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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported) DECEMBER 7, 2000
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FIRST COMMUNITY BANCSHARES, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 0-19297 55-0694814
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State or other jurisdiction (Commission File Number) (IRS Employer of
incorporation) Identification No.)
P.O. BOX 989, BLUEFIELD, VIRGINIA 24605-0989
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (540) 326-9000
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(Former name or former address, if changed since last report)
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Item 9. Presentation to Scott and Stringfellow
PRESENTATION TO SCOTT AND STRINGFELLOW
SCHEDULED FOR DECEMBER 8, 2000
CAUTIONARY STATEMENT
The following discussion and analysis was prepared for use in a conference
between Scott & Stringfellow and the Company in anticipation of a meeting to be
held on December 8, 2000. Some of the discussion which follows in this Item 9
may include forward-looking statements. These forward-looking statements are
based on current expectations that involve risks, uncertainties, and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may differ
materially. Risks that FCBI faces in running its operations include: the
challenge of managing of asset/liability levels; the management of credit risk
and interest rate risk; the difficulty of keeping expense growth at modest
levels while increasing revenues; competition generally; the incorporation of
new businesses and product lines; and other risks detailed from time to time in
FCBI's Securities and Exchange Commission reports, including but not limited to
the Annual Report on Form 10-K for the year ended December 31, 1999.
COMPANY OVERVIEW AND HISTORY
First Community has a long heritage dating back to 1874 and the predecessors of
First Community Bank. The modern day company was formed in 1979 with the
organization of First Community Bancshares, Inc. At that time total resources
were approximately $200 million. The company was materially transformed in 1990
with the merger with Flat Top Bankshares which vaulted total resources to $515
million and added approximately $327 million in trust assets under management.
Through a series of acquisitions the company grew rapidly through the 90's to
its present level of $1.2 billion in banking assets and $500 million in trust
assets under management.
The strategic direction of the company began to change in 1996 with the first
out-of- state acquisition. In 1996 the company acquired the Citizens Bank of
Tazewell with two locations in Southwest Virginia and in 1997 acquired the Blue
Ridge Bank in North Carolina. Additional branch acquisitions were made in
Virginia in 1997 and the company was firmly established as a multi-state bank
holding comany with 33 branches in the three state region.
In 1999 the company continued its Virginia expansion with the addition of United
First Mortgage, a mortgage-banking firm with 11 offices based in Richmond,
Virginia. UFM continues to operate throughout Virginia and throughout the
eastern United States through its newly established wholesale division.
The company continues to pursue growth in resources and products through
strategic partnerships such as the company's investment in the Community Bankers
Insurance
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Center, a Virginia-based consortium of banks, which formed to acquire property
and casualty and life and health insurance agencies in Virginia and North
Carolina.
GROWTH STRATEGY
Historically, the company followed a strategy of branch placement and bank
acquisition, which aligned the company with rural markets, primarily in West
Virginia, which were, to a degree, sheltered from competition. This strategy
served the company well for a number of years as it remained, for several years,
in the top 10% of all banks in the nation based on return on assets and number
one in the state of West Virginia in Return On Equity.
Approximately 25% of the company's assets are centered in Mercer County
West Virginia, where the company originated. Through the 80's and 90's the
company pursued acquisitions in rural county seats throughout West Virginia in a
corridor paralleling interstates I-77 and I-79. This strategy provided growth
and diversification of markets and enhanced earnings with the addition of strong
core deposits and sources of consumer credit. The company expansion continued
with ventures into Virginia in 1996 and North Carolina in 1997. Expansion in
these states also focused on markets in rural areas with moderate competitive
forces.
Through this series of acquisitions, the company refined its philosophy and
processes for identification and assimilation of new banks and became efficient
in the addition of operations and new markets and found that its autonomous
management approach, retaining local management and providing limited central
services proved quite successful. Core competencies including data processing,
central accounting, internal audit and credit administration were leveraged over
an ever-increasing base of seemingly autonomous regional banks who retained
strong local flavor through area CEO's and local decision-making. These regional
banks remained heavily involved in area civic activities and were successful in
retaining their image as community banks. Local decision-making and a strong
culture of local customer service has been key to the success of this expansion
strategy.
In recent years, local markets have not yielded desired growth in core deposits
and the company has altered its position of targeting branch and bank
acquisitions in rural markets. Although the company will continue to develop and
serve these markets with great pride, it will also pursue more vibrant markets
with strong historical and prospective growth attributes. Growth in these
markets will also serve a secondary objective of diversification of markets
ultimately positioning 30% to 40% of the company's resources in the states of
North Carolina and Virginia within the next two years. This growth will be
achieved through a combination of bank and branch acquisitions and de novo
branch operations. Current prospects for new areas of operation include eastern
and northern Virginia from Chesapeake to Fredericksburg and Charlottesville and
in North Carolina in and near the Triad and Charlotte. While these represent new
markets for deposit services, the company has engaged in credit services in
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these areas for several years through account officers who regularly serve
established customers in these markets. The company is also connected to the
eastern Virginia markets through its network of mortgage banking offices doing
business as United First Mortgage, a wholly-owned subsidiary of First Community
Bank.
TECHNOLOGY INITIATIVES
The company currently possesses strong core technology in its central processing
of all divisions. The flexibility and efficiency of in-house processing has been
a hallmark of the company's financial success. Real time access to vital
financial information and customer data serves as a guide to operational
activities on a daily basis. In-house processing has also contributed
substantially to the company's lower than average efficiency ratio.
The company was one of the first banks within its markets to implement image
processing for customer checking accounts. Over 99% of all First Community
customers receive imaged statements which provide the superior convenience in
customer service and research and archival and which significantly reduces the
cost of check processing. This check-imaging network is scalable and presents
additional cost leveraging opportunities as the company continues its expansion
of the branch network and core deposits. The imaging network also holds promise
of supporting a future document imaging solution utilizing existing software and
RAID disc storage and optical storage hardware.
A network of 27 ATM locations within the company's primary markets supplements
the company's convenient network of branches. Currently under consideration is
the upgrade and relocation of ATM's for improved utilization and enhancement of
customer service. This project will involve the conversion of a number of
locations from walk-in to drive-up facilities.
The company currently offers 24 hour electronic banking services through a
point-to-point private network for PC Banking known as Xpress PC Banking and
Xpress Cash Management. The company also supports 24 hour telephone banking for
its customers through a central voice response unit. Both Xpress PC and
Telephone Banking provide real-time information and update capability 24 hours a
day. Xpress PC Banking includes capabilities for ACH origination, wire transfer
and cash concentration for business customers.
Near-term initiatives in the company's Technology Plan include upgrade of the
company's communication network, ATM upgrades, new platform origination software
with a two-way upload of account data to the core processing system and the
migration of PC Banking to an Internet based solution. Internet Banking will
also include customer bill payment services and possible access to discount
brokerage services.
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MANAGEMENT DESCRIPTION
Management of the company and the bank and its subsidiaries is led by John M.
Mendez. Mr. Mendez is a Certified Public Accountant whose career began with
seven years of Public Accounting concentrated in audit and consulting services
to the financial services industry. Mr. Mendez joined the company as Chief
Financial Officer in 1985 and advanced to Chief Administrative Officer and
ultimately assumed the position of President and Chief Executive Officer of
First Community Bancshares, Inc. in June of 2000. Mendez was appointed to the
CEO position with the mission of continuing the expansion of the company in
existing and new markets as well as initiating new services in insurance and
mortgage banking. Immediately upon assuming operations, Mendez initiated a
restructuring of the retail product set to better establish the company's
position of the leading community banking organization within its existing
markets and to better compete against local competitors for the retail banking
services of young professionals and middle income customers. A combination of
retail deposit products, new banking privileges and an intense marketing
campaign were designed with particular emphasis on a gain in market share
against lead competitor One Valley Bank which is currently in transition to the
products, fee structure and systems of BB&T which acquired One Valley earlier in
2000.
Robert L. Buzzo who serves as the President of First Community Bank, N. A.
brings 28 years of retail and commercial banking experience to the management
team as well as a wealth of knowledge and relationships within the company's
primary market. Buzzo has assumed primary responsibility for retail bank product
pricing and and works closely with area executives and corporate staff in
marketing and operations to design and maintain strategies for the growth of
core deposits and net interest margin maintenance. Mr. Buzzo is a graduate of
the School of Bank Administration at the University of Wisconsin.
E. Stephen Lilly serves as the Chief Operating Officer for both the Parent
Company and First Community Bank. Mr. Lilly's broad banking experience with Key
Centurion and BankOne provides a strong background for this very important
position and his superior knowledge in technology and operations define one of
the core competencies of the company, that being, its ability to leverage a
strong in-house IT and check processing function. Mr. Lilly was instrumental in
the successful deployment of one of the first fully- imaged backroom operations
in the state of West Virginia and in the region. Beyond his IT knowledge and
experience, Mr. Lilly serves as one of the key decision-makers for the company.
Mr. Lilly's return to First Community Bank from a short assignment with another
bank in Louisiana rounded out and essentially completed the FCBC management
team.
Finance and Accounting are co-managed by Robert L. Schumacher and Kenneth P.
Mulkey. Mssrs. Schumacher and Mulkey are Certified Public Accountants.
Additionally, Mr. Schumacher is an Attorney and former Senior Trust Officer for
the Company.
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Schumacher currently serves as the Senior Vice President-Finance and Mr. Mulkey
as Chief Financial Officer for the subsidiary of the company and Acting Chief
Financial Officer for the Parent organization.
Area Executives, which are known as CEOs for the nine banking divisions are all
experienced banking executives in their own right and most have served in Chief
Executive capacities for stand-alone banks either with other organizations or
predecessors of First Community Bank.
MANAGEMENT CHANGES
In June 2000 the previous Chief Executive Officer of First Community Bancshares,
Inc. terminated employment and was succeeded by Mr. Mendez. At this time Mssrs.
Buzzo and Lilly were elevated to their current positions. These management
changes resulted in a broader more dynamic management team with a division of
responsibility between the holding company and the subsidiary bank. The division
of executive responsibilities allows for focus on retail banking issues and
corporate strategies while also providing a strong connection between the two
areas of management. More importantly, the management changes resulted in a much
more dynamic organization through the empowerment management philosophy brought
to the company by Mr. Mendez. This has been illustrated in recent months in the
implementation of new programs and completion of projects, which had lingered
under the former management structure. In the short months since the management
transition, the company has completed its core product redevelopment, launched
complementary services such as OverdraftHonor, launched a major marketing
campaign promoting these new services, completed the acquisition of Citizens
Southern Bank, established a de novo wholesale mortgage operation, initiated
branch development studies for the expansion of retail banking and completed a
series of tax planning strategies, all of which have set the stage for improved
operating performance. The rapid accomplishment of these objectives was made
possible by the appropriate decentralization of authority and more effective
utilization of management resources.
Public reception of the management changes has been extremely good as measured
by local customers and the business community in general. Investor and stock
market perception is unknown but is believed to be neutral to positive with no
attribution of recent price declines to the management changes. Rather, it is
believed that the recent price declines are attributable to the parallel decline
in small cap financial stock indices, the decline in the stock market in
general, recent increases in short interest rates and anticipation of a general
slowing in the U.S. economy.
DIFFERENTIATING FACTORS
The company has firmly established itself as a community banking organization.
What makes First Community Bank different from other companies who make this
claim?
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The company's high level of autonomy provided to area banking divisions is
punctuated by the maintenance of Chief Executives in each region. These
executives are given full charge responsibility for regional pricing and
substantially all decisions affecting local markets. All consumer loan decisions
are made locally without regard to central approvals and most commercial loan
decisions are made either by account officers or local discount committees as
dictated by size. This means that local directors serving on discount committees
are able to apply knowledge of local loan customers basing decisions on local
credit reputation and standing as well as hard underwriting criteria.
The company has demonstrated its ability to assimilate new organizations and
achieve necessary economies of scale while maintaining an appropriate level of
personal customer service and local flavor. This has resulted in a network of
what appears to be local community banks, which de-emphasizes the central
organization in Bluefield Virginia. Local CEOs and, in some cases, local boards
and discount committees.
The central organization is limited to providing functions, which can be done
more effectively in a remote environment without impacting turnaround time,
customer service and customer related decisions. Functions, which are currently
handled on a central basis, are: Commercial Credit Review and Analysis,
Information Technology and Check Processing, Internal Audit and Compliance and
Marketing. Other functions have been considered for centralization but have been
rejected because of possible negative customer impact and removal of discretion
or necessary authority from the local branch network.
The company has traditionally operated with a very low efficiency ratio with a
combination of strong net interest margin and low operating costs. The company's
current efficiency ratio of 48% ranks the company high in the Virginia bank
universe and its 49.95% efficiency contributed to the company's ranking of 84th
in the 1999 high performing community bank review. Low overhead is a function of
moderate facility cost, reasonable salary costs in the company's largest markets
and the company's low cost of in-house data processing.
First Community Bancshares, Inc was ranked 84th among the 100 largest high
performing banks in the ABA Banking Journal Banking's Top Performers for 1999.
This ranking based on the strength of the company's 16.23% ROE in 1999 and the
company's No. 1 ranking on ROE in the state of West Virginia in the years 1995,
1996, 1997 and 1998 are the result of a management and broad employee focus on
financial goals and the requirement to achieve above average returns for the
company's stockholders.
IMPACT OF CITIZENS SOUTHERN AQUISITION
The Citizen Southern Bank acquisition, which was completed in October 2000, is
an illustration of the company's ability to consummate transactions, which
expand the company's community bank franchise. Citizens Southern was formed as a
community
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bank alternative to larger bank competitors such as BankOne and One Valley Bank.
The transaction has been well received by stockholders as indicated by their
overwhelming approval. Public reception in the Beckley market is pending
evaluation but is expected to be strong based on the retention of the entire
staff of the bank and the continuation of management by Sam Elmore.
Citizens Southern was originally projected to create EPS dilution of 1%-2% in
the first full year of operation. Current estimates indicate that Citizens
Southern will contribute approximately $700,000 in the 2001 fiscal year thereby
producing dilution on the lower end of this range. The net effect of Citizens
Southern should be $.02 dilution, which is expected to be covered by $.12 per
share growth in consolidated EPS excluding the impact Citizens Southern and
resulting in a net increase of $.10 per share growth between 2000 projected and
2001 budgeted results.
Citizens Southern, now First Community Bank-Beckley offers opportunity for
growth led by Sam Elmore. Mr. Elmore's years of retail and commercial banking
experience position him as the pre-eminent banker in the Beckley region. His
network of past and current banking customers provide a vast resource of future
business that can be tapped now that Mr. Elmore has available, the higher
lending limit and expanded services offered by First Community Bank. Mr. Elmore
and the former Citizens branches should be particularly effective considering
the impacts of the recent acquisition of One Valley Bank by BB&T and recent
turmoil within competing City National Bank.
DE NOVO BRANCH ACTIVITIES
De novo branching activities are being evaluated for the Northern and Eastern
Virginia areas as well as the Piedmont and Triad areas in North Carolina. Branch
site evaluations are in progress in certain of these markets and options for
staffing are being considered. Additional branch locations are also being
considered for the Mercer County West Virginia and Tazewell County, Virginia
markets.
Two new branches are possible for the 2001 fiscal year. Budgets for these
branches are incomplete and start-up costs are unknown at this time but are
believed to be immaterial to 2001 operations presuming late 2001 openings.
UNITED FIRST MORTGAGE
First Community Bank is the parent company of United First Mortgage (UFM), a
mortgage-banking subsidiary that has been engaged in retail mortgage lending
activities for over 11 years. UFM began an expansion of its retail offices and
producers in late 1999. Unfortunately this was about the time that the retail
mortgage market began its decline in mortgage originations. Modest operating
losses ensued at UFM. Accordingly, the company curtailed the expansion in early
2000. UFM has since initiated an alternative strategy involving the
establishment of a wholesale division designed to a) increase origination volume
and b) enhance retail Service Released Premiums (SRPs). At
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November 30, 2000 the wholesale division is up and running under the supervision
of a National Sales Manager and a new Marketing Specialist and Pipeline Manager.
Early activity in the wholesale division suggests that sufficient volumes will
be available under the wholesale operation to re-establish profitability.
Further, new national investors and improved marketing techniques may have a
positive effect on retail mortgage profitability.
INSURANCE ACTIVITIES AND OTHER NON-INTEREST REVENUES
The company has elected to pursue insurance agency activities through its
participation in the Bankers Insurance Center (BIC). The BIC is a consortium of
banks for the acquisition and operation of insurance agencies and the
distribution of insurance products through existing bank branch networks. At the
date of this report, the BIC has acquired two agencies and is preparing to
rollout insurance marketing efforts in the first quarter of 2001. First
Community Bank has a 3.29% interest in BIC and is currently training 22
representatives for licensing for the sale and referral of property and casualty
and life and health insurance products. These activities are not expected to
produce significant net revenues in 2001. However, as these services are
expanded throughout the branch network and as cross-sell ratios increase in
future years, it is anticipated that insurance commissions will be a significant
contributor to non-interest revenues.
First Community Bank currently derives approximately 21% of its revenues from
non-interest sources. This percentage may be significantly improved through the
expansion of UFM operations into wholesale mortgage activities and ultimately
through the addition of insurance sales and referrals.
ASSET QUALITY
Asset quality for the company is showing signs of improvement with recent
reductions in non-performing assets of approximately $1.2 million and a reserve
coverage ratio of 160% on non-performing loans. Additionally, the company has
been successful in reducing 30 day and over delinquencies to its current low
level of 1.79%.
DIVIDEND HISTORY
The company's financial plan incorporates a strong dividend payout objective of
48% to 50%. This payout ratio maintains capital ratios at levels that are
designed to match asset growth rates in the company's existing markets. As the
company expands into growth markets, it may become necessary to adjust the
dividend payout ratio to provide for additional capital accumulation. However,
at present, capital accumulation from earnings are sufficient to support
realistic growth expectations and do not aggravate leverage maintenance
objectives. The company's Stock Repurchase Plan is used to absorb excess capital
accumulation over and above the reciprocal of the dividend payout.
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The actual dividend payout for 1999 and 2000 was 48%. This resulted in dividends
of $.88 per share in 1999 and $.95 per share in 2000. These per share dividend
amounts represent increases of 4.8% in 1999 and 8.0% in 2000.
CONCLUSION
The company's outlook for 2001 is good with strong operation results at present
and the prospect of new services and strategies that should begin contribution
in early 2001. Asset quality is improving with reductions in non-accrual loans
and recent sales of idle properties. Overall loan delinquencies are at record
lows with thirty day and over past dues at 1.79%.
Current estimates indicate 2000 EPS of $1.91 and 2001 earnings of $2.01 per
share on expected net earnings of $18.25 million in 2001. The 2001 estimate
includes the new contribution from the former Citizens Southern in Beckley West
Virginia, the positive effects of the Just Checking and OverdraftHonor, and tax
planning initiatives, but does not include the pro forma results of the newly
established Wholesale Mortgage operation at UFM.
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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 hereunto duly authorized.
Dated: December 7, 2000
FIRST COMMUNITY BANCSHARES, INC.
BY: /s/ Robert L. Schumacher
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ROBERT L. SCHUMACHER,
SENIOR VICE PRESIDENT,
FINANCE
