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 June 30, 2000
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 or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
210 East Harriman
Bargersville, IN 46106
(Address of principal executive offices)
(Zip Code)
(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 August 1, 2000 1,039,959
<PAGE>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page No.
--------
Forward Looking Statement......................................................3
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Condensed Balance Sheet............................4
Consolidated Condensed Statement of Income......................5
Consolidated Condensed Statement of Comprehensive Income .......6
Consolidated Condensed Statement of Stockholders' Equity........7
Consolidated Condensed Statement of Cash Flows..................8
Notes to Unaudited Consolidated Condensed Financial Statements..9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........15
Part II. Other Information:
Item 1. Legal Proceedings.................................................15
Item 2. Changes In Securities.............................................15
Item 3. Defaults Upon Senior Securities...................................15
Item 4. Submission of Matters to a Vote of Security Holders...............15
Item 5. Other Information.................................................15
Item 6. Exhibits and Reports on Form 8-K..................................15
Signatures....................................................................16
2
<PAGE>
FORWARD LOOKING STATEMENT
This Quarterly Report on Form 10-Q ("Form 10-Q") contains statements which
constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements appear in a number of
places in this Form 10-Q and include statements regarding the intent, belief,
outlook, estimate or expectations of the Company (as defined below), its
directors or its officers primarily with respect to future events and the future
financial performance of the Company. Readers of this Form 10-Q are cautioned
that any such forward looking statements are not guarantees of future events or
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward looking statements as a result of
various factors. The accompanying information contained in this Form 10-Q
identifies important factors that could cause such differences. These factors
include changes in interest rates; loss of deposits and loan demand to other
financial institutions; substantial changes in financial markets; changes in
real estate values and the real estate market or regulatory changes.
3
<PAGE>
Item 1. Financial Statements
----------------------------
<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
June 30, December 31,
2000 1999
--------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 1,981,188 $ 2,357,531
Short-term interest-bearing deposits 1,722,443 2,245,670
--------------------------------
Cash and cash equivalents 3,703,631 4,603,201
Investment securities
Available for sale 11,415,396 14,065,377
Held to maturity 1,451,149 6,966,605
--------------------------------
Total investment securities 12,866,545 21,031,982
Loans 118,380,685 111,715,874
Allowance for loan losses (942,319) (873,203)
--------------------------------
Net loans 117,438,366 110,842,671
Premises and equipment 4,584,249 4,448,634
Federal Home Loan Bank of Indianapolis stock, at cost 777,800 777,800
Interest receivable 1,045,906 1,084,609
Cash value of life insurance 1,630,349 1,593,788
Other assets 965,468 854,001
--------------------------------
Total assets $143,012,314 $145,236,686
================================
Liabilities
Deposits
Noninterest-bearing $ 9,678,314 $ 9,411,994
Interest-bearing 115,368,438 118,903,006
--------------------------------
Total deposits 125,046,752 128,315,000
Federal Home Loan Bank of Indianapolis advances 5,150,000 4,597,389
Other borrowings 2,600,759 2,613,827
Interest payable 410,517 334,234
Other liabilities 659,043 570,756
--------------------------------
Total liabilities 133,867,071 136,431,206
--------------------------------
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 - 1,039,959 and 1,019,694 shares 7,023,423 6,930,024
Retained earnings and contributed capital 2,344,429 2,096,894
Accumulated other comprehensive loss (222,609) (221,438)
--------------------------------
Total stockholders' equity 9,145,243 8,805,480
--------------------------------
Total liabilities and stockholders' equity $143,012,314 $145,236,686
================================
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income
Loans, including fees $2,527,357 $2,117,343 $5,013,262 $4,234,492
Investment securities
Taxable 54,195 62,372 137,642 103,674
Tax exempt 124,107 92,269 249,418 160,857
Interest-bearing time deposits 71,030 129,325 143,868 211,703
Dividends 15,342 15,513 32,401 32,315
-------------------------------------------------
Total interest income 2,792,031 2,416,822 5,576,591 4,743,041
------------ ----------- ----------- ------------
Interest Expense
Deposits 1,466,788 1,226,219 2,935,441 2,351,125
FHLB advances 61,681 80,821 126,842 157,032
Other borrowings 47,211 39,490 95,321 66,887
-------------------------------------------------
Total interest expense 1,575,680 1,346,530 3,157,604 2,575,044
-------------------------------------------------
Net Interest Income 1,216,351 1,070,292 2,418,987 2,167,997
Provision for loan losses 55,000 75,000 119,100 150,000
-------------------------------------------------
Net Interest Income After Provision for Loan Losses 1,161,351 995,292 2,299,887 2,017,997
-------------------------------------------------
Other Income
Trust fees 8,629 21,575 17,989 25,315
Service charges on deposit accounts 122,500 80,287 229,610 155,455
Loss on sale of securities (1,849) 0 (1,849) 0
Other operating income 58,879 9,723 101,011 25,945
-------------------------------------------------
Total other income 188,159 111,585 346,761 206,715
-------------------------------------------------
Other Expenses
Salaries and employee benefits 556,008 399,093 1,108,859 780,215
Premises and equipment 158,479 93,879 321,939 183,703
Advertising 40,836 44,320 82,819 85,062
Data processing fees 120,445 82,646 231,519 163,735
Deposit insurance expense 6,558 15,334 13,378 29,343
Printing and office supplies 65,832 31,125 139,639 59,825
Legal and professional fees 45,276 72,960 98,768 112,626
Telephone expense 27,319 22,895 58,175 46,524
Other operating expense 47,380 112,407 225,465 246,247
-------------------------------------------------
Total other expenses 1,068,133 874,659 2,280,561 1,707,280
-------------------------------------------------
Income Before Income Tax 281,377 232,218 366,087 517,432
Income tax expense 55,047 51,818 36,588 132,047
-------------------------------------------------
Net Income $ 226,330 $ 180,400 $ 329,499 $ 385,385
=================================================
Basic earnings per share $ .22 $ .18 $ .33 $ .38
Diluted earnings per share $ .21 $ .17 $ .32 $ .37
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Comprehensive Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 226,330 $ 180,400 $ 329,499 $ 385,385
Other comprehensive income, net of tax
Unrealized gains (losses) on
securities available for sale
Unrealized holding gains
(losses) arising during
The period, net of tax
benefit (expense) of
($14,814), $74,547,
$769 and $85,527 23,703 (113,657) (54) (130,399)
Less: Reclassification
adjustment for losses
included in net income, net
of tax benefit of
$732 and $732 (1,117) (1,117)
-------------------------------------------------------
22,586 (113,657) (1,171) (130,399)
-------------------------------------------------------
Comprehensive income $ 248,916 $ 66,743 $ 328,328 $ 254,986
=======================================================
</TABLE>
See notes to consolidated condensed financial statements
6
<PAGE>
<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC AND SUBSIDIARIES
Consolidated Condensed Statement of Stockholders' Equity
For the Six Months Ended June 30, 2000
(Unaudited)
Retained
Common Stock Earnings Accumulated
-------------------------- And Other
Shares Contributed Comprehensive
Outstanding Amount Capital Loss Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 2000 1,019,694 $6,930,024 $2,096,894 $ (221,438) $8,805,480
Net income for the period 329,499 329,499
Unrealized losses on (1,171) (1,171)
securities Cash dividend
$.04 per share) (81,964) (81,964)
Options exercised, net of cost 30,840 170,854 170,854
Tax benefits on options exercised 12,300 12,300
Purchase of stock (10,575) (89,755) (89,755)
-------------------------------------------------------------------------
Balances, June 30, 2000 1,039,959 $7,023,423 $2,344,429 $ (222,609) $9,145,243
=========================================================================
</TABLE>
See notes to consolidated condensed financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
Six Months Ended
June 30,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Operating Activities
Net income $ 329,499 $ 385,385
Adjustments to reconcile net income to net cash provided by
operating activities
Provision for loan losses 119,100 150,000
Depreciation and amortization 175,813 94,777
Investment securities amortization (accretion) (21,459) 31,674
Gain on sale of foreclosed real estate 0 (7,241)
Loss on sale of fixed assets 0 2,318
Loss on sale of securities available for sale 1,849 0
Net change in:
Cash value of life insurance (36,561) 0
Interest receivable 38,703 (79,459)
Interest payable 76,283 7,678
Other assets (9,993) (155,144)
Other liabilities 87,477 24,602
---------------------------
Net cash provided by operating activities 760,711 454,590
---------------------------
Investing Activities
Purchases of securities available for sale 0 (6,146,730)
Proceeds from maturities of securities available for sale 2,634,286 490,000
Purchases of securities held to maturity (4,973,179) (225,000)
Proceeds from paydowns and maturities of securities held
to maturity 10,522,000 420,000
Net change in loans (6,803,200) (6,735,655)
Proceeds from sale of foreclosed real estate 0 72,500
Purchases of property and equipment (311,428) (202,343)
---------------------------
Net cash provided (used) by investing activities 1,068,479 (12,327,228)
---------------------------
Financing Activities
Net change in
Noninterest-bearing, NOW and savings deposits 1,796,504 3,752,477
Certificates of Deposit (5,064,752) 10,714,598
Proceeds from borrowings 6,000,000 1,830,000
Repayment of borrowings (5,460,457) (8,158)
Purchase of stock (89,755) (6,129)
Cash dividends (81,154) (30,660)
Rights and options exercised, net of costs 170,854 104,192
---------------------------
Net cash provided (used) by financing activities (2,728,760) 16,356,320
---------------------------
Net Change in Cash and Cash Equivalents (899,570) 4,483,682
Cash and Cash Equivalents, Beginning of Period 4,603,201 14,292,071
---------------------------
Cash and Cash Equivalents, End of Period $ 3,703,631 $18,775,753
===========================
Supplemental cash flow disclosures
Interest paid $ 3,081,321 $ 2,567,366
Income tax paid 20,000 246,570
Dividend payable 41,598 30,639
</TABLE>
See notes to consolidated condensed financial statements.
8
<PAGE>
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Condensed Financial Statements
Note 1: Basis of Presentation
-----------------------------
The consolidated financial statements include the accounts of First Community
Bancshares, Inc. (the "Company") and its wholly owned subsidiaries, First
Community Bank & Trust, a state chartered bank (the "Bank") and First Community
Real Estate Management, Inc. ("FCREMI"). FCREMI holds and manages real estate
used by the Company and the Bank. A summary of significant accounting policies
is set forth in Note 1 of Notes to Financial Statements included in the December
31, 1999, 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 June 30, 2000, and for the
three and six months ended June 30, 2000 and 1999, 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.
Note 2: Earnings Per Share
--------------------------
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to
common stockholders $226,330 1,014,372 $ .22 $180,400 1,021,850 $ .18
======= =======
Effect of dilutive stock options 2,482 7,160
Effect of convertible debt 10,568 90,910 10,568 80,455
---------------------- --------------------
Diluted earnings per share
Income available to
common stockholders and
assumed conversions $236,898 1,107,764 $ .21 $190,968 1,109,465 $ .17
============================== =============================
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 2000 June 30, 1999
------------- -------------
Weighted Per Weighted Per
Average Share Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share
Income available to
common stockholders $329,499 1,013,150 $ .33 $385,385 1,020,862 $ .38
======= =======
Effect of dilutive stock options 3,922 10,530
Effect of convertible debt 10,568 45,455 13,836 40,227
---------------------- --------------------
Diluted earnings per share
Income available to
common stockholders and
assumed conversions $340,067 1,062,527 $ .32 $399,221 1,071,619 $ .37
============================== =============================
</TABLE>
Note 3: Business Combinations
-----------------------------
On November 10, 1999, the Company signed a definitive agreement to acquire Blue
River Federal Savings Bank, Edinburgh, Indiana. The acquisition will be
accounted for under the purchase method of accounting. Under the terms of the
agreement, the Company will pay $41.50 for each share of common stock of Blue
River Federal Savings Bank. The Company will borrow $4,000,000 to finance the
transaction. A loan for $2,000,000 will be secured with Bank stock and the
second loan for $2,000,000 will be unsecured. Both loans will have a 15-year
term with interest only due for the first five years. The secured $2,000,000
loan will bear interest at .25% below the lender's prime rate of interest and
the unsecured $2,000,000 loan will bear interest at .75% over the lender's prime
rate of interest. The transaction is subject to approval by appropriate
regulatory agencies. The Company anticipates amortizing core deposit intangibles
over ten years and goodwill over twenty years. As of June 30, 2000, Blue River
Federal Savings Bank had total assets and stockholders' equity of $25.3 million
and $2.6 million respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and
------- Results of Operations
---------------------------------------------------------------
General
-------
The Bank is a subsidiary of the Company and operates as an Indiana commercial
bank. On May 26, 1998, the Company formed a new subsidiary, First Community Real
Estate Management, Inc. whose purpose is to purchase and lease back to the Bank
properties originally owned by the Bank thereby allowing the Bank to redeploy
its capital to other uses. The Bank is making monthly lease payments to FCREMI
as lessee of these locations. These lease payments are sufficient to service the
debt incurred by FCREMI to purchase these properties. As a bank holding company,
the Company depends upon the operations of its subsidiaries for all revenue and
reports its results of operations on a consolidated basis with its subsidiaries.
The Bank's profitability depends primarily upon the difference between the
income on its loans and investments and the cost of its deposits and borrowings.
This difference is referred to as the spread or net interest margin. The
difference between the amount of interest earned on loans and investments and
the interest incurred on deposits and borrowings is referred to as net interest
income. Interest income from loans and investments is a function of the amount
of loans and investments outstanding during the period and the interest rates
earned. Interest expense related to deposits and borrowings is a function of the
amount of deposits and borrowings outstanding during the period and the interest
rates paid.
10
<PAGE>
Financial Condition
-------------------
Total assets decreased $2.2 million, or 1.5%, to $143.0 million at June 30,
2000, from $145.2 million at December 31, 1999. Net loans increased from $110.8
million on December 31, 1999 to $117.4 million on June 30, 2000. Deposits
decreased from $128.3 million on December 31, 1999 to $125.0 million on June 30,
2000.
The Company has continued to see strong demand for loan products. The increases
in loans can be attributed to several factors, none of which can be singled out
as the predominant reason for the growth, but each of which is believed to have
contributed to these increases. These factors include: (i) increased population
in the geographic areas serviced; (ii) increased per-household disposable income
in the geographic areas serviced; (iii) an increase in the number of branch
offices; and (iv) the preference of certain individuals in the service area for
dealing with a locally owned institution. The decrease in deposits is directly
related to the pricing methodology used by management during the period and the
efforts being made to shift the concentration of deposits from higher costing
products to lower costing products. The increase in loans and the outflow of
deposits were primarily funded by paydowns and maturities of securities owned by
the Company.
The Company owns certain warrants entitling it to purchase, for a nominal
consideration, shares of common stock (the "Warrant Shares") of a privately held
software development company. The software company has indicated that if a
certain transaction it is currently negotiating were to materialize, the Warrant
Shares could significantly increase in value. There can be no assurance however,
that such transaction will be successfully consummated or that, even if they are
successfully concluded, the Warrant Shares will increase in value or the amount
of any such increase would be significant.
Results of Operations
---------------------
The Company had net income of $329,000 and $385,000 for the six months, and
$226,000 and $180,000 for the three months ended June 30, 2000 and 1999,
respectively. Net interest income was $2.4 million and $2.2 million for the six
months, and $1.2 and $1.1 million for the three months ended June 30, 2000 and
1999, respectively.
Net income decreased $56,000 for the six months ended June 30, 2000, and
increased $46,000 for the three months ended June 30, 2000, when compared to the
same periods in 1999, due primarily to general increases in other expenses
offset by an increase in net interest income and other income. Net interest
income increased $251,000 or 11.6% for the six months ended June 30, 2000 and
$146,000 or 13.6% for the three months ended June 30, 2000. These increases in
net interest income resulted primarily from increases in interest income on
loans and tax-exempt investment securities offset by an increase in interest
expense. The increases in interest income and interest expense resulted
primarily from increases in the volume of interest-earning assets and
interest-bearing liabilities for both the six and three months ended June 30,
2000. The increase in income from service fees of $74,000 and $42,000 for the
six and three months ended June 30, 2000, compared to the prior year, resulted
from a significant increase in both the number of deposit accounts and fees
associated with the same. The increases in other operating income were directly
related to increased earnings from investments in life insurance policies by the
Bank and management's decision to begin assessing surcharges at the Bank's ATM's
during the second quarter of 2000. These increases amounted to $75,000 and
$49,000 for the six and three months ended June 30, 2000. The increases in other
expenses were directly a result of the overall growth of the Bank. The Bank's
growth has been facilitated by and resulted in the increase of additional
personnel, facilities, and equipment, as well as other general expenses
including, but not limited to, advertising, supplies and professional fees. In
addition, as the Bank's loans and deposits increase, the associated data
processing fees have increased. Income taxes increased $3,000 for the three
months ended June 30, 2000 and decreased $95,000 for the six months ended June
30, 2000, when compared to the same periods in 1999. The increase in
11
<PAGE>
taxes for the three month period is due to the Company having more pre-tax
income compared to the year earlier period. The decrease in taxes for the six
month period is due to an increase in the Bank's tax exempt securities portfolio
and having less pre-tax income compared to the prior six month period.
Asset Quality
-------------
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 June 30, 2000, the Bank had $983,000 million of loans classified as
substandard, none as doubtful and none as loss. The allowance for loan losses
was $942,000 or .80% of net loans receivable at June 30, 2000 compared to
$873,000 or .78% of net loans receivable at December 31, 1999. A portion of
classified loans are non-accrual loans. First Community had non-accrual loans
totaling $272,000 at June 30, 2000 compared to $296,000 at December 31, 1999.
Asset/Liability Management
--------------------------
One of the actions undertaken by the Company's management has been to adopt
asset/liability management policies in an attempt to reduce the susceptibility
of the Company's net interest spread to the adverse impact of volatile interest
rates. This goal can be achieved by attempting to match maturities (or
time-to-repricing) of assets with maturities or repricing of liabilities and
then actively managing any mismatch. Accomplishing this objective requires
attention to both the asset and liability sides of the balance sheet. The
difference between maturity of assets and maturity of liabilities is measured by
the interest-rate gap.
At June 30, 2000, the Company's one-year cumulative interest-rate gap as a
percent of total assets was a negative 24.1%. This negative interest-rate gap
represents substantial risk for the Company in an environment of rising interest
rates. A negative interest-rate gap means the Company's earnings are vulnerable
in 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. Conversely, in a falling interest-rate
environment, the total interest 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.
Asset management goals have been directed toward obtaining a suitable balance of
asset quality, liquidity and diversification in order to stabilize and improve
earnings. The asset management strategy has concentrated on shortening the
maturity of its loan portfolio by increasing adjustable-rate loans and
short-term installment and commercial loans. However, increasing short-term
installment and commercial loans increases the overall risk of the loan
portfolio. Such risk relates primarily to collection and to the loans that often
are secured by rapidly depreciating assets. The Company's ratio of
non-performing assets to total assets was .27% at June 30, 2000 and .24% at
December 31, 1999.
The primary goal in the management of liabilities has been to extend the
maturities and improve the stability of deposit accounts. Management has
attempted to combine a policy for controlled growth with a strong, loyal
customer base to control interest expense.
The following schedule illustrates the interest-rate sensitivity of
interest-earning assets and interest-bearing liabilities at June 30, 2000.
Mortgages which have adjustable or renegotiable interest rates are shown as
subject to change every one to three years based upon the contracted-for
adjustment period. This schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
12
<PAGE>
<TABLE>
<CAPTION>
At June 30, 2000 Maturing or Repricing
--------------------------------------------------------
One Year 1 - 3 3 - 5 Over 5
or Less Years Years Years Total
--------------------------------------------------------
(Dollars in 000's)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Adjustable rate mortgages 14,714 9,182 4,294 28,190
Fixed rate mortgages 1,326 123 355 23,631 25,435
Commercial loans 15,490 4,774 2,122 4,554 26,940
Consumer loans 10,760 15,074 7,439 1,980 35,253
Tax-exempt loans and leases 973 1,589 2,562
Investments 2,112 3,083 2,713 5,327 13,235
FHLB stock 778 778
Interest-bearing deposits 1,722 1,722
--------------------------------------------------------
Total interest-earning assets 46,902 32,236 17,896 37,081 134,115
--------------------------------------------------------
Interest-bearing liabilities:
Fixed maturity deposits 52,739 12,812 1,796 3,550 70,897
Other deposits 26,494 12,470 5,420 87 44,471
FHLB advances 2,150 2,000 1,000 5,150
--------------------------------------------------------
Total interest-bearing
liabilities 81,383 27,282 8,216 3,637 120,518
--------------------------------------------------------
Excess (deficiency) of
interest-earning assets over
interest-bearing liabilities (34,481) 4,954 9,680 33,444 13,597
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities (34,481) (29,527) (19,847) 13,597
Cumulative ratio at June 30, 2000
as a percent of total assets (24.11)%
</TABLE>
13
<PAGE>
Liquidity 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 the Company's need for liquidity
and other short-term obligations.
Management believes that it has adequate liquidity for the Company's short- and
long-term needs. Short-term liquidity needs resulting from normal
deposit/withdrawal functions are provided by the Company retaining a portion of
cash generated from operations in a Federal Home Loan Bank ("FHLB") daily
investment account. This account acts as a short-term liquidity source while
providing interest income to the Company. Long-term liquidity and other
liquidity needs are provided by the ability of the Company to borrow from the
FHLB. The balance of its FHLB advances was $5.2 million at June 30, 2000 and
$4.6 million at December 31, 1999.
On October 30, 1998, the Company issued rights and warrants to shareholders to
purchase one share of common stock of the Company for every ten shares owned as
of October 29, 1998, subject to a minimum offer and purchase of 100 shares. The
rights were exercisable until March 30, 1999 and the warrants were exercisable
from September 15, 1999 to December 13, 1999. The net proceeds to the Company
from the sale of the stock, after deducting the expenses, were $149,000. The
purpose of the rights offering was to raise additional capital for the Bank to
support additional growth and for general corporate purposes.
In addition, on October 30, 1998, the Company commenced the offer and sale of up
to $1.0 million in unsecured convertible notes, of which all $1.0 million were
sold. The notes are due December 31, 2008, bear interest at the rate of 7% per
annum and, at the option of the holder, are convertible to common stock of the
Company at the conversion price of $11.00 per share. The net proceeds of this
offering were used to provide capital to FCREMI to acquire and lease branch
facilities to the Bank and to provide additional capital to the Bank to support
asset growth.
At June 30, 2000, the Bank had tier 1 capital of approximately 7.1% and
risk-based capital of approximately 9.9%. The regulatory tier 1 and risk-based
capital requirements are 4.0% and 8.0% respectively.
Impact of Inflation and Changing Prices
---------------------------------------
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles. These principles
require the measurement of financial position and operating results in terms of
historical dollars, without considering changes in the relative purchasing power
of money over time due to inflation.
The primary assets and liabilities of the Company are monetary in nature.
Consequently, interest rates generally have a more significant impact on
performance than the effects of inflation. Interest rates, however, do not
necessarily move in the same direction or with the same magnitude as the price
of goods and services. In a period of rapidly rising interest rates, the
liquidity and the maturity structure of the Company's assets and liabilities are
critical to the maintenance of acceptable performance levels.
14
<PAGE>
Other
-----
The Securities and Exchange Commission maintains a Web site that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the Commission, including the Company.
The address is (http://www.sec.gov).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------- ----------------------------------------------------------
Although the Company files a Form 10-K in lieu of Form 10-KSB, the Company
qualifies as a small business issuer. Therefore, Item 7A is not required under
Section 229.305 of Regulation S-K.
Part II - Other Information
Item 1. Legal Proceedings.
------- ------------------
None.
Item 2. Changes in Securities.
------- ----------------------
On May 31, 2000 the Company issued options for the purchase of
1,000 shares of common stock to each of five outside directors
with an exercise price of $6.875 per share in reliance on the
exemption provided by Section 4(2) of the Securities Act of 1933,
as amended (the "Act").
On June 2 and 29, 2000 the Company issued 15,420 shares of common
stock each to two directors upon exercise of an outstanding
options in reliance upon the exemption provided by Section 4(2)
of the Act.
Item 3. Defaults upon Senior Securities.
------- --------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote by Security Holders.
------- ----------------------------------------------------
On May 31, 2000, the Company held its annual meeting of
shareholders. A total of 914,129 shares were represented in
person or by proxy at the meeting. Merrill M. Wesemann, M.D.
was elected to the Board of Directors for a three-year term
expiring in 2003. 903,620 shares were voted in favor of the
election of Dr. Wesemann, 288 shares were voted against and there
were 10,221 abstentions or broker non-votes. Albert R. Jackson,
III was elected to the Board of Directors for a three-year term
expiring in 2003. 903,586 shares were voted in favor of the
election of Mr. Jackson, 322 shares were voted against the
nominee and there were 10,221 abstentions or broker non-votes.
Continuing Directors include Albert R. Jackson, Jr. and Eugene W.
Morris, whose terms expire in 2001and and Frank D. Neese and Roy
Martin Umbarger whose terms expire in 2002.
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
June 30, 2000.
15
<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: August 10, 2000 By: /s/ Albert R. Jackson III
-------------------------------------
Albert R. Jackson III
Chief Executive Officer and Director
Date: August 10, 2000 By: /s/ Randy J. Sizemore
-------------------------------------
Randy J. Sizemore
Vice President of Finance
16
