FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 No. 0-19618
FIRST COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1833586
(State of Incorporation) (IRS Employer Id. No.)
210 East Harriman
Bargersville, IN 46106
(Address of principal executive offices)
(317) 422-5171
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Outstanding Shares of Common Stock on September 30, 1997: 942,825
<PAGE>
FIRST COMMUNITY BANCSHARES, INC.
FORM 10-Q
INDEX
Part I. Financial Information: Page No.
--------
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet . . . . . . . . . . 3
Consolidated Condensed Statement of Income . . . . . . . 4
Consolidated Condensed Statement of Changes
in Stockholders' Equity . . . . . . . . . . . 5
Consolidated Condensed Statement of Cash Flows . . . . . 6
Notes to Consolidated Condensed Financial Statements . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 8
Part II. Other Information:
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes In Securities . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . 10
Item 4. Submission of Matter to a Vote of Security Holders . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
<PAGE>
Item 1. Financial Information
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 913,104 $ 1,059,473
Short-term interest-bearing deposits 5,295,817 5,975,098
-------------------------------
Cash and cash equivalents 6,208,921 7,034,571
Investment securities
Available for sale 2,314,649 2,386,358
Held to maturity 1,954,103 2,540,803
-------------------------------
Total investment securities 4,268,752 4,927,161
Loans 76,805,472 65,108,481
Allowance for loan losses (783,991) (644,132)
-------------------------------
Net Loans 76,021,481 64,464,349
Premises and equipment 1,948,390 1,791,873
Federal Home Loan Bank of Indianapolis stock, at cost 777,800 777,800
Foreclosed real estate 56,636 139,500
Interest receivable 624,290 526,186
Other assets 401,457 417,268
-------------------------------
Total assets $90,307,727 $80,078,708
===============================
LIABILITIES
Deposits
Noninterest bearing $ 6,192,236 $ 5,833,251
Interest bearing 74,961,552 64,719,018
-------------------------------
Total deposits 81,153,788 70,552,269
Federal Home Loan Bank of Indianapolis advances 1,270,686 2,378,830
Interest payable 220,588 187,083
Other liabilities 316,837 74,570
-------------------------------
Total liabilities 82,961,899 73,192,752
-------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, no-par value
Authorized and unissued - 1,000,000 shares
Common stock, no-par value
Authorized - 4,000,000 shares
Issued and outstanding - 942,825 shares 6,181,486 6,181,486
Retained earnings and contributed capital 1,126,210 692,760
Net unrealized gain on securities available for sale 38,132 11,710
-------------------------------
Total stockholders' equity 7,345,828 6,885,956
-------------------------------
Total liabilities and stockholders' equity $90,307,727 $80,078,708
===============================
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Condensed Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------
1997 1996 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 1,777,802 $1,429,332 $ 4,959,194 $4,057,157
Investment securities
Taxable 47,297 42,217 132,474 154,935
Tax exempt 25,928 31,167 84,378 94,659
Interest-bearing time deposits 52,515 20,636 173,625 162,918
Dividends 16,174 15,347 47,645 42,601
-----------------------------------------------------
Total interest income 1,919,716 1,538,699 5,397,316 4,512,270
-----------------------------------------------------
Interest Expense:
Deposits 963,204 721,232 2,687,556 2,157,964
FHLB advances 20,189 36,858 92,232 184,360
-----------------------------------------------------
Total interest expense 983,393 758,090 2,779,788 2,342,324
-----------------------------------------------------
Net Interest Income 936,323 780,609 2,617,528 2,169,946
Provision for loan losses (69,000) (55,500) (180,000) (162,000)
-----------------------------------------------------
Net Interest Income After Provision for Loan Losses 867,323 725,109 2,437,528 2,007,946
-----------------------------------------------------
Other Income
Trust fees 6,715 5,841 24,491 18,450
Service charges on deposit accounts 56,984 48,106 168,730 135,073
Net realized gains on sales of securities
available for sale 5,630
Other operating income 23,906 8,317 34,263 21,140
-----------------------------------------------------
Total other income 87,605 62,264 227,484 180,293
-----------------------------------------------------
Other Expenses
Salaries and employee benefits 307,468 244,890 894,002 703,464
Premises and equipment 79,911 53,809 220,361 152,755
Advertising 36,290 32,720 96,807 85,089
Data processing fees 79,822 51,500 191,493 143,972
Deposit insurance expense 11,475 378,329 33,002 442,273
Printing and office supplies 23,276 16,980 58,842 54,002
Legal and professional fees 17,492 30,638 97,536 118,554
Telephone expense 18,003 13,924 52,334 40,954
Other operating expense 71,780 65,101 226,747 221,027
-----------------------------------------------------
Total other expenses 645,517 887,891 1,871,124 1,962,090
-----------------------------------------------------
Income (Loss) Before Income Tax 309,411 (100,518) 793,888 226,149
Income tax expense (credit) 104,185 (50,448) 266,156 39,570
-----------------------------------------------------
Net Income (Loss) $ 205,226 $ (50,070) $ 527,732 $ 186,579
=====================================================
Net Income (Loss) Per Share $ .22 $ (.05) $ .56 $ .20
Weighted Average Shares Outstanding 942,825 942,825 942,825 937,834
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
FIRST COMMUNITY BANCSHARES, INC AND SUBSIDIARY
Consolidated Condensed Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Retained Net Unrealized
Common Stock Earnings Gain on
-------------------------- and Securities
Shares Contributed Available
Outstanding Amount Capital For Sale Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 942,825 $6,181,486 $ 692,760 $11,710 $6,885,956
Net income for the period 527,732 527,732
Net change in unrealized gain
on securities available for 26,422 26,422
sale
Cash dividends (94,282) (94,282)
-------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1997 942,825 $6,181,486 $ 1,126,210 $38,132 $7,345,828
===============================================================================
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------------
1997 1996
-------------------------------
<S> <C> <C>
Operating Activities:
Net income $ 527,732 $ 186,579
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Provision for loan losses 180,000 162,000
Depreciation and amortization 101,396 58,614
Securities gains (5,630)
Investment securities amortization 3,913 5,140
Net change in:
Interest receivable (98,104) 24,033
Interest payable 33,505 (1,718)
Other assets (1,519) 13,996
Other liabilities 242,267 384,130
Due from broker 2,025,329
-------------------------------
Net cash provided by operating activities 989,190 2,852,473
-------------------------------
Investing Activities:
Proceeds from maturities of securities available for sale 615,000 400,000
Proceeds from paydowns and maturities of securities held to
maturity 583,248 534,853
Proceeds from sales of securities available for sale 460,630
Proceeds from sales of securities held to maturity
Purchases of securities available for sale (500,000)
Net change in loans (11,777,435) (8,774,502)
Purchases of FHLB stock (177,300)
Proceeds from sale of foreclosed real estate 123,167 5,285
Purchases of property and equipment (257,913) (214,937)
-------------------------------
Net cash used by investing activities (11,213,933) (7,765,971)
-------------------------------
Financing Activities:
Net change in:
Noninterest-bearing, NOW and savings deposits 1,273,526 3,644,434
Certificates of Deposit 9,327,993 1,809,757
Short-term borrowings (908,138)
Proceeds from FHLB advances
Repayment of FHLB advances (1,108,144) (2,121,485)
Exercise of stock options 112,516
Cash dividends (94,282)
-------------------------------
Net cash provided by financing activities 9,399,093 2,537,084
-------------------------------
Net Decrease in Cash and Cash equivalents (825,650) (2,376,414)
Cash and Cash equivalents, Beginning of period 7,034,571 5,650,826
-------------------------------
Cash and Cash equivalents, End of period $ 6,208,921 $ 3,274,412
===============================
Supplemental cash flow disclosures:
Interest paid $ 2,746,283 $ 2,344,042
Taxes paid 139,904 55,000
</TABLE>
See notes to consolidated condensed financial statements.
6
<PAGE>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Condensed Financial Statements
September 30, 1997
(Unaudited)
Note 1 Basis of Presentation
- ----------------------------
The consolidated financial statements include the accounts of First Community
Bancshares, Inc. (the "Company") and its wholly owned subsidiary, First
Community Bank & Trust, a state chartered bank (the "Bank"). A summary of
significant accounting policies is set forth in Note 1 of Notes to Financial
Statements included in the December 31, 1996, Annual Report to Shareholders.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
The interim consolidated financial statements have been prepared in accordance
with instructions to Form 10-Q, and therefore do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles.
The interim consolidated financial statements at September 30, 1997, and for
the three and nine months ended September 30, 1997 and 1996, have not been
audited by independent accountants, but reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results of operations and cash flows
for such periods.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
---------------------------------------------------------------
Results of Operations
- ---------------------
Net income increased from $186,579 to $527,732 for the nine months, and from a
loss of ($50,070) to $205,226 for the three months, ending September 30, 1996
and 1997 respectively. On a per share basis, net income increased from ($.05)
to $.22 for the three month period, and from $.20 to $.56 for the nine month
period, ending September 30, 1996 and 1997 respectively. Net interest income
increased from $2,169,946 to $2,617,528 for the nine months, and from $780,609
to $936,323 for the three months, ending September 30, 1996 and 1997
respectively.
The increase in net income for both periods was primarily due to the increase
in net interest income and the reduction in deposit insurance premiums. The
increase in net interest income for both periods was primarily due to an
increase in lending. Total loans increased by $11,696,991 from $65,108,481 at
December 31, 1996 to $76,805,472 at September 30, 1997. Because of the
increase in total loans, the Company also increased the provision for loan
losses from $644,132 at December 31, 1996 to $783,991 at September 30, 1997,
an increase of $139,859. Deposit insurance expense decreased by $409,271 for
the nine months and $366,854 for the three months ended September 30, 1997,
when compared to the same periods in 1996, due to the recapitalization of the
savings association insurance fund in 1996. The recapitalization ultimately
resulted in a decline in the assessment rate payable by First Community.
Income from service charges on deposit accounts increased from $135,073 to
$168,730 for the nine months, and from $48,106 to $56,984 for the three
months, ending September 30, 1996 and 1997 respectively. This increase was
primarily due to an increase in the number of deposit accounts. Salaries and
employee benefits expense increased by $190,538 for the nine months ended
September 30, 1997 when compared to the same period in 1996 and increased from
$244,890 to $307,468 for the three month period ending September 30, 1996 and
1997 respectively. The increase was due primarily to the opening of a second
branch in Franklin, Indiana in October, 1996. Additionally, premises and
equipment expense increased from $152,755 to $220,361 for the nine months, and
from $53,809 to $79,911 for the three months, ending September 30, 1996 and
1997 respectively, primarily due to the aforementioned new branch opening.
Other increases in other expenses are a direct result of the overall growth of
the Bank. Income taxes increased $226,586 for the nine months ended September
30, 1997 when compared to the same period in 1996 because of the increase in
the Bank's income before taxes of $567,739.
Balance Sheet
- -------------
Loans and Deposits The Bank had an increase in net loans outstanding from
$64,464,349 on December 31, 1996 to $76,021,481 on September 30, 1997. This
increase is primarily due to an increasing customer base because the Bank's
branches are located in strong growth markets.
Deposits increased from $70,552,269 on December 31, 1996 to $81,153,788 on
September 30, 1997. This increase as in the increases in the loan portfolio
is due to the strong markets that the Bank is located in and an increase in
customer base.
The growth of the Bank has been positively affected by the opening of a new
branch in Greenwood, Indiana in February, 1994, the opening of a branch in
North Vernon, Indiana in October, 1994 and the opening of a second branch in
Franklin, Indiana in October, 1996, as well as general acceptance by the
public of the community philosophy of the Bank.
8
<PAGE>
Classification of Assets, Allowance for Loan Losses, and Nonperforming Loans
- ----------------------------------------------------------------------------
The Bank currently classifies loans as substandard, doubtful and loss to
assist management in addressing collection risks and pursuant to regulatory
requirements which are not necessarily consistent with generally accepted
accounting principles. Substandard loans represent credits characterized by
the distinct possibility that some loss will be sustained if deficiencies are
not corrected. Doubtful loans possess the characteristics of substandard
loans, but collection or liquidation in full is doubtful based upon existing
facts, conditions and values. A loan classified as a loss is considered
uncollectible. As of September 30, 1997, the Bank had $562,638 of loans
classified as substandard, none as doubtful and none as loss. The allowance
for loan losses was $783,991 or 1.02% of loans receivable at September 30,
1997 compared to $644,132 or .99% of loans receivable at December 31, 1996. A
portion of classified loans are non-accrual loans. First Community had
non-accrual loans totaling $226,070 at September 30, 1997 compared to $99,000
at December 31, 1996. The increase in non-accrual loans is attributable to
one loan which was placed on non-accrual status in September of 1997.
Liquidity, Interest Rate Sensitivity and Capital Resources
- ----------------------------------------------------------
Liquidity refers to the ability of a financial institution to generate
sufficient cash to fund current loan demand, meet savings deposit withdrawals
and pay operating expenses. The primary sources of liquidity are cash,
interest-bearing deposits in other financial institutions, marketable
securities, loan repayments, increased deposits and total institutional
borrowing capacity.
Cash and interest-bearing deposits, when combined with investments, have
remained a relatively constant percent of total assets, while increasing in
dollar volume. Management's goal is to maintain approximately twenty percent
(20%) to twenty-five percent (25%) of total assets in cash, interest-bearing
deposits and investments in order to satisfy First Community's needs for
liquidity and other short-term obligations.
Management believes it has adequate liquidity for First Community's short- and
long-term needs. Short-term liquidity needs resulting from normal
deposit/withdrawal functions are provided by First Community retaining a
portion of cash generated from operations in a FHLB daily investment account.
This account acts as a short-term liquidity source while providing interest
income to First Community. Long-term liquidity and other liquidity needs are
provided by the ability of First Community to borrow up to $19,388,293 from
the FHLB and the balance of its borrowings was $1,270,686 and $2,378,830 at
September 30, 1997 and December 31, 1996, respectively.
At September 30, 1997, the Bank's one-year cumulative interest rate gap was a
negative 21.46%. A negative interest rate gap means First Community's
earnings are vulnerable during periods of rising interest rates because during
such periods the interest expense paid on liabilities will generally increase
more rapidly than the interest income earned on assets. Accordingly, this
negative interest rate gap represents substantial risk for First Community in
an environment of rising interest rates. Conversely, in a falling interest
rate environment, the total expense paid on liabilities will generally
decrease more rapidly than the interest income earned on assets. A positive
interest rate gap would have the opposite effect.
At September 30, 1997, the Company and its subsidiary, First Community Bank &
Trust, had core capital of approximately 8.1% and 7.9% respectively. Both
institutions had risk-based capital in excess of 8.0%. The regulatory core
and risk-based capital requirements are 4.0% and 8.0% respectively.
9
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings.
------------------
None.
Item 2. Changes in Securities.
----------------------
Not applicable.
Item 3. Defaults upon Senior Securities.
--------------------------------
Not applicable.
Item 4. Submission of matters to a Vote by Security Holders.
----------------------------------------------------
None.
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibit 27...Financial Data Schedule
(b) No reports were filed on Form 8-K during the quarter
ended September 30, 1997.
10
<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.
By: /s/ Albert R. Jackson III
-----------------------------
Albert R. Jackson III
Chief Executive Officer,
Chief Financial Officer,
November 14, 1997
11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 913,104
<INT-BEARING-DEPOSITS> 5,295,817
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,314,649
<INVESTMENTS-CARRYING> 1,940,103
<INVESTMENTS-MARKET> 1,954,103
<LOANS> 76,805,472
<ALLOWANCE> 783,991
<TOTAL-ASSETS> 90,307,727
<DEPOSITS> 81,153,788
<SHORT-TERM> 1,270,686
<LIABILITIES-OTHER> 316,837
<LONG-TERM> 0
0
0
<COMMON> 6,181,486
<OTHER-SE> 1,164,342
<TOTAL-LIABILITIES-AND-EQUITY> 90,307,727
<INTEREST-LOAN> 4,959,194
<INTEREST-INVEST> 438,122
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,397,316
<INTEREST-DEPOSIT> 2,687,556
<INTEREST-EXPENSE> 2,779,788
<INTEREST-INCOME-NET> 2,617,528
<LOAN-LOSSES> 180,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,871,124
<INCOME-PRETAX> 793,888
<INCOME-PRE-EXTRAORDINARY> 527,732
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 527,732
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 4.82
<LOANS-NON> 226,070
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 562,638
<ALLOWANCE-OPEN> 644,000
<CHARGE-OFFS> 66,000
<RECOVERIES> 26,000
<ALLOWANCE-CLOSE> 784,000
<ALLOWANCE-DOMESTIC> 784,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
