davis
James L. Harrison, Sr.
President and Chief Executive Officer, First Community
Bancshares, Inc.;
President, First Community Bank of Mercer County,
Inc.; First Community
Bank, Inc.; and First Community Bank of Southwest
Virginia, Inc; Executive
Vice President and Director, Blue Ridge Bank
B. W. Harvey**
President, Highlands Real Estate Management, Inc.
Steve Icenhour
Owner, Trucking Company and Icenhour's Garage and Tire
Service
Chapman I. Johnston, Jr.
Retired Chairman of the Board,
Bluefield Supply Company
I. Norris Kantor**
Partner, Katz, Kantor
and Perkins, Attorneys-at-law
Walden M. Keene+
Retired Coal Operator
Dr. John S. Lambert, Jr.
Dentist
M. Neil Lohr
Retired Pharmacist, Princeton Pharmacy
Richard L. Lowry
President, Murphy Insurance Agency
Dr. B. J. Martin, D.M.D.
Martin Dental Associates
John P. McCabe
Retired Vice Chairman of the Board, First Community
Bank, Inc.
A. Herbert McClaugherty
President, The Dean Company
John T. McGlamery
Retired Merchant
<PAGE>
Directors
Keith Meadows
Plant Manager, Leviton Manufacturing
Southern Devices
David Mechnore
Owner, Taylorsville Precast Molds
John M. Mendez**+
Vice President, Chief Financial Officer,
First Community Bancshares, Inc.;
Vice President - Finance and Chief
Administrative Officer, First
Community Bank, Inc., First
Community Bank of Mercer County,
Inc.; and First Community Bank of
Southwest Virginia, Inc.; Assistant
Corporate Secretary and Director,
Blue Ridge Bank
Edgar L. Miller, Sr.
Owner, Edgar's Exxon Service Station
A. A. Modena* *
Past Executive Vice President and
Secretary, First Community
Bancshares, Inc.; Past President and
Chief Executive Officer, The Flat Top
National Bank of Bluefield
Wayne V. Moore++
Chief Executive Officer, Blue Ridge
Bank
Dr. Samuel A. Muscari, Sr.
Physician
Charles C. Myers
Owner, Cash & Carry Wholesale,
Grocery
Avery Neaves
CPA, Kemp & Neaves, PLLC
Fred Norman
Retired Realtor & Businessman
Gary B. Parlier++
Owner, Custom Wall and Floor
Covering
Nora Belle Pasley
Retired, Peoples Bank of Bluewell
Robert E. Perkinson, Jr.**
Vice President - Operations, MAPCO
Coal, Inc. - Virginia Region
Dr. Eduardo D. Plagata+
Physician
Alvin E. Platnick*
President, Platnick Steel and
Engineering, Inc.
Claudetta Potts
Retired Owner, Radio Station
Robert Prevette
Poultry Farmer; Contractor
Bernie Queen
Retired, Amherst Coal Company
Clyde B. Ratliff+
President, Gasco Drilling, Inc.
Jimmie Lee Reavis
Rural Carrier, U.S. Postal Service
Joe H. Roberts++
Farming
Ron Roseman
Partner, Alexvale Furniture
Manufacturing
Michael Ross
President, Ross and Wharton Gas Co.
Richard G. Rundle*
Attorney at Law, Rundle and Rundle,
LC
Larry Schronce
Owner, Larry Schronce Ford, Inc.
Giles D. Scott
Retired Restaurant Owner
Guy L. Scott, Jr.++
President and Chairman of the Board,
Blue Ridge Bank
George L Sheets++
President and Manager, Alleghany
Cablevision; Owner, Sheets Jewelry
William C. Shell++
President, Shell Brothers Distributors,
Inc.
Herman Shook
Retired Furniture Manufacturer
M. M. Shumate
Retired
E. T. Smith
President, Smith Services, Inc.
Jack D. Stafford, P. E.
President, Stafford Consultants, Inc.
William P. Stafford**
President, Princeton Machinery
Service, Inc.
William P. Stafford, II**
Attorney at Law, Brewster, Morhous
and Cameron
William D. Starling+
Retired Coal Operator
Dr. Theodore S. Stern++
Chairman Emeritus, Blue Ridge Bank
Robert R. Stuart, Jr.
Retired Bakery Executive
Harold Tomchin
Chairman of the Board,
Tomchin Furniture Company
W. W. Tinder, Jr.**
Chairman and Chief Executive Officer,
Tinder Enterprises, Inc.
Robert J. Wallace
Attorney at Law, Coleman and Wallace
Harold M. Wood**
Owner, Wood's General Store
C. Paige Wooldridge
Retired Resident Vice President, Norfolk
Southern Corporation
Dale E Woody*
President, Woody Lumber Company
*Denotes Members of First Community Bank, Inc. and
First Community Bank of
Mercer County, Inc. Boards
**Denotes Members of First Community Bancshares, Inc.,
First Community Bank,
Inc., and First Community Bank of Mercer County, Inc.
Boards
+Denotes Members of First Community Bank of Southwest
Virginia, Inc. Board
++Denotes Members of Blue Ridge Bank Board
<PAGE>
First Community Bank of Mercer County, Inc.
(A WEST VIRGINIA CORPORATION - MEMBER FDIC)
1001 Mercer Street
Princeton, West Virginia 24740-5939
(304) 487-9000 or (304) 327-5175
Pine Plaza Branch (304) 425-7523
Matoaka Branch (304) 467-8860
Mercer Mall Branch (304) 327-0431
Blue Prince Road, Green Valley
Bluefield, West Virginia 24701-6160
(304) 325-3641
211 Federal Street
Bluefield, West Virginia 24701-0950
(304) 325-7151
Highway 52
Bluefield, West Virginia 24701-3068
(304) 589-3301
First Community Bank, Inc.
(A WEST VIRGINIA CORPORATION - MEMBER FDIC)
Corner of Bank and Cedar Streets
Pineville, West Virginia 24874-0269
(304) 732-7011
East Pineville Branch (304)732-7011
600 Guyandotte Avenue
Mullens, West Virginia 25882-1024
(304) 294-0700
Route 1 0, Cook Parkway
Oceana, West Virginia 24870-1680
(304) 682-8244
2 West Main Street
Buckhannon, West Virginia 26201-0280
(304) 472-1112
Tennerton
Buckhannon, West Virginia 26201
100 Market Street
Man, West Virginia 25635
(304) 583-6525
77 North Morgan Boulevard
Logan, West Virginia 25601
(304) 752-8102
Corner of Main and Latrobe Streets
Grafton, West Virginia 26354-0278
(304) 265-1111
216 Lincoln Street
Grafton, West Virginia 26354-1442
(304) 265-1111
Main Street
Rowlesburg, West Virginia 26425
(304) 454-2431
874 Broad Street
Summersville, WV 26651
(304) 872-4402
16 West Main Street
Richwood, West Virginia 26261
(304) 846-2641
Route 20 and Williams River Road
Cowen, West Virginia 26206
(304) 226-5924
Route 55, Red Oak Plaza
Craigsville, West Virginia 26205
(304) 742-5101
First Community Bank of Southwest Virginia, Inc.
(A VIRGINIA CORPORATION - MEMBER FDIC)
643 E. Riverside Drive
Tazewell, Virginia 24651
(540) 988-5577
302 Washington Square
Richlands, Virginia 24641
(540) 964-7454
Chase Street & Alley 7
Clintwood, Virginia 24228
(540) 926-4671
Rt.1, Box 408
Max Meadows, Virginia 24360
(540) 637-3122
8044 Main Street
Pound, Virginia 24279
(540) 796-5431
910 East Main Street
Wytheville, Virginia 24382
(540) 228-1901
Blue Ridge Bank
(A NORTH CAROLINA CORPORATION - MEMBER FDIC)
101 Brookfall Dairy Road
Elkin, North Carolina 28621
(336) 835-2265
5519 Mountain View Road
Hays, North Carolina 28635
(910) 696-2265
125 N.Main Street
Sparta, North Carolina 28675
(910) 372-2265
150 N.Center Street
Taylorsville, North Carolina 28681
(704) 632-2265
<PAGE>
Financial Information
Corporate Headquarters
1001 Mercer Street
P. 0. Box 5909
Princeton, West Virginia
24740-5909
(304) 487-9000
Stock Registrar and Transfer Agent
First Community Bank of Mercer County, Inc.
Trust and Financial Services Division
P.O. Box 950
Bluefield, West Virginia 24701-0950
(304) 325-7151
Form 10-K
The Annual Report on Form 10-K, filed with the Securities and
Exchange
Commission, is available to shareholders upon request to the
Vice President
& Chief Financial Officer of First Community Bancshares, Inc.
Financial Contact
John M. Mendez
Vice President & Chief Financial Officer, First Community
Bancshares, Inc.
P.O. Box 5909
Princeton, West Virginia 24740-5909
(304) 487-9000
