-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ELARzW1txOXXMK8/Dy6E8uuHD3hwTNckL7zMXyvRsAA28HyDmF+m1LaoIBE5Qbxt QH3ubYLV/4Bd/x5X0vH7tg== 0000859070-98-000006.txt : 19980514 0000859070-98-000006.hdr.sgml : 19980514 ACCESSION NUMBER: 0000859070-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST COMMUNITY BANCSHARES INC /NV/ CENTRAL INDEX KEY: 0000859070 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 550694814 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19297 FILM NUMBER: 98618444 BUSINESS ADDRESS: STREET 1: 1001 MERCER STREET STREET 2: P O BOX 5909 CITY: PRINCETON STATE: WV ZIP: 24740 BUSINESS PHONE: 3044879000 MAIL ADDRESS: STREET 1: 1001 MERCER STREET STREET 2: P O BOX 5909 CITY: PRINCETON STATE: WV ZIP: 24740 FORMER COMPANY: FORMER CONFORMED NAME: FCFT INC DATE OF NAME CHANGE: 19930328 10-Q 1 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 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 First Community Bancshares, Inc. FORM 10-Q For the quarter ended March 31, 1998
INDEX 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
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ITEM 1. FINANCIAL STATEMENTS FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (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
See Notes to Consolidated Financial Statements. 3
FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (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
See Notes to Consolidated Financial Statements. 4
FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (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
See Notes to Consolidated Financial Statements. 5
FIRST COMMUNITY BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (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
See Notes to Consolidated Financial Statements. 6 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.
First Community Bancshares, Inc. Unaudited Supplemental Proforma Financial Information (Amounts in thousands except per share data) Three Months Ended March 31 1997 Net Interest Income $10,325 Net Income 3,681 Basic Earnings Per Common Share .52
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 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 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:
(Amounts in Thousands) Other Comprehensive Income: March 31, 1998 March 31, 1997 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)
Accumulated Other Comprehensive Income: 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
9 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 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
NET INTEREST INCOME ANALYSIS Three Months Ended Three Months Ended (Unaudited) March 31,1998 March 31, 1997 (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%
(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 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 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 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: (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
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 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 (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:
Proposal 1. Election of Directors 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
Proposal 2. Ratification of Deloitte & Touche LLP Votes For 4,030,812 Votes Against 142,454 Votes Withheld 0
(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 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 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 EX-27 2 ARTICLE 9 FDS FOR 10-Q
9 1000 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 $37,298 38,574 29,484 0 149,472 100,816 103,933 661,890 11,943 1,068,229 874,868 55,755 13,842 23,583 0 0 7,194 92,987 1,068,229 16,066 4,150 321 20,537 8,623 9,551 10,986 1,287 0 7,338 5,620 5,620 0 0 3,954 .56 .56 5.05 10,832 5,261 524 16,093 11,406 865 115 11,943 4,189 0 7,754
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