21
First Community Bancshares, Inc.
P O Box 5909
Princeton, West Virginia 24740
May 11, 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-Q.
Sincerely,
First Community Bancshares, Inc.
Kenneth P. Mulkey
Controller
<PAGE>
FORM 10-Q-QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF
1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities
Exchange Act of 1934
For the Quarterly Period Ended: March 31, 1998 or
[_] Transition Report Pursuant to Section
13 or 15(d)
of the Securities Exchange Act
of 1934
For the transition period from:__________________ to
__________________
Commission File Number: 0-
19297
First Community
Bancshares, Inc.
Nevada 55-
0694814
1001 Mercer Street, Princeton, West Virginia 24740
(304)
487-9000
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 the number of shares outstanding of each of the issuer's
classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 1998
Common Stock, $1 Par Value
7,062,898
1
<PAGE>
First Community Bancshares, Inc.
FORM 10-Q
For the quarter ended March 31, 1998
<TABLE>
<CAPTION>
INDEX
<S> <C>
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997 3
Consolidated Statements of Income and Comprehensive Income
for the Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended March 31,
1998 and 1997 6
Notes to Consolidated Financial Statements 7-9
Independent Accountants' Report 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations11-16
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of 16-17
Security Holders
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17-19
SIGNATURES 20
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
FIRST COMMUNITY
BANCSHARES, INC.
CONSOLIDATED
BALANCE SHEETS
<S> <C> <C>
(Unaudited) March 31 December 31
(Amounts in Thousands, Except Share Data) 1998
1997
Assets
Cash and due from banks $ 37,298 $ 34,590
Interest bearing balances 38,574 145
Federal funds sold 29,484 12,406
Securities available for sale (amortized cost
of $147,221 March 31, 1998; $159,711
December 31, 1997) 149,472 161,795
Investment securities:
U.S. Treasury securities 4,099 4,098
U.S. Government agencies and corporations 20,324
26,377
States and political subdivisions 75,334 77,641
Other securities 1,059 1,058
Total Investment Securities (market
value, $103,933 March 31, 1998; $112,263
December 31, 1997) 100,816 109,174
Total loans, net of unearned income 661,890 671,817
Less: reserve for possible loan losses 11,943 11,406
Net loans 649,947 660,411
Premises and equipment, net 18,841 19,133
Interest receivable 7,828 7,688
Other assets 10,004 11,206
Intangible assets 25,965 25,774
Total Assets $1,068,229 $1,042,322
Liabilities
Deposits, non-interest bearing $ 106,538 $ 103,846
Deposits, interest-bearing 768,330 749,661
Total Deposits 874,868 853,507
Interest, taxes and other liabilities 13,842 11,455
Federal funds purchased - 2,705
Securities sold under agreement to repurchase 55,755
52,351
Other indebtedness 23,583 24,444
Total Liabilities 968,048 944,462
Stockholders' Equity
Common stock, $1 par value; 10,000,000 shares
authorized; 7,193,909 issued in 1998 and 1997;
7,062,898 shares outstanding in 1998 and 1997 7,194
7,194
Additional paid-in capital 36,122 36,122
Retained earnings 56,766 54,564
Treasury stock, at cost (1,271) (1,271)
Accumulated other comprehensive income 1,370
1,251
Total Stockholders' Equity 100,181 97,860
Total Liabilities and Stockholders' Equity $1,068,229
$1,042,322
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
FIRST COMMUNITY
BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
<S> <C> <C>
(Unaudited)
(Amounts in Thousands, Except Three Months Ended
Share and Per Share Data)
March 31
1998 1997
Interest Income:
Interest and fees on loans $ 16,066 $ 12,956
Interest on securities available for sale 2,736
2,181
Interest on investment securities:
U.S. Treasury securities 54 105
U.S. Government agencies and corporations 322
609
States and political subdivisions, tax exempt 1,017
633
Other securities 21 21
Interest on federal funds sold 317 26
Interest on deposits in banks 122 15
Total Interest Income 20,655 16,546
Interest Expense:
Interest on deposits 8,623 5,976
Interest on borrowings 928 966
Total Interest Expense 9,551 6,942
Net Interest Income 11,104 9,604
Provision for possible loan losses 1,287 630
Net Interest Income After Provision for
Possible Loan Losses 9,817 8,974
Non-Interest Income:
Fiduciary income 454 339
Service charges on deposit accounts 891 666
Other charges, commissions and fees 737 697
Gain on settlement of pension plan 1,062 -
Other operating income 115 122
Total Non-Interest Income 3,259 1,824
Non-Interest Expense:
Salaries and employee benefits 3,148 2,637
Occupancy expense of bank premises 499 384
Furniture and equipment expense 489 287
Goodwill amortization 535 116
Other operating expense 2,667 2,017
Total Non-Interest Expense 7,338 5,441
Income before income taxes 5,738 5,357
Income tax expense 1,784 1,660
Net Income 3,954 3,697
Other comprehensive income 119 (774)
Comprehensive Income $ 4,073 $ 2,923
Basic earnings per common share$ 0.56 $ 0.52
Weighted average shares outstanding7,062,898 7,062,494
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
FIRST
COMMUNITY BANCSHARES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
<S> <C> <C>
(Unaudited)
(Amounts in Thousands)
Three Months Ended
March 31
1998 1997
Cash Flows From Operating Activities:
Net income $ 3,954 $ 3,697
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses1,287 630
Depreciation of premises and equipment 367
204
Amortization of intangibles 477 146
Investment amortization and accretion, net (108)
(27)
Gain on the sale of assets, net (14) (26)
Other liabilities, net 2,387 779
Interest receivable (140) 73
Other assets, net 1,157 466
Other, net 43 23
Net cash provided by operating activities 9,410
5,965
Cash Flows From Investment Activities:
Increase (decrease) in cash realized from:
Maturities and calls of investment securities 8,386
6,740
Maturities and calls of securities available for sale35,826
9,191
Purchase of securities available for sale (23,213)
(3,265)
Net decrease in loans made to customers 8,552
1,958
Purchase of equipment (129) (40)
Sales of equipment 4 --
Net cash provided by investment activities 29,426
14,584
Cash Flows From Financing Activities:
Increase (decrease) in cash realized from:
Demand and savings deposits, net12,944 7,421
Time deposits, net 8,375 6,540
Short-term borrowings, net 699 (20,661)
Issuance of long-term debt 2,500 --
Payments of long-term debt (3,361) (4)
Cash paid in lieu of fractional shares (27)
(22)
Cash dividends paid (1,751) (1,582)
Net cash provided by (used in) financing activities 19,379
(8,308)
Net increase in cash and cash equivalents 58,215
12,241
Cash and cash equivalents at beginning of year 47,141
27,342
Cash and cash equivalents at end of quarter $105,356
$39,583
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
FIRST COMMUNITY
BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C>
(Unaudited)
(Amounts in Thousands, Except Accumulated
Share and Per Share Data) Additional
Other
Common Paid-In Retained Treasury
Comprehensive
Stock Capital Earnings Stock Income
Balance beginning of
the period,
January 1, 1997 $30,216 $13,100 $46,815 $(1,288) $ 433
Net Income -- -- 3,697 -- --
Common dividends
declared ($.22
per common share) -- -- (1,582) -- --
Other comprehensive income -- -- --
- -- (774)
Balance, March 31, 1997 $30,216$13,100 $48,930 $(1,288) $(341)
Balance beginning of
the period,
January 1, 1998 $ 7,194 $36,122 $54,564 $(1,271) $1,251
Net income -- -- 3,954 -- --
Common dividends
declared ($.25
per common share) -- -- (1,752) -- --
Other comprehensive income -- -- --
- -- 119
Balance, March 31, 1998 $ 7,194$36,122 $56,766 $(1,271) $ 1,370
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Unaudited Financial Statements
The unaudited consolidated balance sheet as of March 31, 1998 and
the
unaudited consolidated statements of income and other
comprehensive
income, cash flows and changes in stockholders' equity for the
periods ended
March 31, 1998 and 1997 have been prepared by the management of
First
Community Bancshares, Inc. (FCBI). In the opinion of management,
all
adjustments (including normal recurring accruals) necessary to
present
fairly the financial position of First Community Bancshares, Inc.
and
subsidiaries at March 31, 1998 and its results of operations,
cash flows,
and changes in stockholders' equity for the periods ended March
31, 1998
and 1997, have been made. These results are not necessarily
indicative of
the results of consolidated operations for the full calendar
year.
The consolidated balance sheet as of December 31, 1997 has been
extracted
from audited financial statements included in the Company's 1997
Annual
Report to Shareholders. Certain information and footnote
disclosure normally
included in financial statements prepared in accordance with
generally
accepted accounting principles have been omitted. It is
suggested that these
financial statements should be read in conjunction with the
financial
statements and notes thereto included in the 1997 Annual Report
of FCBI.
Note 2. Acquisitions
On April 9, 1997, 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 of 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.
The following unaudited proforma financial information shows the
effect of the
Blue Ridge acquisition as if the transaction were consummated on
January 1,
1997.
<TABLE>
<CAPTION>
First Community Bancshares, Inc.
Unaudited Supplemental Proforma Financial
Information
(Amounts in thousands except per share data)
<S> <C>
Three Months Ended
March 31
1997
Net Interest Income $10,325
Net Income 3,681
Basic Earnings Per Common Share .52
</TABLE>
Note 3. Cash Flows
For the three months ended March 31, 1998 and 1997, for purposes
of reporting
cash flows, cash and cash equivalents include cash and due from
banks and
interest-bearing balances available for immediate withdrawal of
$75.9 million
at March 31, 1998 and $29.8 million at March 31, 1997, and
federal funds
sold of $29.5 million at March 31, 1998 and $9.8 million at March
31, 1997.
7
<PAGE>
Note 4. Commitments and Contingencies
The Company is currently a defendant in various actions most of
which involve
lending and collection activities in the normal course of
business, some of
which have remained dormant for a number of years. Certain of
these actions
are described in greater detail in the Company's 1997 Report on
Form 10-K.
While the Company and legal counsel are unable to assess the
outcome of each
of these matters, they are of the belief that the resolution of
these actions
should not have a material adverse affect on the financial
position or
results of operations of the Company.
Note 5. Common Stock
On September 30, 1997, in connection with a change in the
Company's state
of domicile, the par value of the Company's common stock was
changed from $5
per share to $1 per share reducing total common stock by $23.0
million as
reflected in the statement of changes in stockholders' equity.
Additionally,
in the first quarter of 1998, the Company declared a five-for-
four stock split
in the form of a 25% stock dividend. Accordingly, $1.4 million
was
transferred from additional paid-in capital to common stock,
representing the
par value of the new shares issued. Share and per share amounts
for all
periods presented have been restated to reflect the stock split.
8
<PAGE>
Note 6. 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.
The Company currently has one component of other comprehensive
income which
includes unrealized gains or losses on securities available for
sale which are
detailed as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
Other Comprehensive Income:
March 31, 1998
March 31, 1997
<S> <C> <C> <C> <C> <C> <C>
Before-Tax Tax Net-of-Tax Before-
Tax Tax Net-of-Tax
Amount Expense Amount Amount
Benefit Amount
Unrealized gains
on securities:
Unrealized holding gains
arising during the period$199$(80) $119$(1,254) $480
$(774)
Less: reclassification adjustment
for gains realized in net income 0 0 0
0 0 0
Net realized gains 199 (80) 119 (1,254) 480 (774)
Other comprehensive income $199 $(80) $119 $(1,254) $480
$(774)
</TABLE>
<TABLE>
<CAPTION>
Accumulated Other Comprehensive Income:
<S> <C>
Balance January 1, 1997 $ 433
Other Comprehensive Income, net (774)
Balance March 31, 1997$ (341)
Balance January 1, 1998 $ 1,251
Other Comprehensive Income, net 119
Balance March 31, 1998 $ 1,370
</TABLE>
9
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders
of First Community Bancshares, Inc.
We have reviewed the accompanying consolidated balance sheet of
First
Community Bancshares, Inc. and subsidiaries as of March 31, 1998,
and the
related consolidated statements of income and comprehensive
income, changes
in stockholders' equity and cash flows for the three month
periods ended
March 31, 1998 and 1997. These financial statements are the
responsibility
of the Corporation's management.
We conducted our review in accordance with standards established
by the
American Institute of Certified Public Accountants. A review of
interim
financial information consists principally of applying analytical
procedures
to financial data and of making inquiries of persons responsible
for financial
and accounting matters. It is substantially less in scope than
an audit
conducted in accordance with generally accepted auditing
standards, the
objective of which is the expression of an opinion regarding the
financial
statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material
modifications that
should be made to such consolidated financial statements for them
to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing
standards. the consolidated balance sheet of First Community
Bancshares, Inc.
and subsidiaries as of December 31, 1997, and the related
consolidated
statements of income, changes in stockholders' equity, and cash
flows for the
year then ended (not presented herein); and in our report dated
January 30,
1998, we expressed an unqualified opinion on those consolidated
financial
statements. In our opinion, the information set forth in the
accompanying
consolidated balance sheet as of December 31, 1997, is fairly
stated, in all
material respects, in relation to the consolidated balance sheet
from which it
has been derived.
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 24, 1998
10
<PAGE>
First Community Bancshares, Inc.
PART 1. ITEM 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis is provided to address
information about
the Company's financial condition and results of operations which
is not
otherwise apparent from the consolidated financial statements
incorporated by
reference or included in this report. This discussion and analysis
should be
read in conjunction with the 1997 Annual Report to Shareholders and
the other
financial information included in this report.
RESULTS OF OPERATIONS
The Company reported net income of $4.0 million for the period
ended March
31, 1998, a 7.0% increase over net income of $3.7 million for the
same
period in 1997. Basic earnings per common share between the same
periods
increased 7.7%, from $.52 to $.56.
Net income for the first quarter of 1998 remained strong and
included the
$1.06 million settlement gain of the company's defined benefit
pension plan.
This amount includes the final gain on liquidations of the
employee benefit
trust net of a $764,000 reversion excise tax. Had the settlement gain
not
been included in first quarter 1998 results, net income for the
quarter
would have been reduced approximately $341,000 (net of excise tax
and income
taxes) to $3.6 million.
The per share amounts presented for 1997 have been restated to
reflect the
effect of the change in the number of outstanding shares as a
result of the
March 31, 1998, 5-for-4 stock split.
Net Interest Income
Net interest income, the largest contributor to earnings was $11.1
million for
the first quarter of 1998 as compared with $9.6 million for the
corresponding
period in 1997. Tax equivalent net interest income totaled $11.9
million for
1998, an increase of $1.7 million over the $10.2 million reported
in the first
quarter of 1997. This increase in net interest income was the
result of a 7
basis points improvement in the yield on earning assets coupled
with
increases in average earning assets of $188.1 million over the
corresponding
period in 1997.
The Company's tax equivalent net interest margin of 5.05% at
quarter-end
reflects the rising cost of funds from the first quarter of 1997
tax
equivalent net interest margin of 5.37%. The Company's strong and
improving
earning asset yield served to partially offset the increase in the
cost of
interest-bearing liabilities of 22 basis points from 4.42% in the
first
three months of 1997 to 4.64% in the corresponding period in 1998.
Loans, the Company's highest yielding asset category, experienced
an increase
in average balances of $121.4 million or 22.2%, comparing the
first quarter
of 1998 to the corresponding period in 1997. This increase in the
loan
portfolio was funded through increases in deposits of $224 million
and calls
and maturities of investments. Significant average deposit
increases were
achieved primarily due to the addition of Blue Ridge Bank and
branches
acquired throughout 1997. The tax equivalent yield on the loan
portfolio
was 9.84% for the first quarter of 1998 as compared with 9.73% for
the same
period in 1997. The tax equivalent yield on securities available
for sale
improved from 6.93% in 1997 to 7.10% in the corresponding first
quarter of
1998. Investment securities held to maturity experienced a 44
basis points
increase in yield from 7.16% in the first quarter of 1997 to 7.60%
for the
corresponding period in 1998 due principally to a shift to tax-
free securities
with higher tax equivalent yields. The yield on average earning
assets
increased 7 basis points (in response to the loan growth) from
9.02% for the
three months ended March 31, 1997 to 9.09% for the corresponding
period in
1998.
The cost of short-term borrowings decreased 4 basis points over
the past
twelve months from 4.56% in 1997 to 4.52% for the corresponding
first quarter
of 1998. Time deposits experienced a 24 basis points increase
from 5.34% in
the first quarter of 1997 to 5.58% for the corresponding period in
1998. This
market pressure on rates did not materially effect short-term
deposits, such
as interest-bearing demand deposits and savings accounts, with the
cost of
these funding sources remaining relatively flat during the period.
11
<PAGE>
<TABLE>
<CAPTION>
NET INTEREST INCOME ANALYSIS
Three Months Ended Three Months Ended
(Unaudited) March 31,1998
March 31, 1997
<S> <C> <C> <C> <C> <C> <C>
(Amounts in Average Interest Yield/Rate Average
Interest Yield/Rate
Thousands) Balance (1) (2) (2) Balance (1) (2) (2)
Earning Assets:
Loans (3)
Taxable $ 654,103$ 15,816 9.81%$ 530,537$ 12,6869.70%
Tax-Exempt 13,660 38511.42% 15,796 415
10.66%
Total 667,763 16,201 9.84% 546,333 13,101 9.73%
Reserve for Possible Loan Losses (11,429) (9,078)
Net Total 656,334 537,255
Investments Available for Sale:
Taxable 142,666 2,444 6.95% 119,547 1,965 6.67%
Tax-Exempt 22,684 4498.03% 14,962
332 9.01%
Total 165,350 2,893 7.10% 134,509 2,297 6.93%
Investment Securities Held to Maturity:
Taxable 28,341 413 5.91% 49,845 753 7.16%
Tax-Exempt 75,888 1,5408.23% 46,570 9498.26%
Total 104,229 1,953 7.60% 96,415 1,702 7.16%
Interest-Bearing Deposits 9,093 123 5.49% 338 14 16.80%
Federal Funds Sold 23,673 317 5.43% 2,027
26 5.20%
Total Earning Assets958,679 21,4879.09% 770,544 17,140 9.02%
Other Assets 94,928 57,129
Total $1,053,607 $ 827,673
Interest-Bearing Liabilities:
Interest-bearing Demand Deposits$ 131,161901 2.79%$ 91,806 617
2.73%
Savings Deposits151,4571,138 3.05% 132,349 1,007 3.09%
Time Deposits478,516 6,586 5.58% 330,780 4,354 5.34%
Short-Term Borrowings 50,312 561 4.52% 66,737 750 4.56%
Other Indebtedness 23,483 3646.29% 15,124 213
5.71%
Total Interest-Bearing Liabilities 834,929 9,5504.64%
636,796 6,941 4.42%
Demand Deposits 105,691 87,539
Other Liabilities13,238 12,858
Stockholders' Equity 99,749 90,480
Total $1,053,607 $ 827,673
Net Interest Earnings $ 11,937 $ 10,199
Net Interest Spread 4.45% 4.60%
Net Interest Margin 5.05% 5.37%
</TABLE>
(1) Interest amounts represent taxable equivalent results for
the first three months of 1998 and 1997.
(2) Fully Taxable Equivalent-using the statutory rate of 35%.
(3) Non-accrual loans are included in average balances
outstanding with no related interest income.
12
<PAGE>
Provision and Reserve for Possible Loan Losses
In order to maintain a balance in the reserve for possible loan
losses which
is sufficient to absorb potential loan losses, charges are made
to the
provision for possible loan losses (provision). The provision
for possible
loan losses was $1,287,000 for the first quarter of 1998 compared
with
$630,000 for the corresponding period in 1997. The 1998
provision and the
increase in reserve is consistent with the $117 million increase
in total
loans from March 31, 1997 to March 31, 1998 and the increase in
the overall
level of non-performing assets between the two quarters.
Net charge-offs for the first quarter of 1998 were $750,288 as
compared to
$640,836 for the corresponding period in 1997. Expressed as a
percentage
of average loans, net charge-offs were .11% for the three month
period ended
March 31, 1998 and .12% for the corresponding period in 1997.
The reserve for possible loan losses totaled $11.9 million at
March 31, 1998
and 11.4 million at December 31, 1997 resulting in reserve to
loan ratios of
1.80% and 1.70% for the respective periods.
The coverage ratio represents the percentage of non-performing
loans covered
through available reserves. As of March 31, 1998, this ratio was
74.2% as
compared to 73.1% at March 31, 1997 and 79.3% at December 31,
1997.
Management continually evaluates the adequacy of the reserve for
possible
loan losses and makes specific adjustments to it based on the
results of risk
analysis in the credit review process, the recommendation of
regulatory
agencies, and other factors, such as loan loss experience and
prevailing
economic conditions. Management considers the level of reserves
adequate
based on the current risk profile in the loan portfolio.
Non-Interest Income
Non-interest income consists of all revenues which are not
included in
interest and fee income related to earning assets. Total non-
interest
income increased $1,435,000, or 78.7% from $1,824,000 for the
three months
ended March 31, 1997 to $3,259,000 for the corresponding period
in 1998.
The largest contributor to the increase in non-interest income in
the most
recent quarter is the recognition of a gain on the settlement of
the
Company's defined benefit pension plan. The gain of $1.826
million is
reported in non-interest income net of a $764,000 excise tax
related
to the reversion of trust assets to the Company.
Non-Interest Expense
Non-interest expense totaled $7.3 million in the first quarter of
1998
increasing $1.9 million over the corresponding period in 1997.
This increase
includes the effect of the acquisitions of Blue Ridge Bank and
branch
acquisitions which added an additional $739,000 in salaries and
benefits,
$250,000 in occupancy cost and furniture & fixtures and $633,000
in other
operating costs including goodwill amortization.
13
<PAGE>
FINANCIAL POSITION
Securities
Securities totaled $250.3 million at March 31,1998 which
represented a decrease
of $20.7 million from December 31, 1997. This 7.6% decrease was
used to
reduce wholesale funding from the Federal Home Loan Bank (FHLB)
and is
evident in the increase in interest-bearing bank balances which
represent
overnight funds sold to the FHLB. Declining investment rates
have resulted
in increases in the volume of securities called prior to final
maturity.
Securities available for sale were $149.5 million at March 31,
1998 as
compared to $161.8 million at December 31, 1997. Securities
available
for sale are recorded at their fair market value at March 31,
1998 and
December 31, 1997. The unrealized gain or loss, which is the
difference
between book value and market value, net of related deferred
taxes, is
recognized in the Stockholders' Equity section of the balance
sheet as
accumulated other comprehensive income. The unrealized gain
after taxes of
$1.3 million at December 31, 1997, increased $119,000 to an
unrealized gain
of $1.4 million at March 31, 1998.
Investment securities, which are purchased with the intent to
hold until
maturity, totaled $100.8 million at March 31, 1998 as compared to
$109.2
million at December 31, 1997. The market value of investment
securities
was 103% of book value at December 31, 1997 and March 31, 1998.
Loans
The Company's lending strategy stresses quality growth,
diversified by
product, geography and industry. A common credit underwriting
structure and
review process is in place throughout the Company.
Total loans decreased $9.9 million from $671.8 million at
December 31, 1997
to $661.9 million at March 31, 1998. Likewise, the loan to
deposit ratio
decreased slightly from 79% at December 31, 1997 to 76% at March
31, 1998.
Average total loans have increased $121.4 million between the
first quarter
of 1997 and 1998 due primarily to the addition of loan portfolios
from
Blue Ridge and the newly acquired branches, as well as effective
competition
with larger regional banks for small business customers both in
and around the
Company's primary markets. The loan portfolio continues to be
diversified
among loan types and industry segments. Commercial and
commercial real estate
loans represent the largest portion of the portfolio, comprising
$281.9
million or 43% of total loans at March 31, 1998 and $285.1
million or
42% of total loans at December 31, 1997. Residential real estate
loans
decreased slightly in total dollars but increased as a percentage
of the
portfolio to 34% of total loans at March 31, 1998 as compared to
$227.5
million or 31% at December 31, 1997. Loans to individuals also
decreased
slightly from $148.5 million or 22% of total loans at December
31, 1997 to
$143.5 million or 22% of total loans at March 31, 1998.
14
<PAGE>
Non-Performing Assets
Non-performing assets are comprised of loans on non-accrual
status, loans
contractually past due 90 days or more and still accruing
interest and
other real estate owned (OREO). Non-performing assets were $17.7
million at
March 31, 1998, or 2.7% of total loans and OREO, compared with
$15.9 million
or 2.4% at December 31, 1997. The following schedule details non-
performing
assets by category at the close of each of the last five
quarters:
<TABLE>
<S> <C> <C> <C> <C> <C>
(In Thousands) March 31 December 31 September 30 June 30 March
31
1998 1997 1997 1997 1997
Non-Accrual $10,832 $ 9,988 $11,507 $ 7,173 $ 7,096
Ninety Days Past Due 5,261 4,391 2,255 2,674 5,189
Other Real Estate Owned 1,594 1,472 2,279 2,483 2,450
$17,687 $15,851 $16,041 $12,330 $14,735
Restructured loans
performing in accordance
with modified terms$ 524$ 534$ 381$ 547$ 394
</TABLE>
Non-accrual loans and loans ninety days past due increased $.8
million and
$.9 million, respectively, when comparing March 31, 1998 and
December 31,
1997. The increase in non-accrual loans is due in large part to
one loan in
the amount of $270,000. This loan is well secured by real estate
and no loss
is expected. The remainder of the increase consists of smaller
credits. The
increase in ninety-days also relates largely to one relationship
totaling
$360,000. This relationship is secured by a medical office
building and
assignment of rents and again, no loss is expected on this loan.
Management believes that the extent of problem loans at March 31,
1998 is
disclosed as non-performing assets in the preceding chart.
However, there
can be no assurance that future circumstances, such as further
erosions in
economic conditions and the related potential effect that such
erosions may
have on certain borrowers' ability to continue to meet payment
obligations,
will not lead to an increase in problem loan totals. Management
further
believes that non-performing asset carrying values will be
substantially
recoverable after taking into consideration the adequacy of
applicable
collateral and, in certain cases, partial writedowns which have
been taken
and allowances that have been established.
Stockholders' Equity
Total stockholders' equity reached $100.2 million at March 31,
1998
increasing $2.3 million over the $97.9 million reported for
December 31, 1997.
The increase in stockholders' equity was the result of earnings
net of
dividends of $1.8 million. Adding to this increase was an
increase in the
accumulated other comprehensive income increasing from $1,251,000
at December
31, 1997 to $1,370,000 at March 31, 1998.
The Federal Reserve's risk based capital guidelines and leverage
ratio
measure capital adequacy of banking institutions. Risk-based
capital
guidelines weight balance sheet assets and off-balance
commitments based on
inherent risks associated with the respective asset types. At
March 31, 1998,
the company's risk adjusted capital-to-asset ratio was 12.30%.
The company's
leverage ratio at March 31, 1998 was 7.10% compared with 6.96% at
December 31,
1997. Both the risk adjusted capital-to-asset ratio and the
leverage ratio
exceed the current minimum levels prescribed for bank holding
companies of
8% and 3%, respectively.
15
<PAGE>
Liquidity
The Company maintains a significant level of liquidity in the
form of cash
and due from bank balances ($75.8 million), investment securities
available
for sale ($149.5 million), federal funds sold ($29.5 million),
and Federal
Home Loan Bank of Pittsburgh credit availability of $160.0
million. Cash
advances from the Federal Home Loan Bank of Pittsburgh are
immediately
available for satisfaction of deposit withdrawals, customer
credit needs
and operations of the Company. Investment securities available
for sale
represent a secondary level of liquidity available for conversion
to liquid
funds in the event of extraordinary needs.
PART I. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Since December 31, 1997, the Company's balance sheet profile has
shifted
slightly toward an asset sensitive position due to increased
liquidity from
investment security calls and growth in customer deposits,
largely in the time
deposit and repurchase categories. This shift would have the
effect of
lessening interest rate risk in a rising rate environment. The
interest rate
environment has remained relatively flat since year-end 1997 and
there have
been no significant changes in market risks. A complete
discussion of
market risk is included in the Company's 1997 report on Form 10-
K.
FCFT, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) There were no material developments in legal
proceedings during
the first quarter of 1998 nor through the date of this report. A
complete
discussion of material legal proceedings is included in the
Company's 1997
report on Form 10-K.
Item 2. Changes in Securities
(a) N/A
(b) N/A
(c) N/A
(d) N/A
Item 3. Defaults Upon Senior Securities
(a) N/A
(b) N/A
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on April 14,
1998.
(b) N/A
16
<PAGE>
(c) The following directors were elected to serve a three-year
term through
the date of the 2001 Annual Meeting of Stockholders.
Allen T. Hamner, B.W. Harvey, John M. Mendez, and Harold Wood
Two proposals were voted upon at the annual meeting, which
included the
election of the aforementioned directors and the ratification of
Deloitte &
Touche LLP as independent auditors for the corporation for the
fiscal year
ending December 31, 1998. The results of the proposals and votes
are as
follows:
<TABLE>
<CAPTION>
Proposal 1. Election of Directors
<S> <C> <C> <C>
Votes For Votes Against Votes Withheld
Allen T. Hamner 4,121,655 51,611 0
B.W. Harvey 4,114,269 58,997 0
John M. Mendez 4,160,825 12,441 0
Harold Wood 4,115,833 57,433 0
</TABLE>
<TABLE>
<CAPTION>
Proposal 2. Ratification of Deloitte & Touche LLP
<S> <C>
Votes For 4,030,812
Votes Against 142,454
Votes Withheld 0
</TABLE>
(d) N/A
Item 5. Other Information
(a) N/A
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 15- Letter regarding unaudited interim financial
information
Exhibit 27- Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the first quarter of
1998.
17
<PAGE>
Exhibit 15
May 11, 1998
To the Board of Directors and Stockholders
of First Community Bancshares, Inc.
Dear Sirs:
We have made a review, in accordance with standards established
by the
American Institute of Certified Public Accountants, of the
unaudited interim
financial information of First Community Bancshares, Inc. and
subsidiaries
for the periods ended March 31, 1998 and 1997, as indicated in
our report
dated April 24, 1998; because we did not perform an audit, we
expressed no
opinion on that information.
We are aware that our report referred to above, which is included
in your
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, is
incorporated by reference in Registration Statement No. 33-72616
on Form S-8
and Registration Statement No. 333-2996 on Form S-4.
We also are aware that the aforementioned report, pursuant to
Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration
Statement prepared or certified by an accountant or a report
prepared or
certified by an accountant within the meaning of Sections 7 and
11 of that
Act.
Yours truly,
Deloitte & Touche LLP
Pittsburgh, Pennsylvania
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the
Registrant has duly caused this report to be signed on its behalf
by the
undersigned thereunto duly authorized.
First Community Bancshares, Inc.
DATE: May 11, 1998
/s/James L. Harrison, Sr.
James L. Harrison, Sr.
President & Chief Executive Officer
(Duly Authorized Officer)
DATE: May 11, 1998
/s/John M. Mendez
John M. Mendez
Vice President & Chief Financial Officer
(Principal Accounting Officer)
19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> $37,298
<INT-BEARING-DEPOSITS> 38,574
<FED-FUNDS-SOLD> 29,484
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,472
<INVESTMENTS-CARRYING> 100,816
<INVESTMENTS-MARKET> 103,933
<LOANS> 661,890
<ALLOWANCE> 11,943
<TOTAL-ASSETS> 1,068,229
<DEPOSITS> 874,868
<SHORT-TERM> 55,755
<LIABILITIES-OTHER> 13,842
<LONG-TERM> 23,583
0
0
<COMMON> 7,194
<OTHER-SE> 92,987
<TOTAL-LIABILITIES-AND-EQUITY> 1,068,229
<INTEREST-LOAN> 16,066
<INTEREST-INVEST> 4,150
<INTEREST-OTHER> 321
<INTEREST-TOTAL> 20,537
<INTEREST-DEPOSIT> 8,623
<INTEREST-EXPENSE> 9,551
<INTEREST-INCOME-NET> 10,986
<LOAN-LOSSES> 1,287
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 7,338
<INCOME-PRETAX> 5,620
<INCOME-PRE-EXTRAORDINARY> 5,620
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,954
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
<YIELD-ACTUAL> 5.05
<LOANS-NON> 10,832
<LOANS-PAST> 5,261
<LOANS-TROUBLED> 524
<LOANS-PROBLEM> 16,093
<ALLOWANCE-OPEN> 11,406
<CHARGE-OFFS> 865
<RECOVERIES> 115
<ALLOWANCE-CLOSE> 11,943
<ALLOWANCE-DOMESTIC> 4,189
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,754
</TABLE>
