Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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: 0-19618
FIRST COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1833586
(State or Other Jurisdiction of Incorporation (IRS Employer Id. No.)
or Organization)
210 East Harriman
Bargersville, Indiana 46106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 422-5171
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
No Par Value
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 (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 by check mark if disclosure of delinquent filers pursuant to Rule
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
-----
Aggregate market value of common stock held by non-affiliates
computed by reference to the sale price of such stock as of
March 12, 1997 $11,313,900
Shares of common stock outstanding as of March 12, 1997: 942,825
DOCUMENT INCORPORATED BY REFERENCE.
The Registrant's definitive proxy statement for the 1997 annual meeting of
shareholders is incorporated by reference into Part III of this report.
FORM 10-K TABLE OF CONTENTS
PART 1 Page
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners
and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 26
Signatures 28
PART I
ITEM 1. BUSINESS
GENERAL
First Community Bancshares, Inc. (the "Registrant") is a one-bank holding
company incorporated in August, 1991. The Registrant's primary asset is its
wholly-owned banking subsidiary, First Community Bank & Trust ("First
Community"), an Indiana-chartered commercial bank formerly known as
Bargersville Federal Savings Bank.
At December 31, 1996, the Registrant had approximately $80.1 million of
assets, deposits of approximately $70.6 million and stockholders' equity of
approximately $6.9 million. First Community's primary business consists of
attracting deposits from the general public and originating real estate,
commercial and consumer loans and purchasing investments through its offices
located in Bargersville, Greenwood, Franklin, Indianapolis, Trafalgar and
North Vernon, Indiana. As of December 31, 1996, First Community had 44.5
full time equivalent employees. The Registrant has no full time employees.
First Community's deposits are insured to the maximum extent permitted by
law by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC"). First Community is a member of the
Federal Home Loan Bank ("FHLB") of Indianapolis. First Community is subject
to comprehensive regulation, examination and supervision by the Indiana
Department of Financial Institutions ("DFI") and the FDIC. The Registrant
is subject to regulation by the Federal Reserve Board. The Federal Reserve
Board, as a condition of the acquisition of First Community, required the
Registrant to make a commitment not to incur debt in excess of a 30%
debt-to-equity ratio on an unconsolidated basis.
The business of First Community consists primarily of attracting deposits
from the general public, originating residential real estate, commercial
and consumer loans and purchasing other types of investments. In
addition, First Community originates first mortgage income-producing
property real estate loans, second mortgage one-to-four family home loans,
secured home improvement loans, and savings deposit secured loans.
Consumer loans include, among others, new and used automobile and other
secured and unsecured personal loans. First Community offers small
commercial loans to area businesses in addition to new home construction
loans and business lines of credit. First Community also invests in various
US Treasury, federal agency, state, municipal and other investment securities
permitted by applicable laws and regulations. The principal sources of funds
for First Community's lending activities include deposits received from the
general public, amortization and repayment of loans, maturity of investment
securities and FHLB advances.
First Community's primary sources of income are interest on loans, investment
securities and interest-bearing deposits in other financial institutions and
service charges on deposit accounts. Its principal expenses are interest
paid on deposit accounts and borrowings, salaries and employee benefits,
premises and equipment expenses and other overhead expenses incurred in the
operation of First Community.
LENDING ACTIVITIES
First Community's loans, before adjusting for direct loan origination costs
and the allowance for loan losses, totaled $65,038,000 at December 31, 1996.
Of this amount, approximately $39,221,000 or 60.30% represented fixed rate
loans and adjustable rate loans comprised $25,817,000 or 39.70%.
The following table sets forth information concerning the composition of
First Community's loan portfolio in dollar amounts and percentages.
At December 31
----------------------------------------------------
1996 1995
------------------------ -------------------------
Percent of Percent of
Amount Total Amount Total
----------- ----------- ---------- ----------
TYPE OF LOAN (Dollars in 000's)
Real estate loans
Residential mortgages
(1-4 single family homes) $22,675 35.17% $16,547 30.58%
Non-residential mortgages 335 0.52 324 0.60
Residential construction
(1-4 single family homes) 3,621 5.62 5,002 9.24
Commercial loans 17,401 26.99 15,119 27.94
Installment loans 19,084 29.60 15,457 28.58
Tax-exempt loans and leases 1,922 2.99 2,107 3.89
------- ------ ------- ------
Loans 65,038 100.89 54,556 100.81
Allowance for losses (644) (1.00) (518) (0.96)
Deferred loan origination costs 70 0.11 80 0.15
------- ------ ------ ------
Loans, net $64,464 100.00% $54,118 100.00%
======= ====== ====== ======
The following table sets forth certain information at December 31, 1996,
regarding the dollar amount of loans maturing in First Community's loan
portfolio based on the date that final payment is due. Information on
contractual maturities is not readily available. Demand loans having no
stated schedule of repayments and no stated maturity and overdrafts are
reported as due in one year or less. This schedule does not reflect the
effects of possible prepayments or enforcement of due-on-sale clauses.
Management expects prepayments will cause actual maturities to be shorter.
Certain mortgage loans such as construction loans and second mortgage
loans are included in the commercial and installment loan totals below.
In addition, commercial real estate loans are included in mortgage loans
below.
Remaining Maturities
Balance
Outstanding
at December 31, One Year or Over One Year Over Five
1996 Less to Five Years Years
-------------------------------------------------------------
(Dollars in 000's)
Real estate loans $32,604 $18,176 $ 9,784 $4,644
Commercial loans 10,347 6,185 2,806 1,356
Installment loans 20,165 6,217 13,233 715
Tax-exempt loans and leases 1,922 27 0 1,895
------------ --------- ----------- --------
Total $65,038 $30,605 $ 25,823 $8,610
============ ========= =========== ========
The following table sets forth, as of December 31, 1996, the dollar amount
of all loans maturing after December 31, 1997 showing those having a fixed
interest rate and floating or adjustable interest rates.
Floating or
Fixed Rate Adjustable Rate
-------------- --------------
TYPE OF LOAN (Dollars in 000's)
Real estate loans $13,109 $19,495
Commercial loans 4,564 5,783
Installment loans 19,626 539
Tax-exempt loans and leases 1,922 0
-------------- --------------
39,221 25,817
Less amount due within one year 13,820 16,785
-------------- --------------
Loans due after one year $25,401 $ 9,032
============== ==============
The original contractual loan payment period for adjustable interest rate
residential loans originated by First Community normally ranges from 15 to
30 years. Current fixed rate mortgage originations may not exceed a 15-year
term. Because borrowers may refinance or prepay their loans, however, such
loans normally remain outstanding for a substantially shorter period of time.
ORIGINATION, PURCHASE AND SALE OF LOANS. Interest rates charged by
First Community on its loans are affected primarily by loan demand and the
supply of funds available for lending. These factors are in turn affected by
general economic conditions and monetary policies of the federal government,
including the Federal Reserve Board, the general supply of money in the
economy, legislative tax policies and governmental budgetary matters.
Loan originations are derived from a number of sources. Residential loan
originations are attributable primarily to solicitation by First Community's
staff, referrals from real estate brokers, builders and walk-in customers.
Multifamily and other commercial real estate loan originations are obtained
from previous borrowers and direct contact with First Community. All
property securing real estate loans made by First Community is appraised in
accordance with applicable regulations of the FDIC and includes an actual
inspection of such property by designated fee appraisers. To supplement loan
demand, First Community has also purchased participations in tax-exempt
leases.
First Community typically has not sold loans or loan participations in the
secondary market. First Community services all loans which it originates
and retains.
All mortgage loans in excess of $150,000 are approved by the full Board of
Directors or the loan committee of the Board. Loan limits are reviewed
and changed from time to time to reflect current market conditions. Fire
and casualty insurance is required on all mortgage loans as well as abstracts
of title or title insurance.
RESIDENTIAL MORTGAGE LOANS. Residential mortgage loans have been
predominantly secured by single-family homes. To reduce its exposure
to changes in interest rates, First Community currently originates adjustable
rate mortgages ("ARMs") along with long term, fixed-rate mortgages.
At December 31, 1996, First Community's adjustable-rate mortgage loans
totaled approximately $19,495,000 or 29.97% of First Community's total loans.
First Community offers residential construction mortgage loans with
maturities of six months or less at interest rates which vary with current
market rates. The application process includes the same items which are
required for other residential mortgage loans and include a submission of
accurate plans, specifications and costs of the property to be constructed.
These items are used as a basis to determine the appraised value of the
subject property. Appraisal reports are completed by designated fee
appraisers, and loans are based on the current appraised value.
Loans of up to 80% of such amount may be offered for a maximum period of
six months for the construction of the properties securing the loans.
Extensions are permitted, when circumstances warrant, if construction has
continued satisfactorily and the loan is current.
INSTALLMENT AND COMMERCIAL LENDING. First Community makes various
types of installment loans including loans to depositors secured by pledges
of their deposit accounts, new and used automobile loans, both direct and
indirect, and secured and unsecured personal loans. Although installment and
commercial loans are considered by management to involve more risk than
residential mortgage loans, such loans have shorter maturities and typically
have higher yields than mortgage loans.
Commercial loans include loans secured by commercial real estate or
deposits, single-payment loans, construction loans and loans for business
purchases, operations, inventory and lines of credit. All non-residential
mortgage loans are at a greater interest rate than single-family residential
loans.
Installment and commercial loans are approved by a loan committee consisting
of First Community's loan officers. A loan officer's approval is required
for installment or commercial loans up to certain amounts, and either an
officer and one Director or a majority of the Board must approve all other
loans. First Community has established policies regarding financial
statement requirements, credit verifications procedures and other matters
intended to minimize underwriting risk. The most recent loan approval
limits were adopted by the Board of Directors on May 15, 1996. The limits
vary from officer to officer with a range of $2,500 to $50,000 for unsecured,
and a range of $7,500 to $100,000 for secured. Loans in excess of the
above-mentioned limits must be approved by a committee of loan officers or
the board of directors loan committee.
INSTALLMENT LOAN UNDERWRITING First Community has adopted
underwriting guidelines that apply to all loans made by First Community.
However, the underwriting policies and practices are particularly important
in the installment lending area. Installment loans present risks beyond
those presented by other types of loans because the collateral is usually
movable and subject to rapid depreciation. Such factors increase the
importance of properly documenting such loans and assessing the risks
associated with each loan based upon such documentation. The documentation
required by First Community's underwriting guidelines include an
application, employment income verified by pay stubs, direct verification
with employers when deemed necessary, and may include tax returns or audited
financial statements and evidence of security. The application must include
the minimum loan amount requested, the term requested, monthly payment,
purpose of loan, job history, income, financial statement, and security
offered if applicable. The application must be signed by all borrowers
obligated for the loan. First Community also requires current credit reports
from credit bureaus as part of the underwriting procedure for all loans
including indirect automobile lending. First Community also reviews the
applicant's ability to maintain a stable monthly income and other required
monthly payments. Other monthly payments may not exceed forty percent
(40%) of the applicant's stable gross income.
The guidelines limit installment loans to one borrower to $20,000 for
unsecured loans, $50,000 for loans secured by collateral other than real
estate and $100,000 for loans secured by real estate. Single-pay loans may
not be renewed without a 10% reduction in principal.
INCOME FROM LENDING ACTIVITIES. First Community realizes interest income
from its lending activities. Interest on loans comprised approximately
90.37% of First Community's total interest income for the year ended
December 31, 1996.
NONPERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Nonperforming assets consist of nonaccrual loans, restructured loans,
past-due loans, real estate owned (acquired in foreclosure), and other
repossessed assets. Nonaccrual loans are loans on which interest recognition
has been suspended because they are 90 days past due as to interest or
principal or because there is a question about First Community's ability
to collect all principal and interest. Restructured loans are loans where
the terms have been modified to provide a reduction or deferral of
interest or principal because of deterioration in the borrower's financial
position. Past-due loans are accruing loans that are contractually past due
90 days or more as to interest or principal payments, and the amount of the
loan is no greater than 80% of the fair market value of the collateral
securing the loan or First Community has a reasonable expectation of
collecting all past-due interest and principal. The following table
summarizes nonperforming assets as of the dates indicated.
At December 31
-------------------------------------
1996 1995
---------------- ----------------
(Dollars in 000's)
Nonaccrual loans * $ 99 $176
Restructured loans 0 0
Past-due loans 90 days or more
(Interest accruing) 0 96
---------------- ----------------
otal non-performing loans 99 272
Real estate owned 140 144
Other repossessed assets 14 15
---------------- ----------------
Total non-performing assets $253 $431
================ ================
Ratio of non-performing assets
to total assets 0.32% 0.60%
Interest on non-performing loans
that would have been included in income $24 $8
================ ================
Interest in non-performing loans that
was included in income $0 $0
================ ================
* Impaired loans for 1996 included in nonaccruing loans totaled $14.
Management has identified additional impaired loans of $53,000 as of
December 31, 1996, not included in the risk element table, about which there
are doubts as to the borrowers' ability to comply with present repayment
terms. Loans are considered to be impaired when it becomes probable that
First Community will be unable to collect all amounts due according to the
contractual terms of the loan agreement.
In banking, loan losses are one of the costs of doing business. Although
First Community's management emphasizes the early detection and chargeoff of
loan losses, it is inevitable that at any time certain losses exist in the
portfolio which have not been specifically identified. Accordingly, the
provision for loan losses is charged to earnings on an anticipatory basis,
and recognized loan losses are deducted from the allowance so established.
Over time, all net loan losses must be charged to earnings. During the year,
an estimate of the loss experience for the year serves as a starting point
in determining the appropriate level for the provision. However, the
amount actually provided in any period may be greater or less than net loan
chargeoffs, based on management's judgment as to the appropriate level of
the allowance for loan
losses. The determination of the adequacy of the allowance for loan loss is
based on management's continuing review and evaluation of the loan
portfolio, and its judgment as to the impact of current economic conditions
on the portfolio. The evaluation by management includes consideration of
past loan loss experience, changes in the composition of the loan portfolio
and the current condition and amount of loans outstanding.
The allowance for loan losses increased during the year ended December 31,
1996 compared to the year ended December 31, 1995 primarily because of the
growth in loans and a change in the composition of the loan portfolio. As
set out in the table below, installment loans were a greater percentage
of total loans in 1996 compared to 1995. During 1996, First Community
made a $219,000 provision for loan losses due primarily to growth in loans
and a change in the mix of the loan portfolio.
Allocation of the Allowance for Loan Losses:
At December 31
-----------------------------------------------------
1996 1995
----------------------------- ---------------------
(Dollars in 000's)
Percentage of Percentage
loans to Total of loans to
Amount loans Amount Total loans
----------- ----------- ----------- -----------
Real estate mortgage loans $155 41.0% $111 40.1%
Commercial loans 187 26.7 165 27.7
Installment loans 300 29.3 240 28.3
Tax-exempt loans and leases 2 3.0 2 3.1
----------- ----------- ----------- -----------
$644 100.0% $518 100.0%
=========== =========== =========== ===========
Summary of Loan Loss Experience:
Year Ended December 31
---------------------------
1996 1995
------------ -----------
(Dollars in 000's)
Balance at January 1 $518 $362
Chargeoffs:
Real estate mortgage loans (2) 0
Commercial loans (30) (27)
Installment loans (79) (61)
------------ ----------
Total Chargeoffs (111) (88)
Recoveries 18 36
------------ ----------
Net Chargeoffs (93) (52)
------------ ----------
Provision for loan losses 219 208
------------ ----------
Balance at December 31 $644 $518
============ ==========
Average loans during the year $59,861 $46,797
Ratio of net chargeoffs to total
average loans outstanding during
the year 0.16% 0.11%
INVESTMENT ACTIVITIES
The following table sets forth the carrying value of First Community's
investment portfolio and FHLB stock as of the dates indicated:
December 31
------------------------
1996 1995
--------- ----------
(Dollars in 000's)
Available for sale:
State and municipal obligations $1,756 $2,028
Corporate obligations 630 1,230
--------- ----------
2,386 3,258
--------- ----------
Held to maturity:
Federal agency mortgage pools 174 397
State and municipal obligations 2,367 2,760
--------- ----------
2,541 3,157
FHLB stock 778 601
--------- ----------
Total $5,705 $7,016
========= ==========
At December 31, 1996, the amortized cost of securities available for sale
was $2,367,000 while the fair value was $2,386,000 and the amortized cost of
securities held to maturity was $2,541,000 while the fair value was
$2,498,000.
As of December 31, 1996, there were no state and municipal obligations
representing more than 10% of shareholders' equity included in securities.
The following table sets forth the maturities of investment securities at
December 31, 1996 and the weighted-average yield (on a tax equivalent basis)
on such securities.
Federal Agency Corporate State and Municipal
Mortgage Pools1 Obligations Obligations
------------------ ---------------- -------------------
Amount Yield Amount Yield Amount Yield
------ ------ ------ ------ ------ ------
Available for Sale: (Dollars in 000's)
Maturities:
One year or less $230 8.75% $420 5.96%
Over 1 year to 5 years 400 10.75 476 8.06
Over 5 years to 10 years 300 10.17
Over 10 years 541 10.25
------ ------
Total Available for Sale 630 10.02 1,737 8.60
------ ------
Held to Maturity:
Maturities:
One year or less $174 5.07% 655 4.88
Over 1 year to 5 years 1,416 5.68
Over 5 years to 10 years 296 7.07
Over 10 years
------ ------ ------
Total Held to Maturity 174 5.07 0 2,367 5.63
------ ------ ------
Total Securities $174 5.07% $630 10.02% $4,101 6.89%
====== ====== ======
1 Yield has been calculated based upon prepayment experience of each
individual mortgage pool which results in a lower yield than the stated
coupon rate. Such prepayments accelerate the maturity of the mortgage pools.
2 Available for sale amounts shown in the maturity distribution table are
at amortized cost for computation of yields.
SOURCES OF FUNDS
Savings deposits are the primary source of First Community's funds for use
in lending and for other general business purposes. In addition to savings
deposits, certificates of deposit obtained on a bid basis and FHLB
advances represent a significant source of funds to First Community, as
well as funds derived from loan repayments. Loan repayments are a relatively
stable source of funds, while savings inflows and outflows are significantly
influenced by general interest rates and money market conditions.
Approximately $7,355,000 or 10.43% of the deposits of First Community at
December 31, 1996 was represented by certificates of deposit provided by a
limited number of depositors on a bid basis. These deposits are short term
in nature, and because such deposits are acquired through bid, they may be
lost to a higher bidder.
DEPOSIT ACTIVITIES. First Community offers several types of deposit programs
designed to attract both short-term and long-term savings by providing a wide
assortment of accounts and rates. First Community does not rely on brokered
deposits as funding sources although First Community does obtain deposits on
a bid basis from customers or potential customers wishing to deposit amounts
of at least $100,000.
The following table indicates the amount of certificates of deposit of
$100,000 or more by time remaining until maturity at December 31, 1996
(in 000's).
MATURITY PERIOD
Three months or less $1,236
Greater than three months through six months 1,532
Greater than six months through twelve months 2,329
Over twelve months 2,258
-------
Total $7,355
=======
Interest earned on statement savings accounts is paid from the date of
deposit to the date of withdrawal, compounded and credited quarterly.
Interest earned on money market demand deposit accounts is compounded and
credited monthly. The interest rate on these accounts is established by
First Community. In recent years, many deposits in long-term fixed-rate
accounts have been withdrawn prior to maturity or such certificates have not
been renewed at maturity due to the more attractive rates offered on various
money market accounts Early withdrawal from certificate accounts at one time
subjected the depositor to an early withdrawal penalty which was equal to six
months' simple nominal interest when the original maturity was longer than
one year. Effective for accounts opened since the first quarter of 1988,
early withdrawal penalties are 30 days' interest on accounts
maturing in one year or less and 90 days interest on accounts maturing in
greater than one year.
Borrowings. The FHLB of Indianapolis functions as a central reserve bank
providing credit for member financial institutions. As a member, First
Community is required to own capital stock in the FHLB and is authorized to
apply for advances on the security of such stock and certain of its home
mortgages and other assets (principally, securities which are obligations of,
or guaranteed by, the United States) provided certain standards related to
creditworthiness have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate
and range of maturities. The FHLB prescribes the acceptable uses to
which the advances pursuant to each program may be made as well as
limitations on the amounts of advances. Acceptable uses prescribed by the
FHLB have included expansion of residential mortgage lending and meeting
short-term liquidity needs. Depending on the program, limitation on the
amounts of advances are based either on a fixed percentage of a member's net
worth or on the FHLB's assessment of the member's creditworthiness. The
FHLB is required to review its credit limitations and standards at least once
every six months. First Community had outstanding borrowings of $2,379,000
from the FHLB as of December 31, 1996.
SERVICE AREA
First Community's primary service areas are Johnson County and Jennings
County, Indiana. These areas are among the most affluent and rapidly growing
areas of Indiana. The major portion of First Community's customers reside
in Johnson County, particularly in the Bargersville, Franklin and Greenwood
areas, which account for about one-half of the county's population, according
to the 1990 U.S. Census. First Community has branches in Trafalgar, Franklin,
and Greenwood, Indiana in Johnson County, a branch at a retirement center in
Indianapolis, Indiana, and a branch in North Vernon, Indiana in Jennings
County.
COMPETITION
The banking business is highly competitive in Johnson County, which is First
Community's primary market, where it competes with 5 commercial banks, and
10 savings and loan associations. In Jennings County, First Community
competes with 4 commercial banks and 2 credit unions. To a lesser extent,
First Community competes with mortgage banking companies, consumer finance
companies, and certain governmental agencies.
REGULATION AND SUPERVISION OF THE REGISTRANT
The Registrant is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended ("BHCA"), and is registered as such
with the Board of Governors of the Federal Reserve System ("Federal
Reserve"). The Registrant is examined, regulated and supervised by the
Federal Reserve and is required to file annual reports and other information
regarding its business and operations and the business and operations of its
subsidiaries with the Federal Reserve. The Federal Reserve has the authority
to issue cease and desist orders against a bank holding company if it
determines that activities represent an unsafe and unsound practice or a
violation of law.
Under the BHCA, a bank holding company is, with limited exceptions,
prohibited from acquiring direct or indirect ownership or control of voting
stock of any company which is not a bank and from engaging in any activity
other than managing or controlling banks. A bank holding company may,
however, own shares of a company engaged in activities which the Federal
Reserve has determined to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
Acquisitions by the Registrant of banks and savings associations are also
subject to regulation. Any acquisition by the Registrant of more than five
percent of the voting stock of any bank requires prior approval of the
Federal Reserve. Acquisitions of savings associations are also subject to
the approval of the Office of Thrift Supervision ("OTS"). Indiana law
permits the Registrant to be acquired by bank holding companies, located
in any state in the United States provided that the Registrants' subsidiary
bank has been in existence and continuously operated for five (5) or more
years.
A bank holding company and its subsidiaries are prohibited from engaging in
certain tie-in arrangements in connection with the extension of credit or
the provision of any property or service. With certain exceptions, a bank
holding company, a bank, and a subsidiary or affiliate thereof, may not
extend credit, lease or sell property or furnish any services or fix or vary
the consideration for the foregoing on the condition that (I) the customer
must obtain or provide some additional credit, property or services from,
or to, any of them, or (ii) the customer may not obtain some other credit,
property or service from a competitor, except to the extent reasonable
conditions are imposed to assure the soundness of credit extended.
Under the BHCA, bank holding companies may acquire savings associations
without geographic restrictions. However, under the Homeowner's Loan Act
("HOLA"), the OTS is prohibited from approving any acquisition that would
result in a multiple savings and loan holding company controlling savings
institutions in more than one state, unless approval is for interstate
supervisory acquisitions by savings and loan holding companies, and the
acquisition of a savings institution in another state is under laws of the
state of the target savings institutions specifically permitting such
acquisition. Although the conditions imposed upon acquisitions in those
states which have enacted such legislation vary, most such statutes are of
the "regional reciprocity" type which require that the acquiring holding
company be located (as defined by the location of its subsidiary savings
institutions) in a state within a defined geographic region and that the
state in which the acquiring holding company is located has enacted
reciprocal legislation allowing savings institutions in the target state to
purchase savings institutions in the acquirer's home state on terms no more
restrictive than those imposed by the target state on the acquirer. Indiana
law permits reciprocal interstate savings institution acquisitions within a
region consisting of Indiana and contiguous states.
REGULATION AND SUPERVISION OF FIRST COMMUNITY
First Community is supervised, regulated and examined by the DFI and, as a
state nonmember bank, by the FDIC. A cease or desist order may be issued
by the DFI and FDIC against First Community if the respective agency finds
that the activities of First Community represent an unsafe and unsound
banking practice or violation of law. The deposits of First Community are
insured by the SAIF of the FDIC.
Branching by banks in Indiana is subject to the jurisdiction, and requires
the prior approval of, the Bank's primary federal regulatory authority
and the DFI. Under Indiana law, First Community may branch anywhere in
the state.
The Registrant is a legal entity separate and distinct from First Community.
There are various legal limitations on the extent to which First Community
can supply funds to the Registrant. The principal source of the Registrant's
funds consists of dividends from First Community. State and federal laws
restrict the amount of dividends which may be paid by banks. In addition,
First Community is subject to certain restrictions imposed by the Federal
Reserve on extensions of credit to the Registrant or any of its subsidiaries,
or investments in the stock or other securities as collateral for loans.
The commercial banking business is affected not only by general economic
conditions but also by the monetary policies of the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include the
discount rate on member bank borrowing and changes in reserve requirements
against member bank deposits. Federal Reserve monetary policies have had
a significant effect on the operating results of commercial banks in the past
and are expected to continue to do so in the future. In view of changing
conditions in the national economy and in the money markets, as well as the
effect of actions by monetary fiscal authorities, including the Federal
Reserve, no prediction can be made as to possible future changes in interest
rates, deposit levels, loan demand or the business and earnings of the
Registrant and First Community.
FDICIA
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted into law. FDICIA provides for, among
other things, enhanced federal supervision of depository institutions
including greater authority for the appointment of a conservator or receiver
for undercapitalized institutions, the adoption of safety and soundness
standards by the federal banking regulators on matters such as loan
underwriting and documentation, interest rate risk exposure, compensation
and other employee benefits, the establishment of risk-based deposit
insurance premiums, liberalization of the qualified thrift lender test,
greater restrictions on transactions with affiliates, and mandated consumer
protection disclosures with respect to deposit accounts.
CAPITAL REQUIREMENTS
First Community must meet certain minimum capital requirements mandated by
the FDIC and the DFI. These regulatory agencies require financial
institutions to maintain certain minimum ratios of primary capital to total
assets and total capital to total assets. The Registrant is not required to
comply with Federal Reserve capital requirements because it has consolidated
assets of less than $150,000,000.
First Community must maintain a leverage ratio of at least 4.0%, and a total
capital to risk-based assets ratio of at least 8.0%. First Community had a
leverage ratio and tangible equity ratio of 8.4% based on leverage and
tangible capital of $6,665,000 at December 31, 1996. First Community had
a total capital to risk-based assets ratio of 10.9%.
ITEM 2. PROPERTIES
First Community owns its home office at 210 East Harriman, Bargersville,
Indiana, and its branch offices at 298 State Road 135 North in Greenwood,
Indiana and at 21 Madison Avenue in North Vernon, Indiana. At December 31,
1996, the net carrying value of First Community's Offices, including land,
building, improvements, furniture, fixtures and equipment was $1,792,000.
First Community leases space for its branch offices in Franklin,
Indianapolis, and Trafalgar, Indiana. First Community opened a second
branch office in Franklin, Indiana in October, 1996 which it also leases.
ITEM 3. LEGAL PROCEEDINGS
The Registrant and First Community are parties to certain lawsuits arising in
the ordinary course of their business. The Registrant believes that none of
the current lawsuits would, if adversely determined, have a material adverse
effect on the Registrant or First Coommunity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1996.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following table sets forth the high and low bid prices for the
Registrant's common stock for the quarters during the years indicated, based
upon information obtained by management of the Registrant from the only
broker known by the Registrant to deal in the Registrant's common stock,
and on other price information made available to management of the
Registrant. Management of the Registrant has not verified the accuracy of
the following information. The Common Stock is traded on a limited basis and
many trades have involved privately negotiated transactions. As a result,
Registrant is not always aware of the price at which trades occur. The
referenced prices may not reflect an actual trading range and may reflect
inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
BID PRICE PER SHARE
-------------------
1996 1995
---- ----
QUARTER HIGH LOW HIGH LOW
First Quarter $11 $10 $13 $12
Second Quarter 11 10 12 11
Third Quarter 12 10 11 10
Fourth Quarter 12 11 11 10
As of December 31, 1996, the Registrant had not declared or paid any cash
dividends on its shares of common stock since its organization in 1991. In
January, 1994, the Registrant declared a ten percent dividend payable in
shares of common stock which had been the only dividend declared to date.
The Registrant paid its first cash dividend of $.10 per share on March 15,
1997 to shareholders of record on January 1, 1997. Any future dividend
payments by the Registrant will be dependent upon dividends paid by First
Community and subject to regulatory limitations.
The dividends which the Registrant may pay are restricted by Federal Reserve
Bank capital requirements and by Indiana law to retained earnings. The
ability of the Registrant to pay dividends to stockholders is dependent on
dividends received from First Community. First Community is restricted
by Indiana law and regulations of the Indiana Department of Financial
Institutions and Federal Deposit Insurance Corporation as to the maximum
amount of dividends it may pay to the balance of undivided profits, adjusted
for defined bad debts and by the Office of Thrift Supervision for the amount
of the liquidation account established at the time of its stock conversion.
As a practical matter, dividends are ordinarily restricted to a lesser amount
because of the need to maintain an adequate regulatory capital structure.
At December 31, 1996, the stockholder's equity of First Community was
$6,665,000, of which a minimum of $484,000 was available for dividends.
The number of record holders of the Registrant's common stock as of
March 12, 1997 was 277.
The Registrant did not issue any unregistered shares of common stock during
the year ended December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA (dollars in thousands, except per share data)
Summary of Financial Condition At December 31
-------------------------------------------------------
Data: 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Total assets $80,079 $71,393 $57,857 $43,617 $31,107
Loans, net 64,464 54,118 39,147 26,879 16,832
Cash and interest-bearing deposits 7,035 5,651 6,443 5,441 4,961
Securities including FHLB stock 5,705 7,016 9,812 9,909 8,291
Deposits 70,552 59,163 46,184 36,616 25,621
FHLB advances 2,379 4,603 5,314 2,507 1,600
Long-term debt 0 0 0 450 0
Stockholders' equity 6,886 6,442 6,145 3,818 3,655
Summary of Selected Year Ended December 31
-------------------------------------------------------
Operating Data: 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Total interest income $6,158 $5,074 $3,255 $2,583 $1,789
Total interest expense 3,166 2,953 1,699 1,308 991
------- ------- ------- ------- -------
Net interest income 2,992 2,121 1,556 1,275 798
Provision for loan losses 219 208 418 92 9
------- ------- ------- ------- -------
Net interest income after
provision for loan losses 2,773 1,913 1,138 1,183 789
Total non-interest income 249 237 127 96 73
Total non-interest expense 2,565 1,863 1,723 1,085 727
------- ------- ------- ------- -------
Income (loss) before income taxes 457 287 (458) 194 135
Income taxes (benefit) 116 11 (281) 30 100
------- ------- ------- ------- -------
Net income (loss) $ 341 $ 276 $ (177) $ 164 $ 35
======= ======= ======= ======= =======
Net income (loss) per share* $ 0.36 $0.30 $ (0.27) $0.26 $0.10
Year Ended December 31
-------------------------------------------------------
Other Selected Data: 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Return on average assets .46% .44% ( .38)% .46% .15%
Return on average equity 5.04 4.54 (4.48) 4.35 1.10
Average equity to average assets 9.14 9.64 8.57 10.53 13.40
* Net income per share has been restated to reflect the 1994 stock dividend
and April 26, 1995 stock split.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
GENERAL
First Community is the only subsidiary of the Registrant and operates as
an Indiana commercial bank. As a bank holding company, the Registrant
depends upon the operations of its subsidiary for all revenue and reports
its results of operations on a consolidated basis with its subsidiary.
First Community's profitability depends primarily upon the difference
between 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.
RESULTS OF OPERATION
The following discussion of Results of Operations covers the results of
operations for the years ended December 31, 1996, 1995 and 1994.
Years ended December 31, 1996, 1995, and 1994. Net income for the year
ended December 31, 1996 was $341,000 compared to net income of $276,000
and a net loss of $(177,000) for the years ended December 31, 1995 and 1994,
respectively. The $65,000 increase in 1996 was primarily due to an increase
in net interest income offset in part by an increase in other expense.
Net interest income increased $871,000 in 1996 due primarily to an increase
in loans. The increase in net interest income resulted primarily from an
increase in lending and the income derived therefrom. Net loans outstanding
increased $10,346,00 in 1996, with the most significant areas of growth
being in commercial and installment lending. The increase in provision for
loan loss from $208,000 to $219,000 is a reflection of an increase in the
loan portfolio and not a deterioration of the same. The increase in income
from service fees of $51,000 resulted from a significant increase in the
number of deposit accounts and fees associated with the same. The increase
in other expenses is primarily attributable to the signing of the omnibus
appropriations bill on September 30, 1996, which imposed a FDIC special
assessment for all institutions with SAIF insured deposits. This
assessment amounted to $344,000 and is included in deposit insurance expense
for the period ending December 31, 1996. Other expenses also increased due
to overall growth. Income taxes increased $105,000 in 1996 due to an
increase in First Community's overall taxable income.
Net interest income increased $565,000 in 1995 due primarily to an increase
in loans. The increase in net interest income resulted primarily from an
increase in lending and the income derived therefrom. Net loans
outstanding increased $14,971,000 in 1995, with the most significant areas
of growth being in commercial and installment lending. The decrease in
provision for loan loss from $418,000 to $208,000 is a reflection of the
increase in the quality of the loan portfolio and a decrease in loan
charge offs. The increase in income from other service fees of $55,000
resulted from a significant increase in the number of deposit accounts
and fees associated with the same. In addition, other income increased
$43,000 due to the settlement of a suit with a former provider of services.
First Community owned a parcel of land in Trafalgar, Indiana and sold this
for a gain of $22,000 in March of 1995. The increases in other expenses
are a direct result of the overall growth of First Community. Legal and
professional fees decreased $124,000 due to a decrease in the number and
scope of legal matters in 1995. Income taxes increased $292,000 in 1995
because of an increase in First Community's overall taxable income.
Net interest income increased $281,000 in 1994 due primarily to an
increase in loans. Net loans outstanding increased $12,268,000 in 1994.
In addition, service charge income increased $27,000 due to the increase in
the number of deposit accounts. The increase in the provision for loan loss
from $92,000 in 1993 to $418,000 in 1994 resulted primarily from the increase
in loan volume and change in composition of loan portfolio and chargeoffs
which negatively impacted earnings. The increase in salary and employee
benefits and premises and equipment resulted from the opening of two
additional offices in 1994 and the growth in assets of 33% since December
31, 1993. Data processing fees increased due to the increase in the
number of accounts in all deposit categories and loans categories. Legal
and professional fees continued to increase and be at a higher than expected
level due to litigation resulting from the attempt to acquire First Bank in
Morgantown, Indiana (which was settled in 1994) and from a disagreement
with a former provider of services (which was settled in 1995). The
decrease in income tax of $311,000 resulted from the pretax loss incurred
for the year ended December 31, 1994.
The following table set for the average balance sheet amounts, the related
interest income or expense and average rates earned or paid for the years
ended December 31, 1996 and 1995.
1996 1995
---------------------------------------------------------------
Interest/ Interest/
Average Income Average Average Income Average
Balance Expense Rate Balance Expense Rate
---------------------------------------------------------------
(Dollars in Thousands on Fully Taxable Equivalent Basis)
Assets:
Interest-bearing deposits $ 5,287 $ 208 3.9% $ 4,320 $ 170 3.9%
Investment securities:1
Taxable 2,972 259 8.7 3,059 234 7.6
Tax-exempt 2,959 168 5.7 6,364 338 5.3
-------- -------- -------- -------- -------- -------
Total investment securities 5,931 427 7.2 9,423 572 6.1
-------- -------- -------- -------- -------- -------
Loans:2
Commercial 20,989 2,112 10.1 14,941 1,548 10.4
Real estate mortgage 17,807 1,592 8.9 17,598 1,548 8.8
Installment 19,052 1,748 9.2 11,864 1,151 9.7
Tax-exempt loans and
leases 2,013 151 7.5 2,394 225 9.4
-------- -------- -------- -------- -------- -------
Total loans 59,861 5,603 9.4 46,797 4,472 9.6
-------- -------- -------- -------- -------- -------
Total earning assets 71,079 6,238 8.8 60,540 5,214 8.6
-------- --------
Allowance for loan losses (569) (419)
Cash and due from banks 838 690
Premises and equipment 1,458 1,398
Other assets 1,192 807
-------- --------
Total assets $73,998 $63,016
======== ========
Liabilities:
Interest-bearing deposits:
NOW accounts $ 7,719 $ 202 2.6 $5,779 $ 156 2.7
Savings 14,322 638 4.5 10,319 486 4.7
Certificates of deposit
and other time 36,480 2,106 5.8 34,835 2,114 6.1
-------- -------- -------- --------
Total interest-bearing
deposits 58,521 2,946 5.0 50,933 2,756 5.4
FHLB advances 3,503 220 6.3 2,798 198 7.1
Long-term debt
-------- -------- -------- --------
Total interest-bearing
liabilities 62,024 3,166 5.1 53,731 2,954 5.5
-------- --------
Noninterest-bearing demand
deposits 4,875 3,120
Other liabilities 337 88
-------- --------
Total liabilities 67,236 56,939
Stockholders' equity 6,762 6,077
-------- --------
Total liabilities and
stockholders' equity $73,998 $63,016
======== ========
Net interest income $3,072 4.3%3 $2,260 3.7%3
======== ========
Adjustments to convert
tax-exempt investment
securities to fully taxable
equivalent basis, using
marginal rate of 34% after
adjustment for effect
of non-deductible interest
expense attributed to
such assets. $ 80 $ 139
======== ========
1 The average balances of investment securities, including available for sale
securities, are computed based on historical cost and do not include any fair
value adjustments.
2 Nonaccruing loans have been included in the average balances.
3 Net interest income divided by total earning assets.
CHANGES IN INTEREST INCOME AND EXPENSE COMPARING DECEMBER 31, 1996 AND 1995.
The following table analyzes the changes in interest income and interest
expense comparing the years ended December 31, 1996 and 1994. It
distinguishes between the changes due to differences on volume (outstanding
balances), the changes due to changes in interest rates, and changes
attributable to both rate and volume, which cannot be separately identified,
have been allocated proportionately to the change due to volume and the
charge due to rate.
Increase (Decrease) in Net Interest Income
--------------------------------------------
Year ended December 31, 1996 Net Due to Due to
compared to year ended Change Rate Volume
December 31, 1995 --------- --------- ---------
Interest-earning assets: (Dollars in 000's)
Loans $1,131 $ (94) $1,225
Investment securities (145) 93 (238)
Interest-bearing deposits 38 0 38
--------- --------- ---------
Total 1,024 (1) 1,024
--------- --------- ---------
Interest-bearing liabilities:
Savings 152 (28) 180
Interest-bearing checking 46 (5) 51
Certificates of deposit (8) (105) 97
FHLB advances 22 (24) 46
--------- --------- --------
Total 212 (162) 374
--------- --------- --------
Net change in net interest income $ 812 $ 161 $ 651
========= ========= ========
Increase (Decrease) in Net Interest Income
-------------------------------------------
Year ended December 31, 1995 Net Due to Due to
compared to year ended Change Rate Volume
December 31, 1994
--------- --------- --------
Interest-earning assets: (Dollars in 000's)
Loans $1,765 $ 314 $1,451
Investment securities (31) (20) (51)
Interest-bearing deposits 105 29 76
--------- --------- ---------
Total 1,839 363 1,476
--------- --------- ---------
Interest-bearing liabilities:
Savings 238 160 78
Interest-bearing checking 35 21 14
Certificates of deposit 975 385 590
FHLB advances 16 (6) 22
Long-term debt (9) 0 (9)
--------- --------- ---------
Total 1,255 560 695
--------- --------- ---------
Net change in net interest income $ 584 $(197) $ 781
========= ========= =========
ASSET/LIABILITY MANAGEMENT
One of the actions undertaken by First Community's management has been
to adopt asset/liability management policies in an attempt to reduce the
susceptibility of First Community's net interest spread to the adverse
impact of volatile interest 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 balance between maturity of assets and maturity of liabilities
is measured by the interest-rate gap.
At December 31, 1996, First Community's one-year cumulative interest-rate
gap was a negative 11.88%. This interest-rate gap represents substantial
risk for First Community in an environment of rising interest rates. A negative
interest-rate gap means First Community's earnings are vulnerable to
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 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. To this end, at
December 31, 1996, First Community had $36,485,000 or 56.10% of its
total loan portfolio invested in installment and commercial loans as
compared to $30,576,000 or 56.05% of total loans invested in installment
and commercial loans at December 31, 1995. 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. At December 31, 1996,
First Community's ratio of non-performing assets to total assets decreased
from .60% at December 31, 1995 to .32% at December 31, 1996.
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. A substantial amount of deposits
have been obtained on a bid basis although the amount of such deposits has
been reduced from $7,464,000 at December 31, 1995 to $7,355,000 at December
31, 1996.
The following schedule illustrates the interest-rate sensitivity of
interest-earning assets and interest-bearing liabilities at December 31,
1996. 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 on enforcement of due-on-sale clauses.
At December 31, 1996 Maturing or Repricing
----------------------------------------------------------
6 Months
6 Months Through 1-3 3-5 Over 5
or Less 1 Year Years Years Years Total
-------- -------- -------- -------- -------- --------
(Dollars in 000's)
Interest-earning assets:
Adjustable rate mortgages $ 8,284 $ 4,387 $ 5,257 $ 1,464 $ 103 $ 19,495
Fixed rate mortgages 5,078 427 1,574 1,489 4,541 13,109
Commercial loans 5,493 692 1,352 1,454 1,356 10,347
Consumer loans 3,554 2,663 9,267 3,966 715 20,165
Tax-exempt loans and leases 0 27 0 0 1,895 1,922
Investments 275 1,205 1,273 1,027 1,147 4,927
FHLB stock 778 778
Interest-bearing deposits 5,975 5,975
-------- -------- -------- -------- -------- --------
Total interest-earning
assets 29,437 9,401 18,723 9,400 9,757 76,718
-------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Fixed maturity deposits 10,698 12,936 15,742 1,799 26 41,201
Other deposits 23,518 23,518
FHLB advances 1,000 199 332 260 588 2,379
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 35,216 13,135 16,074 2,059 614 67,098
-------- -------- -------- -------- -------- --------
Excess ( deficiency) of
interest-earning assets over
interest-bearing liabilities (5,779) (3,734) 2,649 7,341 9,143 9,620
Cumulative excess (deficiency)
of interest-earning assets
over interest-bearing
liabilities (5,779) (9,513) (6,864) 477 9,620
Cumulative ratio at
December 31, 1996 as a
percent of total assets (7.22)% (11.88)% (8.57)% .60% 12.01%
DEPOSIT/ASSET BASE. First Community has experienced significant growth in
deposits and assets in the past five years. Management believes this growth
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 the increase in assets from $16,023,000 at December 31,1990
to $80,079,000 at December 31, 1996 and deposits from $14,774,000 at
December 31, 1990 to $70,552,000 at December 31, 1996. These factors
include: (i) increased population in the geographic area service; (ii)
increased per-household disposable income in the geographic area service;
(iii) movement of the home office of one of
the locally owned banks away from the city in which the Registrant is
located; (iv) the acquisition of certain local financial institutions by
larger metropolitan area banks and the preference of certain individuals in
the service area for dealing with a locally owned institution; and (v) the
expansion into new communities with the opening of the Franklin,
Indianapolis and Trafalgar branches in 1992. First Community also opened
a second branch in Franklin, Indiana on October 31, 1996.
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
decreased as a percentage of total assets primarily due to a shift to
higher yielding loans to improve margins. Management's goal is to
maintain cash, interest-bearing deposits and investments at a level
sufficient to satisfy needs for liquidity and other short-term obligations.
Management believes it has adequate liquidity for long-term needs.
Short-term liquidity needs resulting from normal deposit/withdrawal functions
are provided by retaining a portion of cash generated from operations in a
FHLB daily investment account. This account acts as the short-term
liquidity source while providing interest income.
Liquidity, represented by cash and cash equivalents, is a result of its
operating, investing and financing activities. These activities are
discussed below for the years ended December 31, 1996 and December 31, 1995.
During 1996, cash and cash equivalents which are defined as cash and due
from banks and interest-bearing time deposits increased $1,384,000. Cash
was provided primarily from a net increase in deposit accounts of
$11,389,000. Cash was used primarily to fund a net increase in loans of
$10,587,000.
At December 31, 1996, commitments to fund loan originations were
approximately $9,022,000. In the opinion of management, First Community
has sufficient cash flow and borrowing capacity to meet funding commitments
and to maintain proper liquidity levels based upon the ability to borrow
from the FHLB and First Community's favorable liquidity ratio.
First Community is a member of the FHLB of Indianapolis. Through that
affiliation, First Community has the ability to borrow up to $15,554,000
from the FHLB and the balance of its borrowings at December 31, 1996 was
$2,379,000 a decrease of $2,224,000 from outstanding borrowings at
December 31, 1995.
First Community also depends upon major depositors to maintain its liquidity.
Deposits from major depositors are obtained on a bid basis which usually
results in First Community paying 10 to 15 basis points above the market rate
but 15 to 25 basis points below the cost of FHLB borrowings. Management
intends to decrease the dollar amount of such deposits in the future by
focusing on increasing the amount of deposits with lower interest rates.
ACCOUNTING MATTERS
During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 122 Accounting
for Mortgage Servicing Rights. SFAS No. 122 pertains to mortgage
banking enterprises and financial institutions that conduct operations that
are
substantially similar to the primary operations of a mortgage banking
enterprise. SFAS No. 122 eliminates the accounting distinction between
mortgage servicing rights that are acquired through loan origination
activities and those acquired through purchase transactions. Under SFAS No.
122, if a mortgage banking enterprise sells or securitizes loans and retains
the mortgage servicing rights, the enterprise must allocate the total cost
of the mortgage loans to the mortgage servicing rights and the loans
(without the rights) based on their relative fair values if it is practicable
to estimate those fair values. If it is not practicable, the entire cost
should be allocated to the mortgage loans and no cost should be allocated
to the mortgage servicing rights. An entity would measure impairment of
mortgage servicing rights and loans based on the excess of the carrying
amount of the mortgage servicing rights portfolio over the fair value of
that portfolio. SFAS No. 122 is to be applied prospectively in fiscal years
beginning after December 15, 1995, to transactions in which an entity
acquires mortgage servicing rights and to impairment evaluations of
all capitalized mortgage servicing rights. The adoption of SFAS No. 122 in
1996 did not have a significant impact on financial condition and results
of operations.
The FASB issued SFAS No. 123, Stock Based Compensation. In December, 1994,
the FASB decided to require expanded disclosures rather than recognition of
compensation cost for fixed, at the money, options rather than recognition
of compensation expense as was originally proposed in the ED. This statemen
establishes a fair value based method of accounting for stock-based
compensation plans. The FASB encourages employers to recognize the
related compensation expense: however, employers are permitted to continue
to apply the provisions of Accounting Principles Board ("APB") Opinion
No. 25. Employers that choose to continue to follow APB No. 25 are
required to disclose in notes to the financial statements the pro forma
effects on their net income and earnings per share of the new accounting
method. SFAS No. 123 is effective for the Registrant in 1996. The
Registrant elected to continue to apply the provisions of APB's Opinion
No. 25 in accounting for its stock option plans and accordingly made the
disclosure required by SFAS No. 122 in its 1996 inancial statements.
SFAS No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, breaks new ground in resolving
long-standing questions about whether transactions should be accounted for
as secured borrowings or as sales. The Statement provides consistent
standards for distinguishing transfers of financial assets that are sales
from transfers that are considered secured borrowings.
A transfer of financial assets in which the transferor surrenders control
over those assets is accounted for as a sale to the extent that consideration
other than beneficial interests in the transferred assets is received in
exchange. The transferor has surrendered control over transferred assets
only if all of the following conditions are met:
The transferred assets have been isolated from the transferred--put
presumptively beyond the reach of the transferor and its creditors, even in
bankruptcy or other receivership.
Each transferred assets obtains theright--free of conditions that constrain
if from taking advantage of that right--to pledge or exchange the
transferred assets, or the transferee is qualifying special-purpose entity
and the holders of beneficial interest in that entity have the right--free
of conditions that constrain them from taking advantage of that right--to
pledge or exchange those interests.
The transferor does not maintain effective control over the transferred
assets through an agreement that both entitles and obligates the transferor
to repurchase or redeem them before their maturity, or an agreement that
entitles the transferor to repurchase or redeem transferred assets are not
readily obtainable.
This Statement provides detailed measurement standards for assets and
liabilities included in these transactions. It also includes implementation
guidance for assessing isolation of transferred assets and for transfers of
partial interest, serving of financial assets, securitization, transfers or
sale type and direct
financing lease receivables, securities lending transactions, repurchase
agreements, "wash sales" loan syndications and participation, risk
participation in banker's acceptances, factoring arrangements, transfers of
receivables with resource and extinguishment of liabilities.
The Statements supersede FASB Statements No. 76 Extinguishment of Debt,
and No. 77, Reporting by Transferors for Transfers of Receivables with
Recourse, and No. 122, Accounting for Mortgage Servicing Rights, and
amends FASB Statement No. 155, Accounting for Certain Investments in
Debt and Equity Securities, in addition to clarifying or amending a number
of other statements and technical bulletins.
Except as amended by Statement No. 127, this Statement is effective for
transfers and serving of financial assets and extinguishments of liabilities
occurring after December 31, 1996 and is to be applied prospectively.
Earlier or retroactive application is not permitted.
The FASB was made aware that the volume of certain transactions and the
related changes to information systems and accounting processes that are
necessary to comply with the requirements of Statement No. 125 would make
it extremely difficult, if not impossible, for some affected enterprises to
apply the transfer and collateral provisions of Statement No. 125 to those
transactions as soon as January 1, 1997. As a result, SFAS No. 127 defers
for one year the effective date (a) of paragraph 15 of Statement No. 125
and (b) for repurchase agreement, dollar-roll, securities lending, and
similar transactions, of paragraphs 9-12 and 237(b) of Statement No. 125.
Statement No. 127 provides additional guidance on the types of transactions
for which the effective date of Statement No. 125 has been deferred. It
also requires that if it is not possible to determine whether a transfer
occurring during calendar year 1997 is part of a repurchase agreement,
dollar-roll, securities lending, or similar transaction, then paragraphs 9-12
of Statement No. 125 should be applied to that transfer.
All provisions of Statement No. 125 should continue to applied prospectively,
and earlier or retroactive application is not permitted.
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 Registrant 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 Registrant's assets and
liabilities are critical to the maintenance of acceptable performance levels.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant's Financial Statements are included in a separate section of
this Report beginning on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING
AND FINANCIAL DISCLOSURE.
None
PART III
The information required by Part III is hereby incorporated by reference from
the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS. The following information appears elsewhere
in this Annual Report on Form 10-K on the pages indicated
Page
Independent Auditor's Report on consolidated financial statements. F-1
Consolidated Balance Sheet at December 31, 1996 and 1995 F-2
Consolidated Statement of Income for the years ended December 31,
1996, 1995 and 1994. F-3
Consolidated Statement of Changes In Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994. F-4
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. F-5
Notes to consolidated financial statements. F-6
2. EXHIBIT INDEX. The following exhibits are included as part of this
Report:
3.1 Articles of Incorporation of First Community Bancshares, Inc.
(Incorporated herein by reference to the Registration Statement on
Form S-4 of First Community Bancshares, Inc. with Registration No.
33-47691 declared effective July 30, 1992).
3.3 Amended Bylaws of First Community Bancshares, Inc. (Incorporated
herein by reference to the Form 10-K of First Community Bancshares,
Inc. for the fiscal year ended December 31, 1992 and filed with the
Securities and Exchange Commission on March 31, 1993, file #0-19618).
10.6 First Community Bancshares, Inc. 1992 Stock Option Plan, as amended and
approved by Shareholders on May 19, 1993 (Incorporated herein by
reference to the Form 10-K of First Community Bancshares, Inc. for
the fiscal year ended December 31, 1993 and filed with the Securities
and Exchange Commission on March 30, 1994).
10.7 Agreement To Purchase Real Estate by and between First Community
Bank & Trust and Mutual Building and Loan Association (Incorporated
herein by reference to the Form 10-K of First Community Bancshares,
Inc. for the fiscal year ended December 31, 1993 and filed with the
Securities and Exchange Commission on March 30, 1994).
10.8 Deferred Director Fee Agreement by and between First Community Bank &
Trust Company and Merrill M. Wesemann Dated November 23, 1994
(Incorporated herein by reference to the Form 10-K of First Community
Bancshare, Inc. for the fiscal year ended December 31, 1994 and filed
with the Securities and Exchange Commission on March 13, 1995).
10.9 First Community Bancshares, Inc. 1996 Stock Option Plan (Incorporated
herein by reference to the First Community Bancshares, Inc. proxy
statement for the 1996 annual shareholders meeting filed with the
Securities and Exchange Commission on March 13, 1996).
10.10 Amendment to the First Community Bancshares, Inc. 1992 Stock Option
Plan, as amended and approved by Shareholders on March 13, 1996
(Incorporated herein by reference to the First Community Bancshares,
Inc. proxy statement for the 1996 annual shareholders meeting filed
with the Securities and Exchange Commission on March 13, 1996).
21.1 Subsidiaries of First Community Bancshares, Inc. (Incorporated
herein by reference to the Form 10-K of First Community Bancshares,
Inc. for the fiscal year ended December 31, 1992 and filed with the
Securities and Exchange Commission on March 31, 1993, file #0-19618).
27.1 Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 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, this 26th day of March,
1997.
FIRST COMMUNITY BANCSHARES, INC.
By:/s/ Albert R. Jackson , III
---------------------------------
Albert R. Jackson, III,
Chief Executive Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signatures and Title(s) Date
/s/ Merrill M. Wesemann March 26, 1997
- -----------------------------
Merrill M. Wesemann, MD, Chairman
/s/ Eugene W. Morris March 26, 1997
- -----------------------------
Eugene W. Morris, Director
/s/ Frank D. Neese March 26, 1997
- -----------------------------
Frank D. Neese, Director
/s/ Roy Martin Umbarger March 26, 1997
- -----------------------------
Roy Martin Umbarger, Director
/s/ Walter M. Umbarger March 26, 1997
- -----------------------------
Walter M. Umbarger, Director
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1996 and 1995
First Community Bancshares, Inc. and Subsidiary
Table of Contents
PAGE
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Consolidated balance sheet 2
Consolidated statement of income 3
Consolidated statement of changes in stockholders' equity 4
Consolidated statement of cash flows 5
Notes to consolidated financial statements 6
GEO. S. OLIVE & CO. LLC
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and
Board of Directors
First Community Bancshares, Inc.
Bargersville, Indiana
We have audited the consolidated balance sheet of First Community Bancshares,
Inc. and subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements described above present fairly, in
all material respects, the consolidated financial position of First Community
Bancshares, Inc. and subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company changed its method of accounting for investments in securities in
1994.
/s/ GEO. S. OLIVE & CO. LLC
Indianapolis, Indiana
February 7, 1997
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31 1996 1995
- ------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 1,059,473 $ 797,727
Short-term interest-bearing deposits 5,975,098 4,853,099
------------ ------------
Cash and cash equivalents 7,034,571 5,650,826
Investment securities
Available for sale 2,386,358 3,258,343
Held to maturity 2,540,803 3,156,597
------------ ------------
Total investment securities 4,927,161 6,414,940
Loans 65,108,481 54,636,626
Allowance for loan losses (644,132) (518,403)
------------ ------------
Net loans 64,464,349 54,118,223
Premises and equipment 1,791,873 1,341,266
Federal Home Loan Bank
of Indianapolis stock, at cost 777,800 600,500
Foreclosed real estate 139,500 144,499
Interest receivable 526,186 586,427
Due from broker 2,025,329
Other assets 417,268 510,706
------------ ------------
Total assets $80,078,708 $71,392,716
============ ============
LIABILITIES
Deposits
Noninterest bearing $ 5,833,251 $ 5,457,652
Interest bearing 64,719,018 53,705,453
------------ ------------
Total deposits 70,552,269 59,163,105
Federal Home Loan Bank of
Indianapolis advances and
other borrowings 2,378,830 5,511,453
Interest payable 187,083 174,095
Other liabilities 74,570 101,848
------------ ------------
Total liabilities 73,192,752 64,950,501
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDER'S EQUITY
Preferred stock, no-par value
Authorized and unissued-1,000,000 shares
Common stock, no-par par value
Authorized--4,000,000 shares
Issued and outstanding-942,825 and
923,291 shares 6,181,486 6,068,970
Retained earnings and
contributed capital 692,760 351,494
Net unrealized gain on securities
available for sale 11,710 21,751
------------ ------------
Total stockholders' equity 6,885,956 6,442,215
------------ ------------
Total liabilities and stockholders'
equity $80,078,708 $71,392,716
============ ============
See notes to consolidated financial statements.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------
INTEREST INCOME
Loans, including fees $ 5,564,766 $ 4,416,698 $ 2,703,001
Securities
Taxable 202,022 188,212 158,371
Tax exempt 125,814 253,979 317,015
Deposits with financial institutions 207,940 170,432 65,194
Dividends 57,153 44,834 11,157
------------ ------------ ------------
Total interest income 6,157,695 5,074,155 3,254,738
------------ ------------ ------------
INTEREST EXPENSE
Deposits 2,945,818 2,755,847 1,507,919
FHLB advances 219,980 197,750 181,592
Long-term debt 9,369
------------ ------------ ------------
Total interest expense 3,165,798 2,953,597 1,698,880
------------ ------------ ------------
NET INTEREST INCOME 2,991,897 2,120,558 1,555,858
Provision for loan losses 219,000 207,500 417,500
------------ ------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,772,897 1,913,058 1,138,358
------------ ------------ ------------
OTHER INCOME
Fiduciary activities 27,353 21,453 19,221
Service charges on deposit accounts 184,400 132,926 77,967
Net realized gains (losses) on
sales of securities 5,630 (13,553)
Gain on sale of investment in
stock of another financial institution 9,850
Other operating income 31,722 96,373 20,255
------------ ------------ ------------
Total other income 249,105 237,199 127,293
------------ ------------ ------------
OTHER EXPENSES
Salaries and employee benefits 1,012,761 838,495 743,858
Premises and equipment 212,847 178,143 182,584
Advertising 105,183 103,601 57,337
Data processing fees 191,698 175,822 120,753
Deposit insurance expense 453,368 106,781 80,097
Printing and office supplies 81,541 68,995 66,743
Legal and professional fees 135,068 108,879 233,186
Telephone expense 61,770 50,064 43,189
Other operating expenses 311,099 232,078 195,778
------------ ------------ ------------
Total other expenses 2,565,335 1,862,858 1,723,525
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAX 456,667 287,399 (457,874)
Income tax expense (benefit) 115,401 11,046 (280,495)
------------ ------------ ------------
NET INCOME (LOSS) $ 341,266 $ 276,353 $ (177,379)
============ ============ ============
NET INCOME (LOSS) PER SHARE $.36 $.30 $(.27)
WEIGHTED AVERAGE SHARES OUTSTANDING 939,089 923,291 661,099
See notes to consolidated financial statements.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Retained Net Unrealized
Earnings Gain On
Common Stock and Securities
-------------------- Contributed Available for Sale
Shares Capital
Outsanding Amount Total
- ------------------------------------------------------------------------------------------
BALANCES, JANUARY 1, 1994 462,500 $3,009,628 $808,267 $3,817,895
Net loss for 1994 (177,379) (177,379)
Issuance of common stock 230,000 2,504,762 2,504,762
10% stock dividend 46,215 554,580 (554,580)
Cash dividends in lieu of
issuing fractional shares (291) (291)
-------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 738,715 6,068,970 76,017 6,144,987
Net income for 1995 276,353 276,353
Net change in unrealized
gain on securities available
for sale $21,751 21,751
Five-for-four stock split 184,576
Cash dividends in lieu of
issuing fractional shares (876) (876)
-------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 923,291 6,068,970 351,494 21,751 6,442,215
Net income for 1996 341,266 341,266
Net change in unrealized
gain on securities available
for sale (10,041) (10,041)
Stock options exercised 19,534 112,516 112,516
-------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 942,825 $6,181,486 $692,760 $11,710 $6,885,956
===================================================================
See notes to consolidated financial statements.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 341,266 $ 276,353 $ (177,379)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities
Provision for loan losses 219,000 207,500 417,500
Depreciation and amortization 82,860 71,926 64,671
Deferred income tax 10,278 (20,419) (253,461)
Investment securities amortization 7,215 62,383 76,190
(Gain) loss on disposal of premises and equipment (20,716) 21,659
Investment securities (gains) losses (5,630) 13,553
Gain on sale of investment in stock of another
financial institution (9,850)
Net change in
Interest receivable 91,485 (126,381) (174,146)
Interest payable 12,988 52,542 5,542
Other assets 89,746 (23,718) (57,456)
Other liabilities (27,278) 9,732 40,545
-----------------------------------------
Net cash provided (used) by
operating activities 821,930 502,755 (46,185)
-----------------------------------------
INVESTING ACTIVITIES
Purchases of securities available for sale (1,670,000)
Proceeds from maturities of securities available
for sale 677,750 230,000 195,000
Proceeds from sales of securities available
for sale 2,176,965 622,021
Purchases of securities held to maturity (3,203,458)
Proceeds from maturities and paydowns of
securities held to maturity 608,936 1,542,787 3,347,503
Proceeds from sales of securities held to maturity 125,000
Net change in loans (10,587,119) (15,317,327) (12,785,270)
Purchases of premises and equipment (533,467) (25,746) (858,235)
Proceeds from disposal of premises and equipment 64,663
Purchase of stock of FHLB of Indianapolis (177,300) (87,600) (317,700)
Proceeds from sale of investment in stock
of another financial institution 201,550
Proceeds from sale of other real estate and
repossessions 26,992 50,908 40,808
Other investing activities (4,803) (2,135)
------------------------------------------
Net cash used by investing activities (7,807,243) (14,470,097) (13,381,937)
------------------------------------------
FINANCING ACTIVITIES
Net change in
Noninterest-bearing, NOW, and
savings deposits 5,023,029 8,518,439 2,281,254
Certificates of deposit 6,366,136 4,460,633 7,286,659
Short-term borrowings (908,138) 908,138
Proceeds from FHLB advances 3,000,000 3,000,000
Repayment of FHLB advances (2,224,485) (3,711,098) (192,216)
Repayment of long-term debt (450,000)
Cash dividends in lieu of issuing
fractional shares (876) (291)
Proceeds from issuance of common stock 2,760,000
Stock options exercised 112,516
Offering costs (255,238)
-----------------------------------------
Net cash provided by financing activities 8,369,058 13,175,236 14,430,168
-----------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 1,383,745 (792,106) 1,002,046
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,650,826 6,442,932 5,440,886
-----------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $7,034,571 $5,650,826 $6,442,932
=========================================
ADDITIONAL CASH FLOWS INFORMATION
Interest paid $3,526,976 $2,901,055 $1,693,338
Income tax paid (refunded) 110,000 (40,921) (9,803)
See notes to consolidated financial statements.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Community Bancshares, Inc.
("Company") and its wholly owned subsidiary, First Community Bank and Trust
("Bank"), conform to generally accepted accounting principles and reporting
practices followed by the banking industry. The more significant of the
policies are described below.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company is a bank holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a state
bank charter and provides full banking services, including trust services.
As a state bank, the Bank is subject to regulation by the Department of
Financial Institutions, State of Indiana and the Federal Deposit Insurance
Corporation.
On November 30, 1994, the Company completed a public offering and issued
230,000 shares of common stock at $12 per share with net proceeds of
$2,504,762.
DESCRIPTION OF BUSINESS--The Bank generates commercial, mortgage and
consumer loans and receives deposits from customers located primarily in
Johnson and Jennings Counties, Indiana and surrounding counties. The
Bank's loans are generally secured by specific items of collateral including
real property, consumer assets and business assets.
CONSOLIDATION--The consolidated financial statements include the accounts
of the Company and the Bank after elimination of all material intercompany
transactions and accounts.
INVESTMENT SECURITIES--The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, Accounting For Certain Investments
in Debt and Equity Securities, on January 1, 1994.
Debt securities are classified as held to maturity when the Company has the
positive intent and ability to hold the securities to maturity. Securities
held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as
available for sale. Securities available for sale are carried at fair value
with unrealized gains and losses reported separately through stockholders'
equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net
security gains (losses). Gains and losses on sales of securities are
determined on the specific-identification method.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
At January 1, 1994, investment securities with an approximate carrying value
of $815,000 were reclassified as available for sale. The unrealized gains
and losses on these securities at December 31, 1994 and January 1, 1994
were not material.
LOANS are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower
may be unable to meet payments as they become due. When interest accrual
is discontinued, all unpaid accrued interest is reversed. Interest income
is subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are being deferred and amortized as an
adjustment of yield on the loans.
ALLOWANCE FOR LOAN LOSSES is maintained to absorb potential loan losses
based on management's continuing review and evaluation of the loan portfolio
and its judgment as to the impact of economic conditions on the portfolio.
The evaluation by management includes consideration of past loan loss
experience, changes in the composition of the portfolio, and the current
condition and amount of loans outstanding, and the probability of collecting
all amounts due. Impaired loans are measured by the present value of
expected future cash flows, or the fair value of the collateral of the loan,
if collateral dependent.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in
the economic environment and market conditions. Management believes that
as of December 31, 1996, the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline
in the area within which the Company operates would increase the
likelihood of additional losses due to credit and market risks and could
create the need for additional loss reserves.
PREMISES AND EQUIPMENT are carried at cost net of accumulated depreciation.
Depreciation is computed using the straight-line method based principally
on the estimated useful lives of the assets. Maintenance and repairs are
expensed as incurred while major additions and improvements are capitalized.
Gains and losses on dispositions are included in current operations.
FEDERAL HOME LOAN BANK STOCK is a required investment for institutions
that are members of the Federal Home Loan Bank ("FHLB") system. The
required investment in the common stock is based on a predetermined formula.
FORECLOSED REAL ESTATE is carried at the lower of cost or fair value less
estimated selling costs. When foreclosed real estate is acquired, any
required adjustment is charged to the allowance for loan losses. All
subsequent activity is included in current operations.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
INCOME TAX in the consolidated statement of income includes deferred
income tax provisions or benefits for all significant temporary differences
in recognizing income and expenses for financial reporting and income tax
purposes. The Company files consolidated income tax returns with its
subsidiary.
EARNINGS (LOSS) PER SHARE have been computed based upon the weighted
average common shares outstanding during each year. Common stock
equivalents consisting of shares issuable under the stock option plan were
not included since their effect on dilution was insignificant.
RESTRICTION ON CASH AND DUE FROM BANKS
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at December 31, 1996, was
$305,000.
INVESTMENT SECURITIES
1996
------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ----------------------------------------------------------------------------
Available for sale
State and municipal $1,737 $ 24 $ (5) $1,756
Corporate obligations 630 630
-------------------------------------------
Total available for sale 2,367 24 (5) 2,386
-------------------------------------------
Held to maturity
State and municipal 2,367 2 (44) 2,325
Mortgage-backed securities 174 (1) 173
-------------------------------------------
Total held to maturity 2,541 2 (45) 2,498
-------------------------------------------
Total investment securities $4,908 $26 $(50) $4,884
===========================================
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
1995
----------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- -------------------------------------------------------------------------------
Available for sale
State and municipal $1,992 $45 $ (9) $2,028
Corporate obligations 1,230 1,230
----------------------------------------------
Total available for sale 3,222 45 (9) 3,258
----------------------------------------------
Held to maturity
State and municipal 2,760 2 (61) 2,701
Mortgage-backed securities 397 (4) 393
----------------------------------------------
Total held to maturity 3,157 2 (65) 3,094
----------------------------------------------
Total investment securities $6,379 $47 $(74) $6,352
==============================================
The amortized cost and fair value of securities held to maturity and
available for sale at December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
issuers may have the right to call or prepay obligations with or without call
or prepayment penalties.
1996
----------------------------------------------
Available for Sale Held to Maturity
----------------------------------------------
Maturity Distribution Amortized Fair Amortized Fair
at December 31 Cost Value Cost Value
- -------------------------------------------------------------------------------
Due in one year or less $ 650 $ 650 $ 656 $ 654
Due after one through five years 876 880 1,420 1,397
Due after five through ten years 300 306 291 274
Due after ten years 541 550
----------------------------------------------
2,367 2,386 2,367 2,325
Mortgage-backed securities 174 173
----------------------------------------------
Totals $2,367 $2,386 $2,541 $2,498
==============================================
Securities with a carrying value of $174,000 and $397,000 were pledged
at December 31, 1996 and 1995 to secure FHLB advances.
Proceeds from sales of securities available for sale during 1996 were
$183,000. Gross gains of $3,000 were realized on those sales.
Proceeds from securities held to maturity called at a premium were $278,000.
Gross gains of $3,000 were realized on those calls.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Proceeds, including due from broker of $1,994,000, from sales of securities
available for sale during 1995 were $2,616,000. Gross gains of $4,000 and
gross losses of $18,000 were realized on those sales.
During 1995, the Company sold two securities held to maturity with an
amortized cost of $125,000 due to substandard credit worthiness. No
gains or losses were realized on these sales.
On November 30, 1995, the Company transferred certain securities from held
to maturity to available for sale in accordance with a transition
reclassification allowed by the Financial Accounting Standards Board.
Such securities had a carrying value of $3,803,000 and a fair value of
$3,788,000.
LOANS AND ALLOWANCE
December 31 1996 1995
- ----------------------------------------------------------------------------
Commercial, commercial real estate
and industrial loans $17,401 $15,119
Real estate loans 23,010 16,871
Construction loans 3,621 5,002
Individuals' loans for household and
other personal expenditures 19,084 15,457
Tax-exempt loans and leases 1,922 2,107
-----------------------------
65,038 54,556
Deferred loan origination costs 70 81
-----------------------------
Total loans $65,108 $54,637
=============================
December 31 1996 1995 1994
- ------------------------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $518 $362 $161
Provision for losses 219 208 418
Recoveries on loans 18 36 10
Loans charged off (111) (88) (227)
---------------------------------
Balances, December 31 $644 $518 $362
=================================
Information on impaired loans is summarized below.
December 31 1996 1995
- ------------------------------------------------------------------
Impaired loans with an allowance $67 $52
Allowance for impaired loans (included
in the Company's allowance for loan losses) $7 $20
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Year Ended December 31 1996 1995
- ------------------------------------------------------------------------
Average balance of impaired loans $112 $26
The Company had no commitments to loan additional funds to the borrowers of
impaired or nonaccrual loans.
No interest income or cash receipts of interest was recorded during 1996
and 1995 for loans that were impaired.
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates
(related parties). Such transactions were made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other
unfavorable features.
The aggregate amount of loans, as defined, to such related parties were as
follows:
Balances, January 1, 1996 $191
Changes in composition of related parties 344
New loans, including renewals 195
Payments, etc., including renewals (81)
-------
Balances, December 31, 1996 $649
=======
PREMISES AND EQUIPMENT
December 31 1996 1995
- -------------------------------------------------------------------------
Land $ 264 $ 259
Buildings 786 737
Leasehold improvements 343 115
Equipment 686 436
-------------------------
Total cost 2,079 1,547
Accumulated depreciation (287) (206)
-------------------------
Net $1,792 $1,341
=========================
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
DEPOSITS
December 31 1996 1995
- --------------------------------------------------------------------------
Demand deposits $14,212 $12,770
Savings deposits 15,139 11,558
Certificates and other time deposits
of $100,000 or more 7,355 7,464
Other certificates and time deposits 33,846 27,371
-------------------------
Total deposits $70,552 $59,163
=========================
Certificates and other time deposits maturing in years ending December 31:
1997 $23,634
1998 14,814
1999 928
2000 963
2001 836
Thereafter 26
----------
$41,201
==========
FHLB ADVANCES AND OTHER BORROWINGS
December 31 1996 1995
- --------------------------------------------------------------------------
Bank overdraft $ 908
FHLB advances $2,379 4,603
-----------------------
$2,379 $5,511
=======================
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
1996
-----------------------
Interest
Amount Rate
- ---------------------------------------------------------------------------
Advances from FHLB
Maturities in years ending December 31
1997 $1,000 5.870%
2002 652 6.200
2003 727 5.850
----------
$2,379
==========
The FHLB advances are secured by first mortgage loans and investment
securities totaling $15,554,000. Advances are subject to restrictions or
penalties in the event or prepayment.
The Bank has an available line of credit with the FHLB totaling $2,000,000.
The line of credit expires May 6, 1997 and bears interest at a rate equal to
the then current variable advance rate. There were no drawings on this line
of credit at December 31, 1996.
INCOME TAX
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------
Income tax expense (benefit)
Currently payable
Federal $ 54 $ 15 $ (29)
State 51 16 2
Deferred
Federal 20 (31) (217)
State (10) 11 (36)
-------------------------------
Total income tax expense (benefit) $ 115 $ 11 $(280)
===============================
Reconciliation of federal statutory
to actual tax expense (benefit)
Federal statutory income tax at 34% $155 $98 $(156)
Tax exempt interest (66) (108) (95)
Effect of state income taxes 27 18 (22)
Other (1) 3 (7)
-------------------------------
Actual tax expense (benefit) $115 $11 $(280)
===============================
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
A cumulative deferred tax asset is included in other assets. The components
of the asset are as follows:
December 31 1996 1995
- ---------------------------------------------------------------------
Differences in depreciation methods $ (75) $ (62)
Differences in accounting for loan losses 227 152
State income tax (13) (10)
Differences in accounting for securities
available for sale (8) (14)
Net operating loss carryforward 20 150
Alternative minimum tax credit carryforward 54
Other (8) (15)
----------------------
$197 $201
======================
Assets $301 $302
Liabilities (104) (101)
----------------------
$197 $201
======================
No valuation allowance was considered necessary at December 31, 1996.
Tax expense (benefit) applicable to investment security gains (losses)
for the years ended December 31, 1996 and 1995 was $2,230 and $(5,400).
At December 31, 1996, the Company had a net operating loss carryforward
of $58,000 expiring in 2009.
At December 31, 1996, the Company had an alternative minimum tax credit
carryforward of $54,000 available to offset future regular federal income
tax liabilities which has an unlimited carryover period.
COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying financial
statements. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for
commitments to extend credit and standby letters of credit is represented
by the contractual or notional amount of those instruments. The Bank
uses the same credit policies in making such commitments as it does for
instruments that are included in the consolidated balance sheet.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
1996 1995
- --------------------------------------------------------------------------
Commitments to extend credit $9,022 $6,442
Standby letters of credit 401 190
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on management's credit evaluation. Collateral
held varies but may include accounts receivable, inventory, property and
equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Company and Bank are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated
financial position of the Company.
In connection with the approval of its bank holding company application,
the Company must obtain Federal Reserve approval prior to incurring debt
which would cause its debt to equity ratio to exceed 30 percent. The
Company is in compliance with this commitment at December 31, 1996.
STOCKHOLDERS' EQUITY
On January 29, 1994, the Board of Directors declared a 10% stock dividend.
Net income per share and weighted average shares outstanding have been
restated to reflect the 10% stock dividend.
On April 26, 1995, the Board of Directors declared a 5-for-4 stock split
effective June 1, 1995. Net income per share and weighted average shares
outstanding have been restated to reflect the stock split.
The dividends which the Company may pay are restricted by Federal Reserve
Bank capital requirements and by Indiana law to the amount of retained
earnings. The ability of the Company to pay dividends to stockholders is
dependent on dividends received from the Bank. Without prior approval,
current regulations allow the Bank to pay dividends to the Company not
exceeding net profits (as defined) for the current year plus those for the
previous two years. The Bank is also restricted by the Office of Thrift
Supervision for the amount of the liquidation account established at the
time of its stock conversion. The Bank normally restricts dividends to
a lesser amount because of the need to maintain an adequate capital
structure. At December 31, 1996, stockholder's equity of the Bank was
$6,665,000, of which a minimum of $484,000 was available for payment of
dividends.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate actions by the regulatory agencies that, if
undertaken, could have a material effect on the Company's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
At December 31, 1996, management of the Company believes that it meets all
capital adequacy requirements to which it is subject. The most recent
notification from the regulatory agency categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. There have been
no conditions or events since that notification that management believes have
changed this categorization.
The Bank's actual and required capital amounts and ratios are as follows:
1996
---------------------------------------------------
Required for To Be Well
Actual Adequate Capital1 Capitalized1
---------------------------------------------------
December 31 Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------
Total capital1 (to risk-weighted
assets) $6,665 10.9% $4,885 8.0% $6,106 10.0%
Tier I capital1 (to risk-weighted
assets) 7,309 12.0 2,443 4.0 3,664 6.0
Tier I capital1 (to average assets) 7,309 9.4 3,125 4.0 3,906 5.0
1 As defined by regulatory agencies
EMPLOYEE BENEFITS
Effective January 1, 1995, the Bank adopted a retirement savings 401(k) plan
in which substantially all employees may participate. The Bank matches
employees' contributions as determined each year by the Bank's Board of
Directors. The Bank's expense for the plan was $6,000 and $4,000 for 1996
and 1995.
The Company adopted a stock option plan in 1992 whereby 44,687 shares of
common stock, after restatement for stock dividends and splits, were reserved
for the granting of options to certain officers, directors, and key
employees. The options were exercisable within five years from the date of
grant, and the right to purchase shares under such options vested at a rate
of 40% after the first year and 20% each year thereafter with the options
being fully vested after four years. Additional options to purchase common
shares may be granted not to exceed 10% of the Company's outstanding
shares of common stock, less previously granted options.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
On February 15, 1993, the 1992 stock option plan, which is accounted for in
accordance with Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and related interpretations, was
amended to increase the aggregate number of shares under the plan from
44,687 to 63,592 shares. In addition, the amendment provided for immediate
vesting of all outstanding stock options and stock options granted pursuant
to the agreement. On May 15, 1996, the 1992 stock option plan was amended
to extend the exercise period from five years to ten years from the date of
grant.
On May 15, 1996, the stockholders approved the 1996 stock option plan,
reserving 100,000 shares of Company stock for the granting of options to
certain key employees, directors and advisors. The exercise price of the
shares may not be less than the fair market value of the shares upon the
grant of the option. Options granted to key employees and advisors require
approval of the Compensation Committee of the Board of Directors
("Committee"). Options granted to key employees and advisors become 25%
exercisable one year from the date of the grant and continue to vest
25% each year thereafter until fully vested. Without any action by the
Committee, each outside director will be automatically granted an option to
purchase 1,000 shares of Company stock on each anniversary date of service
on the Board of Directors beginning with their 1997 anniversary. These
options vest at the date of grant. Each option granted under the plan shall
expire no later than ten years from the date the option is granted. As of
December 31, 1996, no options had been granted under the plan.
The exercise price of each option was equal to the market price of the
Company's stock on the date of grant; therefore, no compensation expense was
recognized.
Although the Company has elected to follow APB No. 25, SFAS No. 123 requires
pro forma disclosures of net income and earnings per share as if the Company
had accounted for its employee stock options under that Statement. Since
the outstanding options were granted prior to 1995, no pro forma disclosures
are required.
The following is a summary of the status of the Company's stock option plans
and changes in the plans as of and for the years ended December 31, 1996,
1995 and 1994.
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------
Outstanding, beginning of year 63,592 $5.76 63,592 $5.76 63,592 $5.76
Granted
Exercised 19,534 5.76
------- ------- -------
Outstanding, end of year 44,058 $5.76 63,592 $5.76 63,592 $5.76
======= ======= =======
Options exercisable at year end 44,058 63,592 63,592
As of December 31, 1996, the 44,058 options outstanding have an exercise
price of $5.76 and a weighted-average remaining contractual life of 5 1/2
years.
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS--The fair value of cash and cash equivalents
approximates carrying value.
INVESTMENT SECURITIES--Fair values are based on quoted market prices.
LOANS--The fair value for loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality.
FHLB STOCK--Fair value of FHLB stock is based on the price at which it may be
resold to the FHLB.
INTEREST RECEIVABLE/PAYABLE--The fair values of interest receivable/payable
approximate carrying values.
DUE FROM BROKER--The fair value of the due from broker approximates carrying
value.
DEPOSITS--The fair values of noninterest-bearing and interest-bearing demand
accounts are equal to the amount payable on demand at the balance sheet
date. Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on such time deposits.
FHLB ADVANCES AND OTHER BORROWINGS--The fair value of these
borrowings are estimated using a discounted cash flow calculation, based
on current rates for similar debt.
The estimated fair values of the Company's financial instruments are
as follows:
1996 1995
---------------------------------------------
Carrying Fair Carrying Fair
December 31 Amount Value Value Value
- ----------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $7,035 $7,035 $5,651 $5,651
Investment securities
available for sale 2,386 2,386 3,258 3,258
Investment securities
held to maturity 2,541 2,498 3,157 3,094
Loans, net 64,464 65,305 54,118 55,087
Stock in FHLB 778 778 601 601
Interest receivable 526 526 586 586
Due from broker 2,025 2,025
LIABILITIES
Deposits 70,552 70,633 59,163 59,275
FHLB advances and other
borrowings 2,379 2,351 5,511 5,518
Interest payable 187 187 174 174
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Presented below is condensed financial information as to financial
position, results of operations and cash flows of the Company:
CONDENSED BALANCE SHEET
December 31 1996 1995
- ------------------------------------------------------------------------------
ASSETS
Cash on deposit $ 64 $ 31
Investment in subsidiary 6,665 6,282
Other assets 161 132
---------------------------
Total assets $ 6,890 $ 6,445
===========================
LIABILITIES--other liabilities $ 4 $ 3
STOCKHOLDERS' EQUITY 6,886 6,442
---------------------------
Total liabilities and stockholders' equity $ 6,890 $ 6,445
===========================
CONDENSED STATEMENT OF INCOMES
Year Ended December 31 1996 1995 1994
- ---------------------------------------------------------------------------
Income
Dividends from subsidiary $ 30 $ 17
Other interest income and dividends $ 1 1 2
Gain on sale of investment in stock
of another financial institution 10
------------------------------
Total income 1 31 29
------------------------------
Expenses
Interest expense 9
Salaries and employee benefits 20 19 57
Professional fees 55 20 83
Other expenses 12 22 12
------------------------------
Total expenses 87 61 161
------------------------------
Loss before income tax benefit
and equity in undistributed income
(loss) of subsidiary (86) (30) (132)
Income tax benefit (34) (24) (64)
------------------------------
Loss before equity in undistributed
income (loss) of subsidiary (52) (6) (68)
Equity in undistributed income
(loss) of subsidiary 393 282 (109)
------------------------------
NET INCOME (LOSS) $341 $276 $(177)
==============================
FIRST COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Table Dollar Amounts in Thousands)
CONDENSED STATEMENT OF CASH FLOWS
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 341 $ 276 $ (177)
Gain on sale of investment in stock of
another financial institution (10)
Adjustments to reconcile net income (loss)
to net cash used by operating activities (421) (296) 86
---------------------------------
Net cash used by operating activities (80) (20) (101)
---------------------------------
INVESTING ACTIVITIES
Net change in loans 266
Investment in Bank (2,375)
---------------------------------
Net cash used by investing activities (2,109)
---------------------------------
FINANCING ACTIVITIES
Repayment of long-term debt (450)
Proceeds from sale of investment
in stock of another financial institution 202
Cash dividends in lieu of
issuing fractional shares (1)
Proceeds from issuance of common stock 2,760
Stock options exercised 113
Offering costs (255)
--------------------------------
Net cash provided (used) by
financing activities 113 (1) 2,257
--------------------------------
NET CHANGE IN CASH ON DEPOSIT 33 (21) 47
CASH ON DEPOSIT AT BEGINNING OF YEAR 31 52 5
--------------------------------
CASH ON DEPOSIT AT END OF YEAR $ 64 $ 31 $ 52
================================